Thursday, November 20, 2008
How is the Recession Affecting Cruises?
The economy is really starting to effect the travel industry. Cruise lines are no exception. Facing a large growth in passenger capacity due to expanding fleets among the major cruise lines, the seemingly deep global recession that is approaching is starting to affect the cruise line's bottom line. The main solution: stay closer to home.
When fuel was the problem, the answer was simple: add a fuel surcharge. But with the price of oil literally one third of its peak this summer, the surcharge looks and feels greedy. Most major cruise lines have at least partially ended that practice. However, operations are getting more expensive over time and revenues aren't exactly increasing. Pricing hasn't increased generally for cruising over the last 15 to 20 years, but the ships have become larger and more expensive. The cruise industry appears to be on its way to have a razor thin profit margin. Billion dollar ships won't pay for themselves with $500 cruise fares. And in a competitive marketplace, postponing improvements and innovations won't work either. In some cases, cruise lines have been experimenting with extra a la carte features, like Royal Caribbean's premium steak experiment in the main dining rooms. But by and large, we're seeing an expansion of port usage in the US, and a reduction of European, South American and Asian itineraries.
For proof, just look at Baltimore. In 2008, fewer than 30 cruises departed from this Northeastern port, serving Royal Caribbean and Norwegian Cruise Lines. In 2009, Baltimore sees much more service, jumping to nearly 80 cruises. The Northeast has been a great market for Cruise Lines in the early part of this decade. Norwegian and Royal Caribbean maintain year round service from New York City, where voyagers are willing to pay a premium for service that doesn't require a flight to Florida, California or even further afield. Often times, cruise lines were able to charge more for sailings leaving from the Northeast than the cost for a cruise for Miami plus airfare - especially in the summertime.
Carnival took the hint in a big way this year. The Fun Ship line cut its nascent European schedule in half, and redeploys the Liberty to Miami this summer, instead of the Mediterranean and moves the Pride to Baltimore for regular service this summer. Royal Caribbean is moving out of the South American market in 2009, cancelling a lot of Radiance sailings for the fall and winter of next year and leaving the ship to concentrate on Mexican sailings off the West Coast.
Sailing to exotic ports can have its draw, but for the big cruise lines, whose bread and butter have been the Caribbean and sailings leaving from the US, its a big expense and given NCL's problems in selling South American sailings, there isn't a lot of money to spread around there. Norwegian Sun South American sailings were selling for under $25 a day per person for 19 and 20 night voyages. That's cheaper than many European hostels. If that's what it takes to fill the ships on the most exotic itineraries, it's no wonder that cruise lines are staying closer to home to ride out the recession.
When fuel was the problem, the answer was simple: add a fuel surcharge. But with the price of oil literally one third of its peak this summer, the surcharge looks and feels greedy. Most major cruise lines have at least partially ended that practice. However, operations are getting more expensive over time and revenues aren't exactly increasing. Pricing hasn't increased generally for cruising over the last 15 to 20 years, but the ships have become larger and more expensive. The cruise industry appears to be on its way to have a razor thin profit margin. Billion dollar ships won't pay for themselves with $500 cruise fares. And in a competitive marketplace, postponing improvements and innovations won't work either. In some cases, cruise lines have been experimenting with extra a la carte features, like Royal Caribbean's premium steak experiment in the main dining rooms. But by and large, we're seeing an expansion of port usage in the US, and a reduction of European, South American and Asian itineraries.
For proof, just look at Baltimore. In 2008, fewer than 30 cruises departed from this Northeastern port, serving Royal Caribbean and Norwegian Cruise Lines. In 2009, Baltimore sees much more service, jumping to nearly 80 cruises. The Northeast has been a great market for Cruise Lines in the early part of this decade. Norwegian and Royal Caribbean maintain year round service from New York City, where voyagers are willing to pay a premium for service that doesn't require a flight to Florida, California or even further afield. Often times, cruise lines were able to charge more for sailings leaving from the Northeast than the cost for a cruise for Miami plus airfare - especially in the summertime.
Carnival took the hint in a big way this year. The Fun Ship line cut its nascent European schedule in half, and redeploys the Liberty to Miami this summer, instead of the Mediterranean and moves the Pride to Baltimore for regular service this summer. Royal Caribbean is moving out of the South American market in 2009, cancelling a lot of Radiance sailings for the fall and winter of next year and leaving the ship to concentrate on Mexican sailings off the West Coast.
Sailing to exotic ports can have its draw, but for the big cruise lines, whose bread and butter have been the Caribbean and sailings leaving from the US, its a big expense and given NCL's problems in selling South American sailings, there isn't a lot of money to spread around there. Norwegian Sun South American sailings were selling for under $25 a day per person for 19 and 20 night voyages. That's cheaper than many European hostels. If that's what it takes to fill the ships on the most exotic itineraries, it's no wonder that cruise lines are staying closer to home to ride out the recession.
Labels: carnival, cruises, economics, ncl, royal caribbean, travel
Wednesday, August 27, 2008
Sneak Peak: Oasis of the Seas
The cruise ship arms race seems to be reaching ridiculous proportions. The ships are getting larger and larger, with more crazy amenities. Celebrity is adding a half acre of actual grass on its new ship, Carnival and seemingly every other cruise line is adding spa class cabins with special menus and restaurants. Royal Caribbean is topping them all with the gargantuan Oasis of the Seas which goes on sale in the next week, featuring among other things, an open air, climate controlled park in the middle of the ship.
Central Park is really the focal point of what will be the largest ship in the world. The outdoor space is actually a public park, bigger than a football field with several dining options and over 250 balcony cabins that face out to the park, instead of the traditional ocean view. They'll also offer a boardwalk with a carousel at sea, and the Royal Promenade that the cruise line pioneered with the Voyager class of ships they began to introduce roughly twelve years ago.
As the ship gets closer to float-out, the cruise line has been introducing more "neighborhoods" to highlight the difference. This week, they've revealed the fitness aspect of the 220,000 ton ship. There isn't a ton new to this ship. Just more of what has proven itself popular. Multiple rock climbing walls, two FlowRider surfing simulators instead of one. Three different pools, including one made to simulate a beach... but the big thing? The zip line. Apparently, you'll now get the opportunity to literally fly over the boardwalk attached to a wire.
Royal Caribbean is pushing to make its ships the destination, rather than the destination itself. Keeping passengers on the ship means more revenue for the cruise line and with higher fuel costs, and increased capacity limiting price increases, that's a good thing!
Labels: cruises, royal caribbean, travel
Tuesday, June 17, 2008
How did my cruise end up costing so much?
Ever wonder how that cruise at $999 a person suddenly ends up costing you closer to 1100 dollars per person? Part of the explanation has to do with taxes of course, but a growing reason is the dreaded fuel surcharge - a relatively recent appearance on most cruises' price lists. One which Royal Caribbean and its affiliated cruise lines "enhanced" today to as much as $15 per person per day.
In November, the relatively high price of oil led the major cruise lines to start charging fuel surcharges for their cruises. The surcharges were reasonable, to start. $5.00 per passenger per day for the first and second passenger was the standard across most cruise lines. Third and Fourth passengers didn't pay the additional charge. The only major exception was the cash-strapped Norwegian Cruise Lines which started at 7 dollars, and a two dollar per day charge for the third and fourth passenger.
The cruise lines are saying that it's because of high fuel prices and there's no doubt that this is a contributing factor to rising costs. But it's also a little shameless. For many cruise lines, especially from the Carnival lines, the pricing on cruises have remained roughly the same for 20 years when you adjust for inflation. Rather than actually raising rates, they've opted to raise fees for the most part instead.
There are two main reasons for a surcharge rather than a rate increase. First, most cruises are booked through Travel Agencies who get paid commission on the reservations. A surcharge is generally not something that compensates a sales agent. This means that any money the cruise line can generate from a fuel surcharge would go directly and wholly to the bottom line.
The second reason? A fuel surcharge is a surcharge to the fare. Cruise lines are now tacking on fees that range as high as 10% of the cruise fare per person without having to advertise a higher price. Yet, the pricing is higher by a significant amount.
And today, for good measure, Royal Caribbean announced that it would be increasing its fuel surcharges again effective June 30. On Royal Caribbean and Celebrity, the per day surcharge rate increases from eight to ten dollars per passenger. Third and fourth passengers will now pay a five dollar per day surcharge, up from three dollars. Their new niche cruiseline, Azamara Cruises, doesn't charge surcharges for third and fourth passengers on their sailings, but will charge a $15 per person per day, which is a doubling of their previous eight dollar a day surcharge.
In November, the relatively high price of oil led the major cruise lines to start charging fuel surcharges for their cruises. The surcharges were reasonable, to start. $5.00 per passenger per day for the first and second passenger was the standard across most cruise lines. Third and Fourth passengers didn't pay the additional charge. The only major exception was the cash-strapped Norwegian Cruise Lines which started at 7 dollars, and a two dollar per day charge for the third and fourth passenger.
The cruise lines are saying that it's because of high fuel prices and there's no doubt that this is a contributing factor to rising costs. But it's also a little shameless. For many cruise lines, especially from the Carnival lines, the pricing on cruises have remained roughly the same for 20 years when you adjust for inflation. Rather than actually raising rates, they've opted to raise fees for the most part instead.
There are two main reasons for a surcharge rather than a rate increase. First, most cruises are booked through Travel Agencies who get paid commission on the reservations. A surcharge is generally not something that compensates a sales agent. This means that any money the cruise line can generate from a fuel surcharge would go directly and wholly to the bottom line.
The second reason? A fuel surcharge is a surcharge to the fare. Cruise lines are now tacking on fees that range as high as 10% of the cruise fare per person without having to advertise a higher price. Yet, the pricing is higher by a significant amount.
And today, for good measure, Royal Caribbean announced that it would be increasing its fuel surcharges again effective June 30. On Royal Caribbean and Celebrity, the per day surcharge rate increases from eight to ten dollars per passenger. Third and fourth passengers will now pay a five dollar per day surcharge, up from three dollars. Their new niche cruiseline, Azamara Cruises, doesn't charge surcharges for third and fourth passengers on their sailings, but will charge a $15 per person per day, which is a doubling of their previous eight dollar a day surcharge.
Labels: azamara, celebrity cruises, cruises, royal caribbean
Tuesday, April 01, 2008
Carnival Caves on Fees, Avoids Lawsuit?
Carnival Corporation caved on its plan to retroactively charge people for fuel surcharges today, according to USA Today. This move saves the company a lot of future trouble and allows them to back out gracefully of a bad faith $40 million windfall the company had basically extorted out of their consumers.
Here's the back story. On November 7, Carnival announced a $5 per passenger per day fuel surcharge to cover the rising cost of fuel. This is a common way for travel providers to hide a fare increase without having to share the increased fare with travel agents who are often paid commission. What made this particular fuel surcharge so awful, was that Carnival applied the fee retroactively. If the traveler has yet to sail, but has a cabin booked, extra charges of up to $140 per cabin applied. The only exception was for people who were already paid in full by the day before the announcement was made. Thousands of travelers lost, Carnival Corporation won to the tune of $40 million. Royal Caribbean soon followed, reaping $21 million of their own.
Other cruise lines jumped on the surcharge bandwagon, but did so for new bookings only. (Disney Cruise Line is the only major cruise provider not to charge a fuel surcharge.) The move, as you imagine, was not only highly unpopular, but also borderline illegal. After multiple complaints, both Carnival Corporation and Royal Caribbean were being investigated for unfair business practices with the Florida Attorney General.
Royal Caribbean quickly backed off as the investigations started to happen, refunding all retroactive charges. (Fuel surcharges booked after the November start date still apply.) However, Carnival hung tough until today, more confident that the terms of their Contract of Carriage would allow their surcharges to stand. Or maybe they were more confident in the large political donations given to Governor Charlie Crist's campaign in 2006, while he was Attorney General.
It turns out, Carnival approached the then Attorney General about this proposed Fuel Surcharge and got the thumbs up from the Crist machine. Two weeks later, two Carnival subsidiaries - Princess and Holland America Line - sent a check to the Florida Republican party for $125,000 according to the Orlando Sentinel.
Once this came out, rumors had been swirling in the industry that Carnival was about to cave, and today they did - now avoiding both a class-action lawsuit from angry travelers, but also potential pursuit of some real serious action by the Florida Attorney General. But is this story over? Or will it start sticking to Florida's Governor? Stranger things have happened.
Here's the back story. On November 7, Carnival announced a $5 per passenger per day fuel surcharge to cover the rising cost of fuel. This is a common way for travel providers to hide a fare increase without having to share the increased fare with travel agents who are often paid commission. What made this particular fuel surcharge so awful, was that Carnival applied the fee retroactively. If the traveler has yet to sail, but has a cabin booked, extra charges of up to $140 per cabin applied. The only exception was for people who were already paid in full by the day before the announcement was made. Thousands of travelers lost, Carnival Corporation won to the tune of $40 million. Royal Caribbean soon followed, reaping $21 million of their own.
Other cruise lines jumped on the surcharge bandwagon, but did so for new bookings only. (Disney Cruise Line is the only major cruise provider not to charge a fuel surcharge.) The move, as you imagine, was not only highly unpopular, but also borderline illegal. After multiple complaints, both Carnival Corporation and Royal Caribbean were being investigated for unfair business practices with the Florida Attorney General.
Royal Caribbean quickly backed off as the investigations started to happen, refunding all retroactive charges. (Fuel surcharges booked after the November start date still apply.) However, Carnival hung tough until today, more confident that the terms of their Contract of Carriage would allow their surcharges to stand. Or maybe they were more confident in the large political donations given to Governor Charlie Crist's campaign in 2006, while he was Attorney General.
It turns out, Carnival approached the then Attorney General about this proposed Fuel Surcharge and got the thumbs up from the Crist machine. Two weeks later, two Carnival subsidiaries - Princess and Holland America Line - sent a check to the Florida Republican party for $125,000 according to the Orlando Sentinel.
Once this came out, rumors had been swirling in the industry that Carnival was about to cave, and today they did - now avoiding both a class-action lawsuit from angry travelers, but also potential pursuit of some real serious action by the Florida Attorney General. But is this story over? Or will it start sticking to Florida's Governor? Stranger things have happened.
Labels: carnival, cruises, florida, holland america line, princess, royal caribbean, travel
