Moving two former Costa Cruises ships originally built for sailing Asia to the Carnival Cruise Line brand in North America has been an instant success, said John Weinstein, CEO of Carnival Corporation, speaking on the company’s second-quarter earnings call.
Weinstein said that Carnival Cruise Line will amount to about a third of Carnival Corporation capacity in 2023 and 2024, compared to approximately 25 per cent pre-pandemic.
The Venezia debuted in New York earlier in June and is the first of two ships that will operate under the ‘Fun Italian Style’ branding, with the Firenze set to join the fleet next year, sailing from Long Beach.
“These transfers are part of our portfolio management strategy, which is contributing to Carnival Cruise Lines’s capacity, growing 22 per cent more than pre-pause expectations. And Costa’s capacity is reduced by 36 per cent, compared to pre-pause expectations,” Weinstein explained.
“The added capacity to Carnival Cruise Line will not only generate outsized returns for the company but rightsizing the Costa brand is also having these desired effects of supporting its revenue profile confirmed by recent booking and pricing trends,” he said.
“We remain committed to our strategy of owning a portfolio of world-class brands, many of which are truly dedicated to specific markets and it’s clear the strength of this portfolio is now shifting into high gear.”
The new Symphony of the Seas will help propel the Caribbean to a record year of cruise capacity.
Despite the uptick in ships and passengers, capacity and pricing is not a concern for Royal Caribbean International.
“After the hurricanes in September, we saw that softness for about four to six or seven weeks but that recovered and picked up and we’re in a good booked position for Q1,” said Michael Bayley, president and CEO, on the company’s Q4 2017 earnings call. “And overall we’re feeling pretty good about the Caribbean for 2018.
“We’re fortunate because we’ve got the Symphony of the Seas coming into the Caribbean towards the end of the year. We have also got Celebrity Edge and we’re introducing Mariner of the Seas after an extensive modernization and revitalization and we’re putting that product into the short market, so that’s quite a lot of volume that’s coming into that market. We’re actually very excited about what that product’s going to do, the bookings are going very well and it’s still outside of its typical booking window because it’s a short product. So overall, we’re feeling okay about the Caribbean.”
As for the booking window, the company opened 2019 deployment four months earlier than in previous years.
Richard Fain, chairman and CEO of Royal Caribbean Cruises, noted the booking window continues to impress.
“Now you may recall that a year ago I said and I’m quoting, that the booking window has stretched as far as we will ever want and I don’t expect to announce another record level bookings a year from today,” Fain said. “Well I wasn’t terribly accurate, here we are a year later and we’re announcing another record level bookings.”
CFO Jason T. Liberty advised that other companies in the Caribbean marketplace may have pricing challenges, but those incidents are not indicative of the entire market.
“There are occasions sometimes when a new product enters the market from competitors and they may have some challenges initially and you may see some fairly aggressive pricing going into the market,” he said. “That can be disruptive but it’s very localized.”
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 Vacation.com 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.
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