Cruise Lines Business Strategies - Research Paper Example

Introduction Cruise Lines are companies that operate cruise ships. A cruise ship is a luxury passenger ship that mostly carries holyday makers and tourists. They specialize in high level hospitality and entertainment services on board with an equivalent of a hotel manager in charge of the staff on board. However, since cruise operations are a highly volatile business that suffers dips in passenger bookings that may result difficulties or collapse, most cruise liners also double up as transporters of merchandize (Mancini, 2006, p 4). This sector has been chosen for analysis since it has not been very extensively researched on. This is due to the fact that many commentators on the shipping sector, especially shipping have mainly focused their research the transport and logistics issues with little attention being given to cruisers (Ward, 2003, p 124). This is mainly due to the fact that transport of cargo is the more highly developed functional utility of ships. Moreover, cruise lines are seen in some cases as a subsector of the tourism industry rather than the transport industry per see. Thesis Statement It is with this in mind that this paper focuses on the analysis of characteristics, trends, size, consumers, ownership, geographical reach and products of cruise lines. This paper also discusses the future of the sector by considering factors and forecasts of consumer behavior. Current Position Analysis History and Development The cruise line business has grown steadily since 1900 when the first cruise ship the Prinzessin Victoria Luise was built by the Hamburg-America Line. From these humble beginnings the industry had a steady growth especially when in the early 20th century Hamburg-America line Director Albert Ballin sent his ships on long southern cruises in the worst of the winter season. This was an improvement on the then common four-hour transatlantic voyages. Among the most famous luxury cruisers was the White-Star Line’s 1912 luxury cruiser Titanic (Beveridge & Hall, 2004). However, the steady growth of cruise liners faced a steep decline in the 1960s due to the arrival of passenger jet-liners which swiftly became the preferred mode of distance travel. Jetliners were fast and considered safer than the ships especially with the infamous sinking of the Titanic (Ulrich, 1999). This decline saw many shipping operators live the business such that only the resilient ones with niche markets such as the Cunard Line. However, even then, the size of cruise ships was much smaller than that of transport liners due to the drop in the number of passengers (Dickinson, 1996). Later, the business was to pick up again steadily leading to the arrival in the 1980s of larger cruisers such as the SS Norway that was crafted out of the cargo liner the SS France. This steady growth has continued to the present. Currently there are several hundred large cruiser ships plying routes all over the world (Blum, 2002). Characteristics There are several amenities on offer aboard the cruisers. These are casinos; spas; fitness centers; shops; libraries; theatres; cinemas; swimming pools; hot tubs; buffet restaurants; lounges and gyms. Usually, dinning costs are included as part of the overall travel charges. Meals are served in a hotel like setting with a Maitre D’hotel overseeing operations. In almost all cases there is usually a live musical performance to accompany the meals (Best, 2010). Since there are thousands of cruise passengers per voyage, the ship requires large amounts of provisions to provide for the whole course. A typical one week on the Royal Caribbean International’s Mariner of the Seas requires 9,000 kg of beef, 28,000 eggs, 30,000 liters of ice-cream and 18,000 pizzas a week (Shawker, & Sehlinger, 2001). Consumers In 2005 the estimated number of cruise passengers was 14 million with 70% of these being Americans cruising mostly to the Caribbean region. After the Americans come the voyagers of continental Europe accounting for 13%. These mostly cruise to the Baltic Sea region which is a fast growing tourism destination. Copenhagen, Helsinki, St. Petersburg, Tallinn and Stockholm are among the most visited cities in the Baltic region (Gibson, 2003). In the earlier years the bulk of the passengers were very rich people who could afford the luxury services on offer. This has however changed with many passengers being ordinary persons who make savings for holiday cruises and general pleasure rides. This change has helped liberalize the industry in terms of the availability of passengers thus sustaining the trade. However it is still important to note that the voyages do not come cheap and making savings for them must be done seriously (Maxtone-Graham, 2000). Size Though in the earlier days cruise ships were generally smaller in size than transports, they have gradually grown larger with time. Modern cruise ships are sometimes referred to as floating cities since they are large and offer many amenities. Among the largest are the Oasis Class ships which are owned by the Royal Caribbean International. One of them, the Oasis of the Seas measures 262 meters long and rises 72 meters above the water line. It has a gross weight of 225 282 metric tons. This is huge even by contemporary shipping standards. It is still the largest cruise liner on the seas today (Miller, 1988). The sizes of the ships will keep growing bigger as the demand for the services continues to increase (Chin, 2008). The size of the industry is still small compared to its transport cousin. Today there are 67 major cruise lines that are still operational world wide. Though there used to be at least twice that number, some have since collapsed, merged or converted their operations to transport liners. This only goes to show the volatile nature of the business with fierce competition for a limited number of passengers (Blum, 2002). However with competitive prices on offer and the ever present prospect of being able to dock at most of its destinations, unlike planes that land at airports far away from attractive sites, the future is bright for cruise ships. Remote locations like Arctic and Antarctic are still reachable only by ships. The cruise liners therefore keep growing larger with the interest to explore such regions on the rise worldwide. The emergent markets on the east also auger well for the expansion of this industry as more people take to sea cruise. Another promoting factor is the emergence of the West Pacific honeymoon season in which couples have taken to the trend of opting for long honeymoons on sea voyages. It is projected that the cruise line industry will more than triple over the next decade (Chin, 2008). Ownership Most cruise lines are owned by American and European businessmen. However, in recent days, operators from Japan have joined the fray especially since the Mitsubishi Heavy Industries has established itself as one of the renowned ship construction yards. The main shipping lines are found in the US, Greece, Russia, Italy, the UK, France, Germany, Spain, Finland, Cyprus, Israel; and lately Japan and Malaysia (Shawker, & Sehlinger, 2001). Geographical Reach Fig 1. Major Holyday Cruise Destinations of the World Courtesy of mapsoftheworld.com Most of the ship owners are also involved in the transport business. However, there are a few like the US based Carnival and the UK based Cunard cruise lines who only specialize in cruise ships. The latter operate the famous Queen Victoria and Queen Elizabeth liners. The Norwegian Cruise lines offer great deals to travel to the Caribbean, Alaska, Hawaii, Bahamas and Europe. As mentioned earlier, the main destinations of cruise ships are mainly the Caribbean and the Baltics. However, cruise ships make voyages to other parts of the world including areas around Africa, Asia and Australia. As for the Arctic and Antarctic regions, cruise ships still remain the only realistic way of making holiday voyages. The cruise lines therefore have a global geographical reach with only very risky seas and landlocked countries excluded (Shawker, & Sehlinger, 2001). Products The cruise industry mainly offers luxury related products to its customers. They excel in specialized cuisine with meals and styles from different parts of the world included. The range includes Chinese, Italian, French, Latino and African cuisine among others. The industry also offers on board entertainment which includes on board bands drawn from popular and renowned musical groups (Pattullo, 1996). There is also wide variety of cinema and theatre products including the latest and most popular films and theatre performers plus well loved classics mostly targeting the older folk. Cruise ships largely have older patrons since it is a slow and peaceful journey with little excitement out of the ordinary. However, younger persons join in either as part of family groups; or newly weds on honeymoon. This choice of customers determines to a great extent the kind of entertainment on offer. So whereas, the older folk carry the day in terms of the entertainment choice, most of the cruise groups have also included contemporary entertainment for the young and the young at heart (Pattullo, 1996). Cruise ships also have on board some popular musicians and entire orchestras that keep travelers regularly enthralled with their repeat performances in the course of the journey. The choice of music ranges from classical music to contemporary Rhythm and Blues. In addition, traditional and exotic music from different parts of the world is included to add to the rich array of choice on offer (Spencer, 2010). Factors That Will Influence Future Developments Political Whenever cruise ships are mentioned the specter of politics always comes into play. Political differences between countries sometimes dictate that the cruise ships will not visit some regions of the world. Cruises to places like Cuba have been widely affected by sanctions laid by the US on visits to that country. The scenario is made worse by the continuous number of illegal immigrants that use boats on that route to try and access the US. Consequently cruise ships have been forced to abandon that route all together (Bruns, 2008). The other political problem is security. Cruise ships have been victims of high profile pirate attacks as in the case of the German five-star Seabourn Spirit in November 2005. The ship was attacked by Pirates of the coast of Somalia with 151 passengers on board. Though none of the passengers were injured, machine guns and rocket propelled grenades were fired at the ship and the ship’s master-at-arms Michael Groves was injured by shrapnel. However the attack was thwarted when Groves used a Long Range Acoustic Device (LRAD) to repel the pirates by blasting powerful sound waves into the ocean (Lehr, 2007). Another high profile attack was on the Italian Ship MSC Melody by the same Somali pirates off the coast of Seychelles in April 2009. The ship had 1000 passengers on board when the attack occurred. In the ensuing fray the passengers used all sorts of crude objects including throwing furniture to fend off the pirates. Later the ship security used pistol fire and eventually stopped the pirates from boarding the ship (Hooper, 2009). Total political breakdowns like has happened in Somalia are a constant threat to shipping business. Pirates operate with no qualms of possible reprisal since there is no authority in place to countermand their activities (CLIA, 2010). But even where there are governments political relations sometimes affect business as in the case of the US and Cuba. It is therefore a fact that the future of the cruising business will depend greatly on the direction that international relations take. This is because cruising an interstate business and diplomatic relations between the countries of origin and the destinations determines the viability of the cruises (Gibson, 2003). Economic First of all, one must consider that the cruise ship business depends almost entirely on stable economies. Cruise travelers are usually not people in hurry to accomplish some pressing errand. They are mainly holidaymakers spending their time and money on luxury. This depends largely on economic stability, which in itself is a by-product of good political economic policy. The cruise industry, just like tourism is therefore on of the greatest losers every time there is an economic meltdown akin to the recent global recession. At a time like that, going on a cruise is naturally the last thing on anyone’s mind (Chin, 2008). Fig. 2 First Quarter 2010 Reports of Cruise Lines in US$ As a result the cruise industry suffered a steep drop in passengers which went as high as 60% in 2008 alone. Cruise operations survived mainly because they opted to offer shorter cruises that charged less money than usual and offered great deals on travel costs (Bruns, 2008). However, as shown by the statistics in figures 2 and 3, the industry is still an important contributor to the American economy whose role cannot be gainsaid (Spencer, 2010). Fig. 3. Economic Impact of Cruise Ships in America in 2009 Total Revenue Generated Cash Injected Through Direct Spending Jobs Created Wages Paid US$ 40 billion US$ 19. 07 billion 357,710 US$ 16.18 billion Statistics courtesy of Cruise Lines International Association [CLIA] (2010). Social There are several social issues that affect the business of cruise ships. Chief among them is the constantly changing lifestyles. Cruise ships are the in thing today and something becomes the in thing tomorrow. Cruising of ship for instance may soon lose out to more adventurous things like trips to the moon and outer space. The prohibitive factors at the moment are still extremely high costs of travel to space and the possible risks involved. However, it is going to take a very long time before going into such kinds of travel are a viable option for most people. In the meantime, the cruise ships continue to survive (Gibson, 2003). The more realistic competitor is inland safaris. Many tourists still prefer to remain on firm land as they view wild game, cultures and environmental features. The scenario of many days in water mass is still unattractive especially to persons brought up away from the sea. This competition is bound to get more intense in the future as cruisers and land tours struggle to gain control of holidaymakers. For the moment however, the land tours are leading by a wide margin. As the land tours become more innovative with the introduction of things like ecotourism for instance, it is quite obvious that cruise operators are in for a long haul (Gibson, 2003). Technological Like in any other field, technological innovations will play a major determining role in the future of the cruise ship industry. Such innovations that have already been put in place are security features like the LRAD which aided the Seabourn Spirit in thwarting the efforts of Somali Pirates. Other features include CCTV cameras on board to help monitor happenings and persons on board, special identity cards to help keep track of passengers and keep away stowaways who may be there for criminal reasons. There has also been great improvement on the speed, communication systems and general impregnability of modern day cruisers, which can enable them withstand small arm attacks like carried out by the Somali pirates (CLIA, 2010). However, a lot still remains to be done to keep the ships constantly up to date with modern developments in technology. Though some of the ships already have on-board banking services, this still needs to be expanded in those that do; and developed in those that don’t. Off shore banking has persuaded many businessmen to believe that they can still carry out transactions even while in the sea. This is helped even more by the presence of up to date communication systems for conferencing and constant business feedbacks. It is important to note that there are people who are never really on holyday and the availability of these facilities may be a major persuading factor for them to be on board (CLIA, 2010). In a nutshell, cruise ship operators have no option but to keep abreast with all developments in modern technology that can be use to their industry (CLIA, 2010). Environmental One constant criticism that cruise ships have faced is about their contribution towards polluting the environment. The ships are accuses of releasing large quantities of sewage, graywater, hazardous wastes, oily bilge, ballast water and solid waste. Other wastes include air pollutants which are harmful both to the air and water. The seriousness of these wastes is mostly felt because the ships carry a large number of passengers on board and many of them tend to frequent certain ports like those in Florida and Alaska (Ulrich, 1999). If the waste is not properly managed, the environmental damage can be very major. The wastes carry with them pathogens that in high concentrations are harmful both to human and aquatic life. In fact, the ships passengers in earlier years were not spared either as there are recorded cases of outbreaks of norovirus and legionella. As recently as 2002 there were 25 reported outbreaks of norovirus affecting a total of 2,648 passengers (Lindesmith, 2003). The virus causes gastroenteritis which is characterized by vomiting, diarrhea, nausea and abdominal pain. It is transmitted mainly by hand contact though poorly heated foods and water can also spread it. The main way of controlling it is observing high levels of hygiene and properly cooking food, especially seafood (Kasper, 2005). The infection known as the Legionary’s disease is caused by the bacteria legionella which colonizes the water circulation system in both drinking water and spas. The bacteria are inhaled and cause respiratory problems especially on people over 50 years of age and those with prior respiratory conditions. The disease is more serious in the seafaring conditions than on land (CLIA, 2010). To avoid these constant environmental hazards that hamper business, the cruise ships have had to put in place constant infection surveillance measures to avoid outbreaks. Their management of the waste disposal systems has also been improving over the years to reduce the impact on the environment (Mclaren, 2003). In future the survival of the industry will greatly depend on their ability to carry out these two functions well in a world that has become increasingly sensitive about the environment. Agreements like the Honolulu treaty also helps a great deal in controlling the pollution by seafaring vessels (Laws, 2000). Legal Cruise ship operators have over the years had to contend with various legal issues raised by their clients and fellow operators. Many of the litigants seek compensation for physical and sexual assault, injuries, sickness and accidents suffered while on board the ships. The operators have to maintain a delicate balance between being highly hospitable to their guests while at the same time being tough with would be law aggressors (cruiselaw.com, 2010). This is a very difficult scenario since mistreatment of a guest may lead to protests while letting them get away with bad behavior also leads to protests (Gibson, 2003). Another problem is that of clients assaulting crew members sexually, especially those who offer room service. This is constantly put ship operators at loggerheads especially with their richer and therefore more arrogant clients (cruiselaw.com, 2010). There is no end in the foreseeable future to litigations against cruise liners. All the management of the liners can do is to keep vigilant in the ship and where possible use CCTV evidence to help dispel some of the spurious demands at times made by clients. Being tougher with even loyal customers will also go a long way in maintaining the reputation of the ships and avoiding unnecessary litigation against them (cruiselaw.com, 2010). Market and Consumer Trends Consumer Demands and Expectations The six major segments of the consumer market for cruisers are baby boomers, luxury seekers, consummate shoppers, explorers and ship buffs. The main interest of baby boomers of course is to come up with many babies and what better place to do that than on a luxury cruise. Shoppers enjoy the experience of their favorite pass time on the ship’s stores. Attractive features of this shopping experience include a wide variety of goods and great deals in terms of prices. This makes it possible for them to not only get a variety to choose from, but also to save money (Ulrich, 1999). The luxury seekers find themselves precisely in the right place within the ship. The hospitality is so specialized that even ordinary folk are treated like royalty every time they take a cruise. This enhances the holiday mood and pampers the ego of those so inclined (Gibson, 2003). This ship buffs make the most loyal customers. Their main interest is the sailing experience which nothing else beats as far as they are concerned. The ship is a second home to them and the enjoyment of the open seas comes second to nothing in their list of entertainment priorities. The availability of balconies and windows enables them to watch the open sea waves swash past by day and the starry calm sea at night. This category of seafarers just keeps booking time and again (Ulrich, 1999). Market Demands, Product Innovations and Developments The marketing drive of cruise ships is based mainly on the offer of great traveling prices that fall way below that of air travel. Ships can use the concept of economies of scale to great advantage in securing deals on fuel and other expenses since they are mass consumers. Where a cruise line has many ships, the effect of price reduction is even greater (Smith, 2001). This enables them to offer very competitive prices to their customers thus making the option of sea cruises highly viable to many people. In fact, this is one of the reasons that cruisers survived the recent global recession as their usually more competitive rivals in air travel saw a steep reduction in passengers (Garin, 2006). Another distinct advantage that sea cruises have over their jet liner competitors is that sea travel is less susceptible to the fickle issues that dictate the success of air travel. The recent volcanic eruption in Iceland that rendered northern Europe a no-flight zone left the operators of cruise lines smiling all the way to the bank with more than doubled bookings in as far as intercontinental travel is concerned (Gibson, 2003). Consumer Demographic Changes Fig 3. Major Consumer Demographic Changes in Millions 2007-9 Courtesy of cruisedeals .com For many years cruise lines have been an American and European affair. However, as shown in the diagram, with the strong entry of the Asian tigers into the world economy where countries such as Japan, Malaysia, China and South Korea have emerged as world leading economies, there is a strong shift towards Asian cruise markets in addition to the traditional ones (Duffy, 2002). Moreover, the Organization of Petroleum Exporting Countries (OPEC) countries like Saudi Arabia and UAE have also provided the bedrock of cruise customers over the years. The future of cruise liners therefore lies squarely in how well and strategically they will exploit these markets in future (Eisele, 2003). Forecasts for Future Developments The cruise ship industry will have a much brighter future if it continues enhancing some of the factors that work to its advantage. These areas are competitive prices, enhancement of consumer interests and expectations, innovative technology, security enhancement, the venture into emerging markets and a greater environmental awareness. Will all the necessary measures being put in place to enhance these features, the cruise liners will probably double their market by the turn of this decade (Eisele, 2003). Competitive prices will work for it relative to those offered by rival travel operators. Since cruise lines are international operators, their main rivals so far are airline companies (Smith, 2001). However, passengers in airlines get to see nothing in the course of their travel except the airport of departure, the inside of the plane and the airport of arrival. By comparison a typical world cruise on the Royal Caribbean Line enables one to view the scaly Sydney Opera House, scale Great Wall of China, view the San Francisco Golden Gate Bridge and experience the Hong Kong Harbor all at the cost of ₤ 1000 (Duffy, 2002). Taking flights to all these four destinations would cost at least four times as much and one would have to use taxis from the airports as well (Smith, 2001). Conclusion The cruise market is a steadily growing and highly resilient business. It has survived everything thrown its way from jetliner competition to unfavorable politics and world wars. The future is now even brighter for this industry which is the oldest way for passengers to cross from one continent to another (Mclaren, 2003). Emergent markets in Asia and Africa as economies in the regions grow are increasing the demand for the services it offers (Spencer, 2010). Moreover, The competitive prices relative to the variety of products on offer aboard cruise ships are proving to be ever more attractive incentive to holyday makers. In fact, cruise ships have prove to be more than just a competition for traditional tourism on land, they have become an important aspect of those tours approaching the destinations by sea rather than overland. Forecasts therefore indicate that the future is very bright for the industry. References Best, K. (17 March 2010). "Cruise group celebrates growth of 'floating cities'". Melbourne, Florida: Florida Today. pp. 6C. Beveridge, B. & Hall, S. (2004). "Ismay's Titans". Olympic & Titanic. West Conshohocken, PA: Infinity. p. 1. Blum, E. (2002). 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Last Resorts: The Cost of Tourism in the Caribbean. New York: Monthly Review Press. pp. 156–158 Shawker, K. & Sehlinger, B. (2001). The Unofficial Guide to Cruises. New York: John Wiley and Sons. Smith, K. (2001). Cruise Vacations for Mature Travelers. New York: Griffin. Spencer, J. (2010). Cruiseline Confidential. New York: Lulu.Ulrich, K. (1999). Monarchs of the Sea: The Great Ocean Liners. London: Tauris Parke Books Ward, D. (2003). Berlitz Ocean Cruising and Cruise Ships. Washington D.C.: Berlitz Annual Guides Publications. Appendix of Figures Fig. 1. Major Holyday Cruise Destinations of the World. Retrieved on May 13th 2010 from ……..p 5 Fig. 2. First Quarter 2010 Reports of Cruise Lines in US$................p 8 Fig. 3. Economic Impact of Cruise Ships in America in 2009 (ibid)………. p. 9 Fig. 4. Major Consumer Demographic Changes in Millions 2007-9. retrieved on May 13th 2010 from ……………. P 14 Read More