BusinessFeb 13th 2010 edition
Cruise lines in the recession
Damn the torpedoes
Travel companies are launching luxurious ships into perilous waters
IN LATE January Silversea Cruises christened its newest ship, the Silver Spirit, with champagne and sent it on a 91-day voyage around Latin America. The ship, which can accommodate 540 guests, is the company's largest and most luxurious. Suites are serviced by butlers. Passengers can choose between eight types of pillows. The spa is vast. If it sounds out of tune with the times, it is: the ship was commissioned in 2007, before the start of the economic crisis. But Amerigo Perasso, the boss of Silversea Cruises, insists he is happy with the investment. "People want to see the state of the art," he says.
Silversea is not the only cruise line to launch a new ship in troubled economic waters. In December Royal Caribbean International, the world's second-biggest cruise operator, rolled out Oasis of the Seas, the largest cruise ship in history. It can accommodate 5,400 guests and has a park with live plants, a large auditorium and a carousel, as well as other amenities normally found in amusement parks. In 2009 cruise companies invested $4.7 billion to build 14 new ships. They will launch a further 12 vessels this year. Many of these plans were laid before the economy sprang a leak.
The "supersizing" of the cruise industry comes as other industries are downsizing and consumers are curbing unnecessary expenses. To entice customers, cruise lines have cut prices dramatically, sometimes by as much as 40%. Because of these discounts, more people are taking cruises: 13.4m in 2009, up from 12.6m in 2007, according to the Cruise Lines International Association, an industry body. But the discounts have eaten into earnings. At Carnival Corporation, the biggest cruise line, revenues were more than 10% lower in 2009 than in 2008. Even if the economy recovers, growing capacity may prevent firms from raising prices much.
Still, the cruise industry is doing better than other bits of the travel business, like hotels and airlines, which have been battered by a fall in business travel. Cruises can appeal to budget-conscious consumers by touting themselves as "all-inclusive" (even though many amenities, like alcohol and excursions, cost extra). Cruises also allow some people to go on holiday without paying for a flight. There are around 30 ports of embarkation in America alone.
The industry's bosses hope to attract even more customers in the next few years. Only around 20% of Americans have been on a cruise. Most of these are not spring chickens. Firms are trying to draw in younger passengers and families with lower prices, as well as things like ice-skating rinks and cinemas. As a result of these efforts, the median age of cruise passengers in 2008 was 46, down from 53 in 2002. Ross Klein, a cruise-industry analyst, says that cruise lines' decision to invest in colossal ships may help them diversify their customer base without losing elderly customers. Their sheer size, he says, gives everybody "some place to hide out".
This article appeared in the Business section of the print edition under the headline "Damn the torpedoes"
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