Cruise profits under threat?

ABTA Convention special report: Suggestions that the cruise industry’s buoyant profitability levels are under threat have been strongly rebuffed.

Travelzest chief executive Chris Mottershead, in his “future gazing” session at the ABTA Travel Convention, claimed that cruise lines were failing to attract younger customers yet bigger ships are to be introduced into an already saturated market.

He warned that the the outcome could be too many cabins chasing low margin customers.

“The problem the cruise companies have is that in the future new customers into this market simply don’t want to pay what the traditional customer was prepared to pay 10 years ago,” Mottershead told delegates. “They may be trying to attract a younger customer but these tend to be less wealthy and they don’t see why they should pay more for a cruise than any other holiday.

“To date the average age of a cruise customer has not changed for the main cruise lines, so despite all the hype, cruise is not attracting a younger customer so where will the required growth come from? Lower prices will be the only way to attract them which in turn leads to bigger ships.

“These bigger ships are a must because they will provide the economies of scale. Will everyone want a four-star floating resort? Some will but the cruise industry seems to be following the tour operator mass market concept and this will lead to higher turnover, more required economies of scale and potentially lower margins.”

But Mottershead’s theory was challenged by Royal Caribbean International’s European managing diector Susan Hooper and Carnival UK boss David Dingle.

Hooper, whose company next year introduces Freedom of the Seas – the world’s largest cruise ship – denied there was a problem with the price, adding that people were prepared pay to experience the ultra-larger vessels offering new on-board experiences.

She made the point that less than two per cent of people in the UK have taken a cruise.

And Hooper described cruise as “probably the most profitable part of the business” and “God’s gift to travel agents”.

Dingle, disputing Mottershead’s forecast, said the cruise industry was in a “virtual supply-demand situation” because there was not the shipyard capacity available to increase the level of new vessels.

“That’s why prices continue to go up,” he said. “There is no great need for us to rapidly grow younger cruises because we have a population that has many years in it and cruise has a high loyalty factor.”

Report by Phil Davies