Cruise companies increase focus on pricing discipline

Cruise lines have long been loath to depart from the traditional business model of sailing at 100% occupancy. But recently they have started to test moves away from that paradigm.

In the latest attempt by cruise lines to break the cycle of last-minute discounting to fill ships, Royal Caribbean Cruises Ltd. Chairman Richard Fain said that starting in March, the company had stopped cutting prices on close-in sailing dates for all of its brands, including Celebrity and Royal Caribbean International.

Last-minute pricing discipline has become increasingly important because cruise lines admit that late discounting undermines their marketing assertions that only by booking early will passengers get the best fares.

“Depending on the type of cruise, that last minute may be 10, 20 or 30 days out,” Fain said in a conference call with Wall Street analysts. “But from that point on, we will hold our price at the prior level.”

Fain’s pledge applies only to North American itineraries and excludes the two- to four-day cruises, where last-minute sales are part of the typical booking dynamic.

Fain conceded that in the short term, it would mean that some RCCL ships would depart less than full. But he said that in the long run, price integrity would boost the brand and lead to higher revenue.

“It was really important to strengthen our brand, because in the long run it is our brand that is going to drive our yield improvements,” Fain said.

In the third quarter of 2013, Carnival Cruise Line adopted a strategy of holding firm on pricing even if its ships sail at slightly lower occupancies.

“We believe this will make Carnival’s pricing recovery more achievable as we move through 2014,” Carnival Corp.’s then-vice chairman, Howard Frank, said at the time.

Other lines, while stopping short of a pledge to halt last-minute discounting, said they have been doing everything possible to persuade customers to book cruises earlier.

“We don’t have a specific pricing promise, but I can absolutely tell you that our goal is to raise pricing as we get closer to sailing,” said Andy Stuart, president of Norwegian Cruise Line. “It’s a philosophy that my boss, Frank Del Rio, has lived by — a strategy of marketing to fill rather than pricing to fill.”

The time could be ripe for such a strategy. One factor driving last-minute discounting has been the glut of capacity in the Caribbean over the past 12 to 18 months. But starting this month, industrywide capacity in the region began to shrink year over year. With some berths shifting to other markets, cruise lines might have a better shot at maintaining a no-discounting model going forward.

Fain said last-minute discounts have a disproportionately large impact on sales efforts.

“They upset many of our most loyal customers by creating an uncertainty about the prices they pay,” he said. “They cause headaches for our travel agency partners, who don’t know what price they should rely on, and they undermine our brand image.”

Some travel agents have taken note of the philosophy shift at several lines.

“I think Norwegian and Royal are both trying to discount less,” said Debbie Fiorino, senior vice president of CruiseOne/Cruises Inc.

Fiorino said that agencies doing business under the CruiseOne/Cruises Inc. banner have more business on the books for 2016 than they did for 2015 at this point last year, and efforts to encourage early bookings by the cruise lines was one reason.

Other agents said Royal still has room to improve its policy.

“Almost all of our price-drop issues occur in the 30- to 60-day window before sailing, when everyone who booked early is in penalty because that is when Royal is most aggressive,” said Don Baasch, president of Last Call Cruises in the San Francisco Bay area.

Vicki Freed, Royal Caribbean International’s senior vice president of sales, trade support and services, said that by eliminating last-minute discounts, Royal expected to affect the whole psychology of the purchase decision, encouraging earlier action at every stage of the booking cycle.

Beyond eliminating discounts, several lines said they were taking a variety of steps to encourage early booking. These include announcing itineraries earlier, opening ships for booking further in advance and using yield management to encourage early demand.

Rick Sasso, president of MSC Cruises USA, said a new pricing structure introduced at MSC last year was meant in part to encourage early bookings.

“We came out with very aggressive group pricing, which is typically your most advanced cycle of bookings,” Sasso said. “It allows you to be fuller sooner. Then, you come out with an added-value pricing strategy. That has probably become the basis of what most lines are trying to do. So you’re not discounting the price, you’re giving more added value.”

Fain said it is too early to measure the success of the change in close-in discounting practices. But he indicated that the policy is here to stay.

“We think that getting our customers out of this sort of used-car-salesman type of mentality will be good for the brand, good for their experience and therefore lead to larger yields in the long run,” he said.

Wall Street analysts responded favorably to the idea.

In a note to investors, Susquehanna Financial Group analyst Rachael Rothman wrote: “While holding near-in price will cause near-term pain, given it is too late for [RCCL] to make up the difference by marketing its 2015 itineraries earlier, we believe this is the appropriate strategy to reinforce the brand image and improve profitability over the long term.”

Patrick Scholes, an analyst with SunTrust Robinson Humphries, said benefits from Royal’s move could be widespread.

“Getting rid of the ‘used-car-salesman mentality’ and eliminating last-minute deals dovetails with [Frank Del Rio’s] New Deal at Norwegian Cruise Line Holdings and could buoy the industry at large,” Scholes said.

For RCCL’s Fain, onboard art helps differentiate sister ships

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The giraffe wearing an inner tube, an art piece next to the climbing wall on Anthem of the Seas.

SOUTHAMPTON, England — Hanging on walls, suspended from ceilings, rising from pedestals and platforms, braving the weather on upper decks and turning stairwells into galleries, art is the singular attribute that defines and separates the personalities of the Anthem of the Seas and its structural twin, the Quantum of the Seas.

An astounding variety of media, from bricks to light bulbs, are employed onboard the Anthem, unified by the theme “What makes life worth living.”

Purchasing art for a cruise ship, it turns out, is a bit more complicated than selecting an oil painting to hang above your sofa.

There are a variety of technical as well as aesthetic considerations. For example, there’s little chance your apartment will list or roll or that the art in your home will be touched by hundreds of people every day for decades.

Or, if it’s kinetic or illuminated, that it will need circuitry beyond what’s specified for typical consumer appliances. (click the Video link to watch the Richard Fains artwork explained)

Anthem of the Seas Artwork with Richard Fain

And your backyard fountain probably isn’t programmed to shut down if the ground tilts beyond a certain angle.

Richard Fain, the chairman and CEO of Royal Caribbean Cruises Ltd. (RCCL), said during the Anthem’s pre-inaugural sailing that collectively, the art aboard the company’s ships represents a huge investment. RCCL’s spending on art is in “nine digits,” he said, though he also allowed that art is perhaps the only shipboard procurements that appreciate after purchase.

Most onboard art is acquired with the assistance of a consultancy that specializes in corporate art, though some is commissioned directly from an artist.

Over the years, there have been disappointments, even failures.

In 1987, RCCL commissioned a 9-foot-diameter clock that used tiny glass beads to tinkle, rather than chime, the quarter hour. It was for placement in the Sovereign of the Seas atrium. “I saw it work in the artist’s studio,” Fain said. “It was magnificent.”

And that was the last time he saw it work. The artist spent months tweaking it after it was installed. Engineers were brought in. But tinkling was never again heard.

“The head of [subsidiary] Pullmantur said, ‘I’ll make it work.’” But it was not to be. Today, it keeps time on a Pullmantur ship but still doesn’t function as intended.

When RCCL sells a ship, the art does not go to the buyer; it is removed, and sometimes finds a home aboard another ship.

Fain takes a strong personal interest in the art, and he can give nuanced analyses of various pieces, taking note of color saturation, light, movement, texture, technology, artistic intention and, it turns out, functionality. When he was first shown a catalog detailing the art aboard the Anthem (a catalog that was placed in every stateroom), he paused on the page of a large, illuminated piece and told an executive to check out the installation because “there are four lights out.”

Fain sees a “yin-yang” both in individual pieces and in how the Quantum’s and Anthem’s art varies. While the Quantum’s collection is by no means serious, Fain frequently used  the word “fun” to describe Anthem art. Perhaps the best examples of how the two differ are the choices of statuary on Deck 15, near the rock-climbing walls. The Quantum has a giant magenta bear, holding on to the deck above; not a serious piece, but not as whimsical as the giraffe wearing an inner tube on the Anthem.During a “Common Ground” session during the sailing, in which Fain and other executives answered questions, one agent stated, “I’m not interested in art — I don’t really have time to be interested in art — but this really opened my eyes.”

Another asked Fain, “Why a giraffe in a swimsuit?”

The curator-in-chief didn’t miss a beat in responding about what is possibly the most surreal object on the ship.

“What else would you have there?” he asked.

The future of onboard pools

Norwegian Star Pool and Slides
By Tom Stieghorst

As a kid, it was hard to keep me out of a pool, but now as an adult I’m less and less inclined to go for a swim.

I was thinking about this on a cruise aboard the Viking Star, the new ship from Viking Cruises, which has three pools. The main pool is midship; there is an infinity pool aft and a counter-current pool in the ship’s spa.

I can’t vouch for the third pool, but the other two did not get a lot of use that I could see. Several passengers I talked to agreed, and they had a variety of theories about why.

One was the cool April temperatures, in the 50s for the most part. The Mediterranean will heat up as summer arrives, and that alone might spur more use of the outdoor pools.

Another factor, one older woman confessed, is that she wasn’t too happy with her appearance in a bathing suit. A man said that the pools are overflow dining areas, and the presence of diners inhibited people from swimming.

The main pool on the Viking Star. Photo Credit: Tom Stieghorst
    The main pool on the Viking Star. Photo Credit: Tom Stieghorst

Unmentioned, but undoubtedly a factor, is that Viking does not encourage children as passengers. The 633 guests on my 10-day cruise between Istanbul and Venice were mainly in their 60s and 70s.

I have to think a ship operated by Carnival Cruise Line or Royal Caribbean International in the same timeframe and location would have more pool users based on demographics.

Which leads to the interesting decision by two cruise lines to get rid of swimming pools. Crystal Cruises planked over one of two pools on the Crystal Serenity in favor of a new dining area. And Windstar Cruises recently announced that it will remove the pool on the three ships it is acquiring from Seabourn, also for expanded restaurant space.

No one uses the pool, Windstar CEO Hans Birkholz said bluntly, in announcing the change at Cruise Shipping Miami in March.

It is tempting to think there will always be a pool on cruise ships. Windstar is adding a counter-current pool for exercise even as it eliminates the more traditional pool area.

Viking, which has no pools on its river cruise ships, opted for two outdoor pools on the 930-passenger Viking Star. And on large, activity-jammed ships in the contemporary segment, pools are an integral part of their appeal.

But on smaller ships that cater to mainly to older guests, there’s already been some erosion of the pool’s primacy. It leads me to wonder how much further the trend might go.