Cruise vacations are riding a high tide of socks-and-sandals wearers who’ve weathered rough economic seas and are looking for a calm port in the storm, but that swell of business isn’t lifting all ships.Detroit-based cruise price comparison site CruiseCompete and cruise pricing partner Cayole.com compiled a cruise price index based on the price of an outside cabin on a seven-night cruise shipping out within the next six months.
Using data from the top six North American cruise lines that make up 90% of the North American cruise market — Carnival Cruises(CCL), Celebrity Cruises, Holland America Cruise Line, Norwegian Cruise Line, Princess Cruises and Royal Caribbean Cruises(RCL) — CruiseCompete found that the index was down less than a percentage point from October, but up 10% from last November.
Prices overall are up steeply from a year ago as Alaska, Mexico and the Caribbean continue to bring in boatloads of business. There’s even a 20-point uptick in demand since last year for European cruises, which have seen a 2.8% price drop since last month as popular destinations in Greece, Spain and Italy grapple with sovereign debt issues.
CruiseCompete Chief Executive Bob Levinstein says relaxed consumers are contributing to the larger crowds on the lido deck, but their seafaring ways and ports of call are changing. While North American departure points in Miami, Fort Lauderdale, Fla., New York and Disney(DIS) Cruise Lines’ hub in Port Canaveral, Fla., are still hopping, discontent with mega cruise ships and popular but crowded and repetitive deep-water ports in the Caribbean are fueling interest in smaller luxury cruise lines that can access shallower ports in St. Bart’s, Turkey, Croatia and the Greek Islands.
Even small river cruises through Austria, Germany and Slovakia are taking some of the spillover of travellers tired of familiar ports in Mexico, the Bahamas and Grand Cayman.
With Europe and the euro in flux, however, Levinstein says the cost of European cruises have dropped as luxury lines look to fill ships ahead of any potential collapses. Meanwhile, North American cruise lines continue to counter with new ship designs that offer more balconies and amenities with their all-inclusive prices.
We spoke with Levinstein about the state of the cruise industry and discovered that while its health is improving, passenger demands are changing course a bit:
What is CruiseCompare’s Cruise Index and how did it come to be?
Levinstein: We started in 2003 and have been at it for a little more than eight years. The way the system works is that the consumer comes to the site, they select a cruise and then we have about 350 different travel agencies that can see that user’s trip request. They respond with competing quotes so the consumer gets four, five or six responses and can compare them and contact the agent who gave them the best quote.
The agencies who book a cruise on our site then report the booking to us and we charge them a percentage based on the value of the package sold. What struck us about this was the data: We have 25,000 to 40,000 quote requests coming through a month, depending on the season. There’s a lot of information there about what consumers preferences are, what they’re asking for and the median time between when the consumer books and when the ship sales. That tells us a lot about the market and whether they’re requesting shorter cruises or longer cruises. It tells us which luxury cruises are getting the most requests, which river cruises are getting the most requests, and we thought it was useful data, so we put it into our monthly trend report.
The problem with writing about something as complex as the cruise market is, “How do you know in one number where things are?” For the cruise index, we decided to take just one cabin type [outside], just the six major U.S. lines, which is what the investment community is most invested in, and give a snapshot of where pricing was and an outlook for the future.
The index spiked from last November to this month. Where did that demand come from?
Levinstein: When you look at cruise prices today and what’s sailing today, the last 18 months have gone into establishing that because people look ahead. If you want to go back a year and go back another 18 months, things were a lot less stable.
Looking back, it’s been an interesting period. There are a lot of people who are unemployed right now and there were a lot of people who lost a lot of money in the stock market, but most of our customers are in the upper third of the economy or at least the upper half. For the folks who are older — and cruisers tend to skew older — they’ve been through the crash and even though the markets are still going wild, people have learned from 2008 and are more diversified and have less risk. They’ve become used to the new reality on that end and they’re spending money.
The folks who are employed today aren’t as nervous as they were 18 months ago to a year ago. Yes, bad things have happened, but the bad things haven’t happened to everybody. Also, when you have a period of everybody holding onto their money, you get some pent-up demand. People say “I didn’t take a vacation last year, but I’m going to take one this year.” I think that drives demand somewhat.
Has that given you a more accurate indication of who the average cruise customer is?
Levinstein: The average age varies somewhat by line, but the average cruiser is in their mid-40s to early 50s. That’s not to say that there aren’t younger people booking or multigenerational cruises going on or people in their 20s taking cruises, but it tends to be a middle-age kind of thing.
It’s a lot younger than it used to be. You just have to take a look at the kind of activities they promote on a Royal Caribbean cruise — ziplining, surfing on the back of the ship. There’s a lot more entertainment for young people. And they’re working really hard to change the image of it, because 30 to 40 years ago cruise ships would show up at the port and the people on shore would ask them how many bodies they had of folks who passed away.
Is it working?
Levinstein: The cruise business is still behind the curve on getting people to understand what a cruise is all about. People still think that they’ll be cooped up on a ship and claustrophobic, even though these ships are the size of a big shopping mall.
Did even regular cruise vacationers change their spending habits as the economy changed?
Levinstein: A couple of interesting things have happened. The cruise market’s generally broken up into four different categories: contemporary, premium, ultra luxury and river.
The smaller-ship, real high-end stuff — Oceania, Regent, Seabourn and Crystal — has exploded in capacity. Celebrity put their Azamara brand out just a couple of years ago and added three ships, Oceania has added a couple of ships and even Seabourn has not only added a ship, but doubled the capacity of its fleet with that ship because it’s a little bigger.
These guys have been a little more worried about stock market swings because the cater to people who are retired or close to retired, and what we see on those ships, is that their prices have been coming down. I think there’s a worry of worse economic times next year, so they’re really pushing hard to get their ships filled for 2012.
I just did the comparison of the top suite cabin on a Celebrity cruise and the money you would spend on going on Crystal or Seabourn. There’s a little intersection there but it’s complicated to figure out because of the food inclusion and shore excursions — but if you’re going to do a small amount and really care about the food you’re better off going on one of the smaller luxury liners. There are a lot of two-for-ones and included airfare. Still, the categories are really starting to overlap.
There’s some overlap in the destinations as well. Is that a new development?
Levinstein: The thing about the smaller cruise ships is that they can get into the more exotic ports that the bigger ships can’t.
The Caribbean, I think, really has some issues. Some of the destinations are seeing what I would consider to be too many ships per day. The problem is that even if you get only one of the Royal Caribbean megas like the Oasis of the Seas showing up, that’s like two or two and a half of the other ones showing up. Over time, regular cruise travellers get Caribbean fatigue, as it’s known in the business, where people have been to the Caribbean a bunch of times and want something new.
European river cruises are starting to become more popular. It’s still fairly small because you’re talking ships that have 120 cabins and aren’t huge, but they keep adding ships. It’s still a cruise and you go to one place and unpack once, but it’s a very different experience because instead of stopping at a dock a long way from downtown it stops right downtown and you can experience a European city. They even have ones where you can take a bicycle off the boat and ride your bike to catch up with the ships.
I think a lot of folks who’ve been cruising for a while and have seen the latest and greatest the big ships have to offer are looking for different things to do because there are only so many deep-water harbors, and the quality of your experience definitely changes if there’s one ship instead of eight.
But even as that Caribbean volume increases, prices have gone up since last November. How did that happen?
Levinstein: As far as the volume goes, that’s on the luxury end. We’re not really including those in the index. The lines in our index are Carnival, Royal Caribbean, Princess, Norwegian, Holland America Line and Celebrity and the reason is that, with the exception of Azamara … we don’t have access to those numbers.
The thing to remember here is that if we’re looking at November 2010, that stuff started to be booked in March 2009. Six months after the big crash, people were pretty reticent.
It will come as no surprise to you how the game works from a cruise line’s perspective: They put out a price two years in advance and they make a guess based on history where they think a price is going to be for an individual ship. If it books faster than they expect, the price goes up. If it starts to books slower than they expect, the price goes down.
The name of the game is to fill every cabin on the ship. Your fixed costs do not go down with an empty cabin, but an empty cabin does not buy alcohol, it doesn’t buy shore excursions and it doesn’t gamble in the casino. When the economy was slow, more than half of cruise lines’ money was coming from on-board spend. Now it’s probably back to 50-50 cruise fare and on-board. 20-five per cent of the cruise ticket goes to other people because they have port charges and taxes to pay.
The price today depends on what happened 18 months ago, but the closer you get to sailing, the harder it is to sell those cabins.
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