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Thursday, December 13, 2018

Meeting New Berth Demands: Cruise Leaders Reignite Scorch For First-Time Business

Ship orders are in, joint ventures are underway, consolidations are spreading (and a new player has emerged; yet the key to long-term profitability in cruise shipping lies in the success of one strategy β€” the industry's ability to attract first-time passengers. In the struggle to stay afloat, some cruise lines have stressed product differentiation in an attempt to capture specific passenger segments. Others have touted aggressive newbuild schedules and European expansion programs as the panacea for continued growth.

However, it has become increasingly clear that the industry must continue to convert "potentials" into "clients" if it is to support the volume of new berths produced before the turn of the century.

A. recent debate within the Cruise Lines International Association (CLIA) concerning setting aside funds for generic advertising targeted at promoting cruising in the U.S. has recalled this idea in the minds of cruise executives. As stated by Carnival Cruise Lines' Vice President of Sales Maurice Zarmati: "Every time you advertise a bow, it doesn't really matter whose logo is on it ... We need more bow advertising." And many tend to agree with him, including Royal Caribbean Cruises Ltd.

Chairman and CEO Richard Fain, Disney Cruise Line President Art Rodney and Carnival Marketing and Sales Senior Vice President Vicki Freed. These executives discussed the cruise marketplace and company strategies for growing business, as well as confided their views on the CLIA debate during recent sessions with MR /EN.

A Crown Tradition Nautically speaking a "crown" is the thick, arching end of a ship's anchor shaft that provides stability and strength; a fitting logo for Royal Caribbean Cruises Ltd. (RCCL) β€” a line which has emerged as a dominant player in the sector, consistently posting generous profits over nearly three decades of operation.

Richard Fain's description of the market conditions that contribute to the success of his outfit is classically understated: "Where there have been more ships, there have been more passengers," he said, adding, "I think it's looking good. I feel a lot more bullish today than I did a year or two ago." Mr. Fain admitted that passenger rates have fallen short of his expectations, although he countered claims of diminishing passenger counts by reasoning that 19 percent more pas- sengers have been carried on ships, despite the 13 percent overall drop in capacity. The Royal Caribbean chairnan agreed that the practice of "deeply discounting" fares, instituted in order to woo passengers, has contributed to an overall cheapening of his company's cruise product.

"In 25 years, we have not been satisfied with the compensation we've received given the quality of the product we're offering," said Mr. Fain. In order to reverse this situation, without discouraging first-timers, he explained RCCL's updated strategy: "Discounting is now not across the board ... We will offer a series of specific, specialty discounts. We've become much more sophisticated in the targeting of discounts." Although he expressed support for "overcoming myths of cruising," the Royal Caribbean executive discussed CLIA's proposal to fund generic ads with an air of caution, saying: "Nobody wants to spend money on what they feel is not an effective campaign, and everyone has an idea of what is an effective campaign." However, Mr. Fain did stress the importance of increasing the visibility of cruising as a strategy for attracting passengers, and in this context, he spoke about the emergence of Disney Cruise Line.

"Disney's entry will add visibility and credibility to the industry and I think, that's very good," stated Mr. Fain. He said that the company will bring recognition to cruise shipping "as a major substantive industry in the U.S.," and as a "significant economic engine for this country." He went on to compare RCCL's product with his perception of the product Disney will offer. "What cruising does is says 'we'll have a family vacation that everybody likes.' We're offering what I would call a family vacation, where Disney will be offering 'guilt trips,'" said Mr. Fain. He defined guilt trips as the penance parents pay for favoring the workplace over time at home with their children, and added: "There is a need for these guilt trips ... They will be wonderful for the industry." Projections aside, Mr. Fain concluded: "Disney will not be a significant competitor in terms of capacity in the cruise industry. It is targeted at a very specific niche." A Royal Expansion Strategy Moving beyond a discussion of the general marketplace, the RCCL executive zeroed in on his company's highly publicized strategy for growing business β€” the recruitment of international passengers. "We've made no secret of our goal of building our European base. Most of building market shares comes from building new ships for these markets," said Mr. Fain. One of RCCL's most recent attempts to increase its European marketshare fell flat when negotiations with Italian cruise interest Costa Crociere were broken off for undisclosed reasons. Briefly commenting on this matter, Mr. Fain said: "Costa has a very good market position. The idea of doing something with them was quite attractive to both of us. We both worked hard at studying it and came to the mutual conclusion that each of us would be better on our own." He further stated: "We will continue to look at opportunities to strengthen our European base. It doesn't look like investing in another cruise line is likely to be the way we'd go at this point." While he declined the opportunity to discuss the recent Carnival-Airtours deal, which provides a competitor with an indisputable presence in Europe, Mr. Fain did entertain questions on the possibility of increasing his company's foothold in the Far East. "Potential is there. I have to say it is a long-term potential. Positioning Sun Viking in the Far East allows us to build up expertise slowly and methodically. I think you will see us exploit that expertise in years to come," said Royal Caribbean's chairman. Mickey Casts Off To Sea In June 1994, the Disney enterprise plunged into rarely chartered waters by founding its own cruise line, and shortly thereafter named cruise veteran Art Rodney to the presidency of its new affiliate, Disney Cruise Line (DCL). According to Mr. Rodney, Disney took the initial steps to invest in vessel ownership based on its desire to be part of the industry's growth. "It was a natural evolution. Disney is in the entertainment industry. A cruise ship was a natural extension of our core business," said the Disney cruise executive. Whether Disney's past affiliation with Premier Cruise Line influenced the corporation to test the waters is unknown, but Mr. Rodney was willing to discuss the break in ties with Premier: "I think we felt we could do a better job operating a cruise line, and that we wanted to control our name and prod- uct," the DCL president told MR/EN.

He also confirmed rumors that DCL will focus its attention on booking first-time passengers. "We want to try to break down the barriers. First-timers will have much more confidence trying a cruise with Disney than anybody else ... We expect to get a lot of people who haven't cruised yet," said Mr. Rodney.

But how will the 85,000-ton Disney Magic and Disney Wonder fair in a market that will be flooded by new tonnage by 1998? The Disney executive qualified his answer by putting it into context with market conditions. "I think what we're seeing is a lot of opportunity in the industry because the industry is building a lot of new ships right now. The older ships are the ones that are feeling it," said Mr. Rodney.

"SOLAS (Safety of Life At Sea Convention) will help to tighten up the demand for the newer ships," continued Mr. Rodney, adding, "Our brand is differentiated from the rest of the industry ... Based on our research, the customer considers us in a whole different quadrant.

We're in a different league. Our ships will be Disney ships and that's what we're selling." But this inherent product differentiation will apparently not dissuade the cruise line from supporting CLIA ads aimed at promoting cruise shipping at large. Although Disney's CLIA membership won't kick in until January 1997, "Our position right now is that we will participate in the advertising," said Mr. Rodney.

New Arrival Makes Waves Since announcing plans to enter cruise shipping, Disney has spared no expense in its efforts to penetrate the sector. With architectural plans completed for the private Disney cruise terminal β€” Terminal No. 8 β€” to be raised at Port Canaveral, construction will be bidded out this summer. DCL also acquired Gorda Cay β€” a 1,000-acre, private Bahamian island that will be used as a vessel day-stop location. And these two ventures are in addition to enlisting the expertise of Fincantieri β€” one the world's most renowned cruise newbuilding yards β€” and Lloyd's Register, a premier classification society.

According to Mr. Rodney, the decision to go with Fincantieri came down to three key factors: price; delivery time and design interpretation. He said that the yard "did a very good job of interpreting what our designers wanted," and was able to meet Disney's abbreviated time schedule. "They were the most competitive when it came down to it," he concluded. On the safety front, despite the obvious advantage of not having to retrofit ships for compliance with MARPOL (marine pollution) and SOLAS requirements, DCL and Lloyd's have already begun structuring safety management plans for shoreside facilities in preparation for the 1998 requirements of the International Safety Management (ISM) Code. "We have a task force put together and we're hoping to get certified before we start operating," said Mr. Rodney.

With funds sunken into a private terminal, private island, in-house design team and premier builder and classification society just for starters, Disney Cruise Line has displayed the makings of a sector powerhouse. On several occasions, Mr. Rodney has spoken of Disney's desire to build an entire fleet of ships, although for the record he noted: "Nothing has been committed beyond the two ships. If we're successful, as we think we'll be, certainly we'll build additional ships." And although DCL has no plans at this time to build ships specifically for the Euro market, "We will get a lot of Europeans coming to Port Canaveral to take our seven-day packages," the DCL president said.

With seemingly inexhaustible resources and marketing muscle, the arrival of Disney on the cruise scene will undoubtedly enhance the image and profitability of the sector. The question that remains to be answered, as hinted at by Mr. Rodney, is whose pockets those profits will end up in.

Business Bonus Abord Fun Ships With a goal of converting landlubbers to seagoing vacationers, Carnival Cruise Lines (CCL) has launched its "Vacation Getaway" campaign, which specifically taps into people's misgivings about a taking a cruise by guaranteeing refunds and paid fares home to dissatisfied passengers who disembark at the first port of call. According to Vicki Freed, the idea behind this campaign is to "Motivate people who are sitting on the fence to try a cruise." "As an industry, we need to grow the firsttimer cruisers," continued Ms. Freed, adding, "Only seven percent of the population has tried a cruise." And despite this low percentage, business seems to be booming aboard Carnival's fun ships. Maurice Zarmati pointed to the construction of a twin office building on Carnival's Miami premises as evidence of the company's expansion. "I'm happy to report that business at Carnival is excellent. 1995 was a banner year ... We've been running at over 100 percent occupancy for the last 20 years." Mr. Zarmati laid out Carnival's strategies for absorbing its 51 percent planned growth: "The number one area of opportunity for Carnival is to continue to look for first-time cruisers. Our second biggest opportunity is to turn a good portion of the agency community into sellers rather than distributors." He recalled that for every one person who takes a cruise, nine people take land-based vacations. "Our brokers need to behave the same way other businesses that compete for that discretionary dollar behave ... The customer is either spending it here or somewhere else, but he or she is going to spend it," said the Carnival exec.

Both CCL executives expressed support for CLIA's efforts to promote cruise shipping to the general public. "People right now are looking at the trees, not the whole forest. You can't look at your individual tree for a long period of time," said Ms. Freed. She also encouraged cruise interests to learn from the success of the agricultural industry's generic ads: "Somehow the industry was able to discuss the product and not the brand β€” knowing that everybody would get their fair share." Mr. Zarmati offered further rationalization for Carnival's stance: "We don't consider another cruise line a competitor. The reason is, once you sail a ship, you've done your job." Having recently acquired a valuable business lever in Europe via the Airtours deal, the Carnival executives discussed the company's plans for taking the fun ship concept to Europe. "Now that we have some ownership in what we believe is one of the finest U.K. (travel) agencies ... our ships are just waiting to welcome our guests," said Mr. Zarmati. He said that in the U.K., Carnival "has had a number of sales training and product training seminars informing their front line salespeople," and added, "As they (Airtours) put their resources at our avail- ability in Scandinavia, we. will bring in our team." The Carnival exec also leaked news of company plans to send 2,400 U.K. agents from the Airtours-owned Going Places travel chain to Italy to spend a night aboard Carnival Destiny after it leaves Fincantieri's Monfalcone yard, before the ship's inaugural journey to the U.S. East Coast. "We're hoping to bring most of the Going Places distribution system to Venice to experience our new ship," said the Carnival rep, although he said plans have yet to be finalized. Ms. Freed offered further comment on CCL's Euro strategy: "At some point, as the cruise market here becomes more and more sophisticated, a good place to deploy the older vessels β€” vessels built in the 1980s β€” would be Europe." U.S. Yard Contracts: Potential P.R. Vehicles? With the cruise sector's search for new passengers coinciding with the U.S. government and maritime industry's push to drum up domestic commercial shipbuilding business, perhaps it not far fetched to suggest a mutually- supportive relationship. Giving U.S. yards a slice of cruise newbuild action might be a brilliant plot for capturing the attention of a significant American workforce.

And although, realistically, newbuild contracts are probably more than a few years down the pike for U.S. yards, San Diego-based yard National Steel and Shipbuilding Co. (NASSCO) has paved the way by formulating its own cruise ship design with funds from the government- sponsored Maritech program.

As stated by Richard Fain, "There is no reason why the U.S. should not be able to reinvigorate its shipbuilding capabilities if it wanted to do so." He added: "American shipyard labor is equal to or less expensive than the labor at t h e yards where we build ships." The RCCL c h a i r m a n also said t h at t h e q u a l i t y of work of U.S. y a r d s is equal to or b e t t e r t h a n t h e skills of E u r o p e a n c o u n t e r p a r t s , and with foreign subsidies falling, American y a r d s m i g h t a t l a s t see a n opportun i t y in t h e cruise sector. However, he noted: "Cruise ships require specialization t h a t isn't usable for other products. That may m a k e it les s d e s i r a b l e i n t h e n e a r t e rm as a focus." Art R o d n e y also spoke about Disney's efforts to keep a c h u n k of i t s b u s i n e s s in t h e U.S.: "We did t r y to diversify and get as much b u s i n e s s for t h e U.S. suppliers as possible. GE did get a major cont r a c t . " He also expressed support for U.S. commercial shipbuilding a n d spoke about Newport News' s p a r s e l y publicized role in the Disney s h i p bid process. "Newport News p a r t i c i p a t e d in the bidding process w h e n we considered buildi n g our ships." According to Mr.

R o d n e y , the yard did not offer Disney a price quote. "They were not in a position to meet our timetable, so t h e y w i t h d r ew basically," s a i d t h e c r u i s e executive.

I t seems reasonable to suggest t h a t as cruise lines look to implement capacity-boosting strategies w i t h the debut of new tonnage, U.S. b e r t h - b u i l d e r s a n d equipment s u p p l i e r s should not be overlooked as a possible j u m p i n g off point for i n c r e a s i n g cruise shipping awareness w i t h i n t h e general public.

Cruise Notes Show organizers have announced that the 1997 Cruise Shipping event has been scheduled to take place March 11-15 at the Miami Beach Convention Center. Contact Miller Freeman (Princeton) Inc. at tel: (609) 452-9414, or fax: (609) 452-9374 for more information.

The Cruise Lines International Association (CLIA) has announced that it will welcome its newest member, Disney Cruise Line, next January. CLIA has also launched a web site, found at According to reports issued from Sperry Marine, the company will supply the integrated bridge systems for Disney Magic. "We provided Disney with detailed system designs and they liked what they saw," said Sperry Senior Manager Frank Soccoli.

"Disney was also quite impressed with Sperry Marine because we manufacture the vast majority of our own system components. They felt we would be better able to provide a well-integrated system and be in a better position to support it with reliable service," added the Sperry rep.

Princess Cruises has reportedly unveiled the industry's first direct ship telephone service. Starting in April, passengers aboard Sun Princess, Crown Princess and Star Princess were instantly connected with the broadcast center or purser's office aboard the ships after dialing 1-900-CALL SHIP, without contact with Inmarsat or knowledge of the vessel identification number or ocean region code.

Ashland Chemical's Drew Marine Division now manufactures automated monitoring systems that reportedly allow cruise ships to efficiently maintain vital operating systems in spite of continuing crew reductions. The company's AWT and ACWT automated water treatment systems provide com- 13133 puterized, continuous monitoring and control of water chemical conditions in steam generating and diesel cooling water systems, helping to extend equipment life through real-time remediation of harmful water conditions that can contribute to corrosion. On April 2, Edward D. Rudner, chairman and chief executive officer of Renaissance Cruises, Inc., announced that the company's affiliate -- R Shipping, Inc. -- signed a binding letter of intent with the GEC Alsthom subsidiary Chantiers de I'Atlantique for the construction of three, 600-passenger cruise ships. Projected cost for the three vessels is in excess of $500 million. In May, Celebrity Cruises entered the Alaskan market, with the positioning of its 46,811 -ton luxury vessel Horizon in the state, for a series of seven-night Inside Passage and Glacier Route voyages. According to Celebrity President Richard E. Sacco, 'The repositioning of the fleet has enabled Celebrity to enter this market with a stimulating Alaska cruise experience combined with Celebrity's distinctive, premium level of award-winning onboard service and cuisine." The vessel had just completed a season in San Juan.

On March 18, in a special ceremony at Chantiers de I'Atlantique shipyard in St. Nazaire, France, Royal Caribbean Cruises Ltd. Chairman and CEO Richard Fain accepted delivery of the company's newest ship -- 1,800- passenger, 69,130-ton Splendour of the Seas. Splendour is the first of five ships the company will introduce during the next two years, with additional passenger capacity totaling 7,900 passengers. For more information, visit the cruise line's web site at

British company Gradus Lighting Ltd. has introducted a new, low locating lighting system designed to provide clear and bright illumination for safe evacuation of passengers from smoke-filled cruise vessel areas. The system, Pathfinder, has been specifically formulated for compliance with IMO's 1997 requirements.

Early in 1996, Holland American Line (HAL) announced that its flagship Rotterdam would be officially retired from service in September 1997. On March 13, HAL said that its newest cruise vessel, scheduled to enter service on August 1, in time for the company's one hundred twenty-fifth anniversary, had been named Rotterdam VI. The 62,000-ton, 1,320-passenger ship is under construction at Fincantieri's Marghera facility. The cruise line also reaffirmed its historic ties to Holland by reflagging seven of its eight large luxury cruise ships in the Netherlands on May 13. In April, U.K.-based Information Management Consultants (IMC) became the new owners of Ocean Satellite Television, bringing together the passenger services of both companies. "This move will allow us to give our cruise customers a much wider choice of news products," said Bernie Thomas, one of IMC's joint managing directors. IMC can now offer newly developed services to cruise passengers, such as personal stock portfolio daily reports and credit card validation while at sea.

SeaVision, Inc. introduced its new interactive television system at Cruise Shipping '96. This system is a further development of the system installed on Norwegian Cruise Line's Dreamward in September 1995, which provides passengers with a wide variety of services, including shore excursion preview and purchasing, room service, wine ordering, gaming and in-cabin movies.

California-based Sea Tel, a provider of commercial shipboard satellite systems, has introduced its TV-at-Sea systems, which transmit satellite television programs to ships in all the major ocean areas. A fully stabilized antenna is part of the Model 2494 system, which locks the satellite onto the ship as it pitches and rolls. An RCA DDS receiver is provided as part of the system, and decodes the digital programming from DIRECTV and USSB.

IGC Satellite Services provides cruise ship passengers with the technology to make phone calls, send faxes and e-mail, access the Internet and make use of video conferencing while at sea. According to a company rep, "Our maritime experts are taking the cruise industry into the twentyfirst century by allowing passengers on a cruise to communicate how and when they want." One-minute calls cost a reported $9.50.

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