Cruise Sector Growth (eBook)

Prof. Dr. Alexis Papathanassis specializes on Cruise Management and Tourism Information Systems at the Bremerhaven University of Applied Sciences.

1.0 Editor’s Foreword: Cruising through Hercules’ Pillars 6
1.1 The 1st International Cruise Conference: ‘Crew mess’ 6
1.2 Key themes: ‘The monsters’ 6
1.3 Next steps: ‘Setting the course’ 7
Table of Contents 9
PART A: New trends & innovations
2.0 Onboard Revenue: The secret of the cruise industry’s success? 12
2.1 Introduction 13
2.2 Five stylised facts of cruise line economics 14
2.3 The impact of net onboard revenue 18
2.4 Concluding remarks 23
2.5 References 24
3.0 Analysis of the Asian cruise industry and its future implementation 25
3.1 Introduction 26
3.2 Tourism in the Asia-Pacific region 26
3.3 Overview of the global cruise industry 27
3.4 Cruise market characteristics of North America and Europe 28
3.5 Economic impact of the cruise industry 29
3.6 Trends of the global cruise market 30
3.7 Prospects for global cruise lines 31
3.8 Analysis of the Asia Pacific cruise market 32
3.9 Conclusions and implementations 35
3.10 References 37
4.0 Cruising by old timers: A chance for local and regional development in Europe 38
4.1 Introduction 39
4.2 The place of cruising by old timers in the growth of cruising and nautical tourism in Europe 39
4.3 Main characteristics of old timer cruising 42
4.4 Strategic possibilities for development and seasonality 45
4.5 Conclusion 48
4.6 References 49
5.0 FAT cruise tourism: The shifting tide of experiences 50
5.1 Introduction 51
5.2 ‘FAT’ cruise tourism 51
5.3 A shift towards FAT cruise tourism experiences 52
5.4 Defining experiences 53
5.5 Experiencing cruise ships and products 53
5.6 Cruise culture and cruise experiences 54
5.7 Globeisity – Obesity, a global problem and the potential shift towards the cruise industry 54
5.8 The shift in cruise consumption 55
5.9 Conclusions and recommendations for further research 57
5.10 Future research 57
5.11 References 58
6.0 The future of medical care on cruise ships 64
6.1 Introduction 65
6.2 Problems of cruise ship medicine 65
6.3 Opportunities of cruise ship medicine 67
6.4 Conclusion 68
PART B: Human resource management & training
7.0 Leadership: Short-term, intercultural and performance-oriented 70
7.1 The uniqueness of work in the cruise industry 71
7.2 Social communities aboard 72
7.3 Organisation, processes and traditional culture 74
7.4 Leadership aboard 74
7.5 Situational approach 75
7.6 Sociological models: Goffman, Foucault 75
7.7 Ethnographic research 76
7.8 Business context 76
7.9 Leadership requirements 77
7.10 References 79
8.0 The future of Filipino workforce in the cruise sector 84
8.1 Introduction 85
8.2 Filipino workforce on the cruise labour market 85
8.3 The interdependence of the cruise labour market and the global market 89
for labour migrants 89
8.4 Culture matters 93
8.5 Conclusion and recommendations 95
8.6 References 97
9.0 Developments in UK maritime hospitality management 100
9.1 Introduction 101
9.2 Qualifications and maritime management 102
9.3 Developing maritime qualifications 104
9.4 Conclusion 107
9.5 References 108
10.0 Game-based learning for cruise management: Taking it to the web 117
10.1 Introduction 118
10.2 Experiential learning and educational games 118
10.3 The Cruise Industry Planning Game 120
10.4 From classroom game to web-based application 122
10.5 Place and d time 128
10.6 Open issues and concluding remarks 130
10.7 References 132
PART C: Information technology & process standardisation
11.0 Online booking in the cruise sector: Determinants of online trust & implications
11.1 Introduction 136
11.2 Theoretical background: Trust & social sciences
11.3 Towards a conceptual model: Revisiting online trust 138
11.4 Synthesising online trust dimensions & tourism applications
11.5 Final word & recommendations for further research
11.6 References 151
12.0 Price variation across channels: A case of ex-Southampton port cruises 157
12.1 Introduction 158
12.2 Profile of UK cruise industry 158
12.3 Cruise distribution and pricing 159
12.4 Offline cruise channels 161
12.5 Online cruise channels 161
12.6 Aim 162
12.7 Objectives 162
12.8 Research Methodology 162
12.9 Hypotheses 163
12.10 Findings 164
12.11 Conclusion and Limitations 168
12.12 References 170
13.0 Online content mining & its potential for cruise management
13.1 Web 2.0 cruise reviews – An introduction 173
13.2 Technologies for mining and analysis of traveller-generated content 174
13.3 Survey of traveller-generated Web 2.0 content 177
13.4 Economic efficiency and strengths and weaknesses of online content mining technologies 180
13.5 Recommendations for the cruise sector 183
13.6 Conclusions and outlook 184
13.7 References 185
14.0 Establishing the need for a standardised rating system for cruise ships 187
14.1 Introduction 188
14.2 Review of related literature 188
14.3 Purpose of the study 190
14.4 Methodology 190
14.5 Results 191
14.6 Discussion 194
14.7 References 196

2.1 Introduction (p. 4)

Scale is a central theme of the cruise industry. Excessive scale in the ocean liner business gave rise to the birth of cruising in the 1960s. Air travel had gradually replaced ocean travel, and the ships built for scheduled passenger services were put to other uses, such as leisure cruises. For the cruise lines, the achievement of cost-saving scale effects has always been a major driver of business development and innovation.

The formation of cruise ship fleets in the 1970s brought down the costs of marketing, distribution, personnel, training, purchasing, and administration per unit of available capacity, leading to a decline in ticket prices and a corresponding surge in the demand for cruises. Since the 1980s, scale effects have increasingly been realised at the level of the individual ship. The launch of large purpose-built cruise vessels reduced unit costs even further and made cruising more comfortable and convenient.

Papatheodorou (2006) reminds his readers that for unit cost savings to materialise, the scale of cruise capacity has to be matched by the scale of sales. Therefore, the larger fleets and larger ships were associated with more professional sales management and the implementation of revenue management functions aimed at ensuring the full occupancy of available capacities.

Today, however, the fleets and ships of the world’s leading cruise companies, Carnival Corporation and Royal Caribbean Cruises, have reached such dimensions that unit costs have become practically invariant with respect to scale. Their occupancy rates are consistently very high, even in times of crises. It thus seems that Carnival Corporation and Royal Caribbean Cruises have largely exploited the traditional cost-saving scale effects.

Yet cruise lines do not only generate revenue by selling cruise tickets. They also offer a wide range of additional products and services during the cruise, which are not included in the ticket price and have to be paid extra. Examples include shore excursions, spa, beauty parlour, casino, bars, certain specialty restaurants, photo service, art auctions, communication services, and shops.

According to Klein (2006), bars and casinos are the biggest contributors of onboard revenue on cruise ships carrying U.S. passengers. For European passengers, shore excursions tend to be much more important than casinos. These onboard sales, it seems, give rise to a scale effect which has become more and more important over the past decade or so: larger ships allow generating more onboard sales by offering more space for revenue-generating attractions. This paper examines the role of onboard revenue for the economics of cruise lines from a theoretical perspective.

It focuses on the impact of onboard revenue on the optimal pricing of cruises, on profit, and in particular on optimal cruise capacity, arguing that nowadays, onboard revenue may be the main driver of cruise industry growth. The paper is organised as follows.

Section 2.2 establishes five stylised facts about the economics of cruise lines on the basis of financial data from recent cruise line annual reports. Section 2.3 develops an argument which explains the first three stylised facts using the last two. It looks at competition in the cruise industry off and onboard, and analyses the impact of onboard revenue on the optimal pricing of cruises, on profit, and on optimal capacity levels.

It finds that high-margin onboard revenue is likely to be the main driver of cruise industry growth because it gives the cruise lines the possibility to subsidise ticket prices to make cruises more affordable. Lower ticket prices attract more customers who, once onboard, fuel this process with their spending. Section 2.4 concludes the paper.

2.2 Five stylised facts of cruise line economics

The two leading players of the cruise industry, Carnival Corporation & PLC (Carnival) and Royal Caribbean Cruises Ltd. (RCL), operate fleets which represent 46% and 22% of the global cruise ship capacities in gross tons, respectively (Mäkinen, 2007, p. 5). Their brands do not only dominate their home market in the U.S. but also all other important source markets worldwide (Vogel, 2009). The two cruise companies’ annual reports provide the financial data on which this section is based.

The period covered includes the financial years 2001- 2007. This period has been chosen for pragmatic reasons: before 2001, RCL did not publish ticket and onboard revenues and costs separately, and Carnival’s financial statements are available online only from 2001 onwards.