Royal Caribbean’s 6,000-passenger Harmony of the Seas’ onboard attractions include a mock Central Park with live plants and trees, drinks prepared by robots, a 1 1/2-hour production of the musical “Grease,” – plus a 10-story thrill slide.
A lot has changed since the 961-foot, 2,200-passenger Queen Elizabeth sailed in the late 1960s. Boat size inflation, driven by the industry’s desire to make the ships destinations themselves, has re-made the cruise experience for consumers. With size and scale tripling, novelty in the cruise experience became less about exotic destinations and more about the world within the cruise ship.
Brands at Sea
The mass market cruise industry has embraced co-branding as one of several novelty attractions to target affinity groups.
The first officially licensed Star Trek: The Cruise, hosted by William Shatner, sailed last month on the Norwegian Pearl, and two more cruises, hosted by George Takei (Mr. Sulu), are in the works for enthusiastic Trekkies next year.
Star Trek fans aren’t the only ones seeking a singularity at sea. A NASCAR-themed cruise set sail last month on the Pearl. Fans of AMC’s “The Walking Dead” are gathering for a second time on a Walker Stalker Cruise this month.
Judging by the financial performance of the industry and individual companies, it’s a good time to be in the cruise business.
Cruise Industry Economics
According to Cruise Lines International Association, cruising generates a substantial positive economic impact globally. Cruise industry expenditures generated $119.9 billion in total output worldwide, supporting 939,232 full-time equivalent employees who earned $39.3 billion in income in 2014.
For the islands of the Caribbean, the cruise industry’s impact has been mixed. Competition to develop ports has driven down port passenger fees while an emphasis on contained environments deprives local businesses from passenger expenditures. Something is lost when thousands of people seek an exotic experience at the same time.
In other words, it’s hard to judge the industry as a monolith.
According to the Florida Cruise Association, for the past decade, cruise tourists have made up about 40% of all tourists in the Caribbean, yet they have accounted for less than 10 % of overall tourist expenditures. Despite efforts to increase port passenger fees, they remain extremely low in the Caribbean. For example, Bermuda charges $60 per visitor, far exceeding fees in the region, which often charge less than $10 per visitor.
In 2017, cruise lines offer ports on a total of seven private islands. These islands, together with many piers that are designed like strip malls, divert travelers’ expenditures to locations that are scripted or otherwise under control of the industry.
According to Cruise Market Watch, average onboard spending by the typical cruiser is $429 for a seven day cruise as of 2015. That’s a lot of upselling that the industry would prefer to capture.
At Royal Caribbean, onboard revenue growth continued to outpace net yield growth 2016.
The Cuba Cruise Rush
Cuba’s novelty is its emerging influence as a “country brand” that contains the special allure of reverse nostalgia. Its forbiddeness is an attraction as powerful as the anticipation that its special qualities are disappearing.
The cruise industry is not lost to the powerful urge to travel there.
Among the rush to add Cuba cruises to itineraries this month was Royal Caribbean. The company added 13 itineraries, or 42 sailings, through November, the largest schedule of any U.S. cruise line to date. According to the Miami Herald, the other cruise companies traveling to Cuba — Miami-based Norwegian Cruise Line Holdings’ three cruise lines and Connecticut-based Pearl Seas Cruises — have announced voyages only through the spring.
Carnival Cruise Line reported this week it had received approval to sail to Cuba. Havana will be added to select Carnival Paradise voyages from Tampa beginning in June 2017.
There was no mention of Carnival’s experiential brand, Fathom. Less than a year ago, Carnival’s small ship, Adonia, was the first cruise ship to travel to Cuba from the U.S. and decades. Fathom’s Adonia alternated weekly itineraries between Cuba and the Dominican Republic. Carnival has announced that the Adonia will end its Caribbean itineraries midyear 2017.
Cuba Uniqueness is Smallness
The Cuban transport ministry confirmed earlier this year that the number of cruise ship visits rose from 24 in 2012 to 139 in 2015. Cruise passengers jumped from 6,770 to 37,519 over the same period. Up to May of 2016, there were 174 port calls and 62,183 passenger visits, according to the ministry. For at least the first six months of 2017, Cuba’s exponential growth is likely to continue.
Such growth for a new destination is rare for the cruise industry – and things are just getting started.
Yet with so much emphasis on growing onboard revenues and capturing additional cruise passenger expenditures by containing activities to owned ports and private islands, Cuba represents a challenge for the mass market cruise industry to capitalize on Cuba’s novelty quality.
Cuba’s infrastructure is limited, unable to accommodate ships greater than about 2,000 passengers, so the scale economics at work with ships that in some cases exceed 6,000 passengers is not even in sight for Cuba.
Port expansion work in Santiago de Cuba, Cuba’s second largest city, includes the building of a new 230-metre-long pier for modern cranes that will speed up cargo services, as well as provide connection with railways and logistics centers, according to Chinese and the Cuban government. The work is being financed and built by China Communications Construction Company Ltd. and does not include passenger terminal enhancements.
For the time being, Cuba’s novelty for cruise passengers will remain a niche market for smaller vessels and a passenger demographic that is more affluent than the mass market.
According Bruce Nierenburg, industry veteran and President CEO of Victory Cruise Lines, Cuba should focus on smaller vessels and not try to, “fit a square peg into a round hole.”