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The World Travel Market cruise debate…

The panel at WTM’s cruise debate

For those who weren’t able to make the WTM cruise debate with Carnival chairman and CEO Micky Arison; chief executive of Carnival UK David Dingle; and Michael Thamm, CEO of Costa Group; we’ve got the highlights for you below…

Micky, the fact that it’s been a difficult year for cruise has been well documented. How bad has it been this year compared to recent years and has the cruise sector turned a corner?
Micky Arison: Well as you mentioned, it has been a challenging period for us. However, despite those challenges, and there have been many – from the tragedy at the beginning of the year to the continuing issues in the Arab
countries starting with the Arab Spring and the economic issues in Europe. Despite those challenges the industry has fared relatively well. We continue to be extremely profitable, to have good cash flow and continue to deliver a good price to our guests.
Your third quarter figures were better than expected which, is surprising given the year we’ve had – how has your company specifically fared?
Micky Arison: The important thing is that we continue to offer great vacation value to our customers – people will continue to take their vacations even in difficult times. While we had to sharpen our pencils, and price a little lower than we wanted to, the value of our product really came through. And because of that demand – particularly in the peak summer season – we strengthened as we went through the quarter and outperformed our expectations.
How has the European market fared in comparison?
Michael Thamm: I don’t think that there is a general answer to your question. We have certain markets, like Spain and Italy, which are not looking strong right now. And then we have seen high growth in Germany, Austria, Switzerland and France. We won’t be seeing the double-digit growth that we’ve had in the past but overall Europe will supply us with growth.
The audience at the WTM Cruise Debate

And what do you think David?

David Dingle: The Passenger Shipping Association has released figures saying it expected the number of British tourists to take a cruise to increase by 20,000 to 1.72 million in 2012.
So, a good year?
David Dingle: The UK has performed better in 2012 than we all expected.That’s virtually no growth – just a 1% increase in carryings – but that’s against a backdrop of no UK specific capacity. The industry filled its ships, and as Micky alluded to, pricing held up. It came through a little bit later but it held up. Therefore there wasn’t the need
to use price as the market stimulant. I think that it was a credible year for the UK especially considering all of the economic news we’ve had.
How successful have you been as a company at growing the market?
Micky Arison: I think it’s very brand specifi c and really depends on how those brands are positioned and their location. In the developing markets in the Far East and Japan it’s all about growing the market – because there is no market! We see huge potential in those areas. In the more established regions like North America and Europe it really is the contemporary brands and short cruises which are attracting first time cruisers. While there is a difference in the respective markets, one thing is clear: we will definitely continue to grow the market. Because we operate at such a high level of occupancy, we can only grow the market by the amount we can take in and our growth rates and capacity growth will be much slower going forward compared to the 90s. The growth will be slower but it will be more global and it will continue.
What’s the reason for that growth? Is it brand identity or product?
Micky Arison: It’s both those things and many others. Today in North America you can cruise from virtually all over the country. Twenty years ago it was all South Florida and maybe New York. Now we have homeports all over
the country and within driving distance for many of our guests. Obviously the same is true of the UK, Italy, France – you can drive to the cruise and that is making it more affordable and easier to get passengers on the ships.
Why do you think that many of the major online retailers – Expedia, Last Minute, Travel Republics – have established themselves and have a very good use of technology, yet they don’t sell cruise. Is the industry suffering as a result?
David Dingle: Let’s not think that cruising isn’t being sold actively in the online space in the UK or anywhere else. There are many emerging and already successful online travel agents doing great cruise business. A key point is that cruising remains more of a specialist product. To an extent it uses its own language, it needs more customer information – particularly to new customers. Cruising is not a commoditised industry, it is an industry of distinct brands. That is a great strength and the online partners we work with are real specialists in cruise knowledge and in really representing the individuality of the whole suite of companies the industry provides. One day those big online retailers may come up with a useful proposition but at the moment we have plenty of great online cruise distributors who are doing a good job for us.
Micky Arison: In the US what sets the cruise product apart is that – as David said – it’s not commoditised. We as a company and some of the other players in the industry have tried to create a level playing field. Very often the very large internet agencies seek price advantage to promote and we try not to do that.
You made your move to stop discounting a little while ago now. How has that gone? Do you feel that UK agents have changed since your move?
Micky Arison: Looking at the results for the year the UK has done extremely well. If you base what we’ve done on results then it’s been a success. I think there are a lot of misconceptions on this issue; the focus should be on how we can be more efficient regardless of distribution. We love having tens of thousands of people out there promoting our products. Travel agents are a valued asset to our industry. On the other hand, we need them to operate in the most efficient way possible. People talk about direct business as if there’s some panacea to it. The reality is that efficient travel agents are as efficient to us as business coming directly into our call centres. The key for us and all of our brands is to operate through all of our distribution channels and to do so in the most efficient way possible.
Something that has been talked about a lot is the method in which you went about reducing commissions and the way that Royal Caribbean has been a lot more collaborative. Do you regret the way you went about it?
David Dingle: When you’re the market leader you need to be the first into anything like this. You’re responsible for breaking the bad news and taking the responses. We collaborated enormously and it wasn’t a surprise when we made the move. Some people just didn’t like hearing it. I strongly believe that 5% is the correct base number. We absolutely had to rid this business of travel agents rebating large amounts of commission, confusing customers, and in some cases threatening their own livelihoods and creating financial exposure for us. All of those things and we wanted to take control of our own pricing by not having it in the hands of a third party and that is very important for our revenue management. That was for the good of everybody.
With regard to Costa Concordia, we know that legal proceedings are underway so we can’t go into too much detail, but there are still things we can cover. It had a huge impact on your company and the industry as a whole. What lessons have been learnt, and from the entire industry?
Michael Thamm: This has been total shock for us – as a company and as an industry. We have to split the legal part from the moral part and for us it will remain an obligation. If someone asks what we think, that’s the word that we say: ‘obligation’. My obligation and the obligation of my people is that this kind of accident will never happen again. This is my obligation. There are also lots of good things – the industry has proved that in a crisis it is able to work together. It can implement things quickly when it needs to. We are very, very sorry about the casualties that have been taken by this incident and I can tell you that one of the cases that have affected me the most is the poor little girl that was taken. Obligation has a face also. My company passed 107 safety inspections in the year before the incident. That’s an inspection every third day. They’ve all been passed either fully or with very minor changes needed. The industry is heavily regulated and I do not think that we need more rules, we need to continue to move forward and evolve.
Micky Arison: I would just like to reiterate that under these circumstances the industry really comes together. The developments that have come about from the disaster are incredible. There have been many initiatives which have been approved by the entire CLIA membership and have been sent on to the IMO. A lot has been done and a lot continues to be done. Prior to this tragedy we had a tremendous safety record and we are totally committed to having a tremendous safety record in the future.
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