Cruise News From the Big Four

Apr 14, 2015

Adam Goldstein, chairman of Cruise Lines International Association, delivered the opening address. // © 2015 Andy Newman/Cruise Shipping Miami/HO 2

Once a year, the leaders of the world’s largest cruise companies discuss the current state of cruising at Cruise Shipping Miami, one of the industry’s biggest annual conferences. This year’s discussion, held March 16 to 19 at Miami Beach Convention Center, underlined the situational and philosophical differences among top players, supporting the contention of Richard Fain, chairman and CEO of Royal Caribbean Cruises Ltd., that, “We are very different, not clones of one another.”

When conference moderator Richard Quest, an anchor and correspondent for CNN, challenged the Big Four executives to explain why cruising doesn’t have far more rapid growth, the responses were quite different. He asked, Why only 23 million passengers annually; why not 700 million?

Arnold Donald, president and CEO of Carnival Corporation & Plc, stressed that exceeding the expectations of the market will generate the demand that raises pricing and profitability.

Pierfrancesco Vago, executive chairman of MSC Cruises, sees capacity constraints as the cause of limited growth.

“There are only so many yards, and the slots control capacity,” he stated, adding that MSC has seven ships on order.

Frank Del Rio, president and CEO of Norwegian Cruise Line Holdings Ltd., said itineraries are the single largest driver of demand and company profits.

“I personally write the itineraries for each of my 21 ships,” Del Rio said. “I think it’s way too important to delegate.”

Fain believes cruising has not quite found the formula to break out of the pattern of being satisfied with moderate growth.

“The value we offer is so much better than competitive vacations,” he said. “We have higher satisfaction, yet lower prices — the same prices as in 2008, though we’re offering much more. We have to communicate all that cruising offers; the old myths are still holding us back.”

To this point, Del Rio commented that the growth of the industry is still U.S.-driven.

“For the industry to really win the game, we need a balanced attack on a global scale,” he said.

Panelists observed that China is the exception to the problem of preconceptions about cruising. They added that it has its own challenges, however, since there is less notion of what a cruise involves. Donald gave the example of a group of Mongolians onboard a Carnival ship who had never seen a swimming pool before.

The response to the Chinese market tends to vary from company to company. Vago said MSC does not have enough ships to enter the Chinese sourcing market now. He added that the company is looking at North America in terms of growth. Del Rio acknowledged that Carnival and Royal have paved the way in education and investment in China, but he has the same issues as MSC: not enough vessels to dedicate a ship there. Now, with four ships on order, Del Rio is evaluating a move.

No decisions have been made about whether to go into Cuba, just 222 miles from the port of Miami, when the opportunity arises. Fain said he wasn’t sure that cruising was ready to launch there. Vago noted that MSC, a European company, is already there.

“All of us on this panel are ready to move at the drop of a hat,” Del Rio said, noting that the industry brings its own infrastructure — such as dining and accommodations — and can move quickly.

The eastern Mediterranean — Syria, Egypt, Libya and Israel — could potentially be even more lucrative than Cuba, according to Del Rio.

There were lighter moments in the conference’s discussion, such as when Vago suggested he and Del Rio could combine their fleets for more capacity.

“When you do that, we’ll buy you,” Donald replied.

Interestingly, when asked what competitive product they would each choose for a vacation, Donald and Fain both chose river cruises. The moderator proposed to send them together as roommates.

“Just shoot me,” Fain responded.

In the wake of the panel, major announcements reflected the differing directions of the main cruise companies. MSC reported that the new MSC Seaside will be based in Miami year-round. Royal Caribbean revealed that Tianjin, China, will be the new home port for Ovation of the Seas, which is due to launch next April. It will join Quantum of the Seas, Mariner of the Seas, Voyager of the Seas and Legend of the Seas as the fifth Royal Caribbean ship sailing in the region. Carnival announced it is adding nine new ship designs to its fleet over a four-year period, starting in 2019.