Friday, 26 September 2014

Changes in Caribbean Cruise Capacity

How cruise lines and travel agents are handling fluctuating cruise capacity and prices in the Caribbean

Next year, Royal Caribbean will increase capacity in the region. // © 2014 Royal Caribbean
Next year, Royal Caribbean will increase capacity in the region.
// © 2014 Royal Caribbean

The Caribbean remains the top cruise destination for North Americans — it is the closest warm-weather getaway for many U.S. travelers, and it is associated with fun in the sun, a dash of culture and a hefty dose of shopping. The region has also become a bargain hunter’s paradise, with fares down much further than the cruise lines would prefer.

The cruise industry attributes fare declines to a recent 12 percent increase in capacity, plus negative publicity that has mostly affected first-time cruisers and impacted three- and four-day cruises. The Feb. 12 edition of Bloomberg Businessweek published a story titled, “A Caribbean Crowded With Ships Means Discounts for Cruise-Goers,” describing the plight of the cruise lines with “a flood of new cabins to sell.”

Caribbean capacity will fall next year, although not to the degree that cruise lines had hoped. Robin Farley, an analyst with financial firm UBS, said that a 1 percent rise in capacity during the first quarter will be counteracted by a 3 percent drop the following three quarters.

Changes contributing to the fluctuation in stateroom totals include a lull in Norwegian Cruise Line’s aggressive newbuild program. The company will not have a delivery for 18-plus months between last February’s launch of Getaway and the debut of Escape, set for October 2015. Addtionally, Royal Caribbean International’s 5,400-passenger Allure, the largest cruise ship in the world, will leave the Caribbean next year to sail from May to October out of Barcelona, Spain. MSC Cruises has also rethought the announced year-round deployment of the 3,502-passenger Divina out of Miami. Instead, the ship will spend part of next year in Europe.

Royal Caribbean will see the highest overall capacity increase in 2015 at 7 percent and the highest Caribbean increase at 1.7 percent. The Caribbean growth comes from the 4,180-passenger Quantum of the Seas, which has special features that analysts believe will allow it to maintain premium pricing. The ship will sail in the region from November to May only, and this short stint is expected to keep prices up.

Cruise industry veteran Bob Dickinson, leaving his consultancy for Carnival Corporation in May, has for decades said that demand must grow in order for prices to grow, and that the first-time cruiser is of the highest importance. For some travel agents, low pricing has been a boon for bringing in first-timer cruisers and for up-selling onboard accommodations.

Lindsey Kunzer, team leader for Liberty Travel in Los Angeles, noted that promotions and deep discounts have helped make this booking season a good one.
“Though there may be less commission made per booking, there were more bookings brought in by these promotions,” Kunzer said.

Mark and Jason Jacobs, respectively CEO and president of TA4Life in North Potomac, Md., and Orange County, Calif., see that low rates and inexpensive airfare are helping expand the cruise market. The pair report that their agency is making a lot more revenue — though pricing is down, many clients are choosing higher categories of accommodations.

“The Caribbean was neglected for a while, as cruise lines pulled out and went elsewhere — mainly Europe — for higher per diems and pricing in euros,” Mark Jacobs said. “Now that airfares are prohibitive in Europe and cruise fares are lower, we’re seeing a real resurgence [in the Caribbean].”

Some agents have looked outside cruising for higher commissions in recent years. The Jacobs brothers began selling all-inclusive land-based vacations a few years ago, in addition to cruises.

“All-inclusives are skyrocketing, and we are getting commissions on air,” Jason Jacobs said. “We did see some loosening up on cruise line non-commissionables at the conference, and some indications that there may be more commissioning on shore excursions and air from the cruise lines.”
The brothers are also looking more to river cruising, where commissions are bigger.

If pricing slowly strengthens, agents and cruise lines will see whether or not the new cruisers attracted to discounted rates stick with cruising as a Caribbean vacation, as well as how the Caribbean stands up to competing cruise destinations.