Seatrade Cruise Connection

September 2007

CRUISE INDUSTRY OUTLOOK REMAINS POSITIVE

Despite some uncertainty in the world capital markets, the cruise industry as a business sector is, frankly, booming. With an order book of 37 cruise liners valued at more than $22 billion set for delivery by 2012, the industry is growing at a pace last seen around the turn of the century.

The industry’s shipbuilding plant is working at capacity and shipyards are seeking to expand their facilities to meet the market demand and the increasing size and sophistication of modern cruise ships. Europe as both a cruise destination market and passenger feeder market is expanding rapidly.

The mature cruise feeder market of North America still accounts for two thirds of cruise passengers worldwide. In 2007, it is set to top 12 million passengers for the first time and is expected to reach 14 million passengers annually by 2011. Although less than 18 percent of North Americans have taken a cruise, the market generates $19 billion in revenue and contributes $32 billion to the U.S. economy. An aging — and increasing — North American population should ensure long-term growth, but the market continues to face legislative challenges from government and environmental groups concerned about people and marine pollution issues.

Europe has rapidly become the fastest growing cruise destination in the world. In 2005, 2.6 million cruise passengers embarked on their cruises from European ports — 90 percent of them European nationals. The second biggest passenger market in the world after the U.S. is the United Kingdom, followed by Germany, Italy, France and Spain. Germany alone is expected to generate 1 million passengers by 2010.

Cruising also is a major source of inbound tourism for European countries. Between 1995 and 2005 demand for cruising worldwide more than doubled from 5.7 million to 14.4 million passengers. Over the same period the number of Europeans taking cruise holidays around the world more than tripled — from 1 million to 3.3 million — and in 2005 an estimated €480 million was paid in commissions to European travel agents. The rate of growth is expected to continue, with 4 million Europeans taking cruise holidays annually by 2010 and 5 million by 2015.

Within Europe, those passengers spent an average of €100 at their port of embarkation and an average of €50 at each port of call on their cruise itinerary.

By 2010 Europe could experience a million more cruise tourists, including increasing numbers of North American travelers sailing on North America-based ships deployed in Europe. Many of them are from the new generation of mega-ships.

Since 1980, European yards have delivered more than 97 percent of all cruise ships worldwide. Based on the European shipyards’ extensive experience, a specific set of capabilities and a specialized network of suppliers has been developed on the Continent.

The introduction of new technology also has helped European yards to build cruise ships faster and more cost-efficient. Modular approaches to ship construction have enabled yards to create a virtual ship assembly line, with components being produced off-site by subcontractors and delivered and installed on a tight timetable.

Today, often as much as 85 percent of a cruise shipbuilding contract is handled by subcontractors. Indeed, a single project might employ 800 subcontractors. Building and operating cruise ships has a significant impact on the European economy.

Cruise companies, shipbuilding yards and cruise passengers now account for €8.3 billion of direct expenditure in Europe and that is expected to increase by 50 percent to €12.7 billion by 2010. The cruise industry also is responsible for more than 180,000 jobs across Europe, and another 50,000 could be added by 2010, topping a quarter-million jobs.

Cruise ship design and construction is helping to drive that growth. During 2005 the global cruise industry spent an estimated €3.1 billion on cruise ship construction and maintenance in Europe — more than 35 percent of total direct European cruise business expenditures. By 2009 total spending is expected to rise to €4.4 billion.

The rapidly expanding global cruise market is presenting challenges, but also opportunities for smaller seaports and less-visited coastal destinations. Indeed, cruise lines have entered the cruise port development business aggressively, especially in the Caribbean.

Carnival Corp.’s development of Grand Turk from a sleepy fishing island into a full-fledged cruise destination in 2006 was just the latest example. Carnival is also developing a port in Honduras and Royal Caribbean International has announced plans for an ambitious development program in Aruba.

In Europe, summertime congestion at many of the larger ports is providing opportunities for smaller seaports to become ports of call, and, in some cases, new ports of embarkation. Opening up less-visited ports to cruise traffic spreads the wealth and provides passengers with access to new inland and coastal destinations — an important consideration with an increasingly sophisticated and well-traveled passenger base.

Those increasingly sophisticated — and increasingly demanding — consumers are driving changes in the cruise product itself. Virtually gone from the cruise experience are the two-seating dining times at lunch and dinner, replaced by greater choice and flexibility. A proliferation of on-board dining venues enhances passengers’ ability to choose the kind and quality of dining experience they want — even if they have to pay extra for it.

Shipboard activities have received increasing focus recently, as well. From opportunities to surf, ice skate, box, shoot billiards and go bowling to themed activities centered around a rock band, a NASCAR legend or an activity such as scrapbooking, cruise lines are reaching out to smaller niche segments and special interested to lure consumers.

Much has been made of the impact of the Baby Boomer generation on the cruise industry, and it is a trend that is both massive and unprecedented. More active middle-aged cruisers are demanding more active pursuits both on board and shoreside on excursions. They are driving multi-generational cruising and family cruising, which in turn creates demand for more children and teen programs and facilities. And the Boomers also are responsible for one of the latest trends in ship design — adult-only and child-free areas on board.

And the Boomers, with their greater disposable income and willingness to spend it, are refocusing away from the mass-market experience and more toward the luxury end of the market. The industry has responded with the first ultra-luxury newbuild orders in more than six years, and, in the case of Celebrity Cruises, the creation of a whole new ultra-premium segment in startup Azamara Cruises.

Like a passenger at the end of a cruise vacation, the cruise industry looks healthy, vibrant and expansive, and that is good news for the millions of people worldwide who contribute to what has truly become a global industry.