Summary
The Cruise industry provides the strongest value proposition of all vacation alternatives Having a movable product enables cruise lines to deploy in advantageous ways The impact of the economics of 2009 could be felt into 2010
Analysis
Mr. Heit's commentary touches on part of the scenario for the cruise industry. In these times it is paramount for all companies to stay aggressive and create top-of-mind awareness with customers for purchases now and in the future.
For cruise lines, there are advantages in competing for a reduced vacation dollar:
1. Cruises provide the greatest value of any vacation alternative due to the inclusive nature of food, entertainment and activities.
2. Having a movable asset, ships can redeployed strategically. For instance, instead of sending ships to Europe for the summer, some are staying home closer to potential guests.
3. With gas extremely low, the lines can market to a "drive" audience of up to 20 million HH within a 5 hour drive to each port. This eliminates costly air tickets and enhances the value of the vacation.
4. The US cruise lines are working very hard to market throughout Europe, a cruise market clearly 15 years behind the US market. This will relieve the dependency on filling the greater majority of ships with guests from the US.
That said, there are definitely bumpy implications ahead:
1. Prices are down and will stay this way for some time.
2. It means that virtually all of 2009 will be impacted by these lower prices, as the goal is to book 85% of all cabins for the year by May.
3. Load factors could/will be lower, this impact dependent on how low the lines keep pricing.
4. Onboard revenue will be reduced, which coincidentally is a function of the strong value of the product. A guest can buy a 7 day cruise for as little as $399 per person, which includes the "room", all meals and snacks, entertainment and activities. The guests can sail with the philosophy that they do not have to gamble or drink alcohol and in some destinations, purchase shore excursions.
5. After 9/11, cruise lines deployed more of their ships out of an increased number of US ports in response to a target audience that clearly did not want to go to the airport. That philosophy keeps ships on lower priced itineraries and the same impact exists in this current timeframe.
6. And on top of all of this, 2009-mid 2012 will see an aggressive introduction of new ships in all product segments.
This will test the half full vs. half empty mindsets. The catch 22 is that with everything above taken into consideration yield will definitely be negatively impacted, BUT, it is better to sail with more guests than less. And eventually the economy will improve and with it increased disposable income. Cruise lines will have to "ride" this out, bumpy as the ride may be.
