Chapter 14 Cruise Ships: Floating Resorts

Identify the changing trends in and demographic profiles of the cruise ship market. Travel by Ship The introduction of intercontinental commercial airline service precipitated the rapid decline in the use of ships as a scheduled passenger transportation mode. Cruising has taken the place of scheduled liner services.

Changing Trends (cont.) The Cruise Experience Many tourists who choose to cruise perceive cruising as safe, social, service-oriented, and customer friendly. Cruise ships combine familiarity with the excitement of travel. Some travelers perceive cruising as expensive, claustrophobic, elitist, seasickness-inducing, and reserved for older couples only.

Changing Trends (cont.) Major Players The major companies in the field include: Royal Caribbean Cruise Line, Carnival Corporation, and Star Cruises/NCL. Cruise brands take great care when it comes to their reputations because customers believe a brand name implies a certain standard of cruise. Branding is essential for garnering new business, encouraging repeat customers, creating brand recognition, defining the company’s approach to operations and marketing, and most importantly, establishing customer loyalty.

Changing Trends (cont.) Ship Classifications Luxury Small liners with few passengers who enjoy five-star-level accommodations Premium Above-average service, food, and amenities Resort/Contemporary The modern “floating resorts,” complete with swimming pools, golf ranges, and climbing walls

Changing Trends (cont.) Ship Classifications (cont.) Niche/Specialty Rely on specialization to attract their clientele. Emphasizes one or more aspects of the cruising experience, such as cultural interaction, soft adventure, or language enrichment. Value/Traditional Involves mid-sized, older cruise ships with fewer facilities than the newest megaships.

Identify the critical variables in determining a cruise ship’s profit potential. The Distribution System The cruise market can be divided three ways: focused on the product, on customer identity, and on satisfying a need. Cruise Operators Cruise operators or brands dominate the market. They either lease or own cruise ships for which they create itineraries or products.

Profit Potential (cont.) Cruise Operators (cont.) Cruises have a variety of fixed costs, such as fuel, port administration, and customs. To increase profits, the cruise operators seek to reduce these costs without adversely affecting quality. Larger companies can negotiate for such items as fuel and consumables much more easily than smaller companies. Through negotiations, costs can be effectively reduced, often by quite a bit.

Profit Potential (cont.) Cruise Operators (cont.) Traditionally, cruise companies relied on travel agents to help them book cruises. Cruise operators rely on printed brochures to sell their cruises. Brochures are carefully designed to encourage advance booking, through such strategies as making off-season prices look dramatically lower than their on-season counterparts, and promising discounts for booking early.

Profit Potential (cont.) Market Segments Six segments of the cruiser market include: Restless Baby Boomers, Enthusiastic Baby Boomers, Luxury Seekers, Consummate Shoppers, Explorers, and Ship Buffs.

Profit Potential (cont.) Travel Agents Travel agents who specialize in arranging cruises often form strong alliances with cruise companies, who frequently support “their agents” through training, sales events, and customized marketing materials. Alliances Cruise operators may decide to form alliances with other vacation service providers in order to create a more attractive package, or to create additional reasons for customer loyalty.

Identify potential solutions to financial ratios relevant to cruise ships. The Cruise Product Cruises have three different economic features: Inelasticity - a cruise product is “perishable” because it can’t be stored if it’s not sold Heterogeneity - the product consists of a variety of components that make the cruise experience different for each customer Complementarity - the cruise is not one single experience but a host of elements that combine to form the cruise experience

Solutions to financial ratios (cont.) Dining The Buffet Main Restaurants Other Options Bars Entertainment Entertainment generally does not produce additional revenue for the cruise, but small sales can be made indirectly.

Solutions to financial ratios (cont.) Shore Excursions Shore excursions are sold to passengers both before and during the cruise. Alone, they generate revenue, but the shore excursion’s true purpose is to add value to the cruise experience. Beauty and Therapy Cruise brands may contract concessionaires to provide the service or other brands may have their own staff.

Solutions to financial ratios (cont.) Shopping Shops generally include fashion stores for both sexes, a gift shop, a general store, and a jeweler. Photography The presence of the photographers ensures that passengers can purchase professionally taken pictures, some of which are available in special presentation packs.

Solutions to financial ratios (cont.) Casinos Cashless ships are becoming more popular within the cruise industry, with special cards for passengers to use that credit purchases to their account. Celebrations Many brands have developed special, inclusive wedding packages. Other celebrations can be catered to as part of a package, such as honeymoons, birthdays, and anniversaries.

Identify the most important financial ratios relevant to cruise ships. Managing the Hotel Department Managing Service Five elements must be consistently maintained in order to provide the best customer experience: Officers, managers, crew, and staff must all be sufficiently trained Employees should be instinctively customer-oriented in their thinking Crew at every level should be empowered to solve customers’ problems Employees should be aware of company standards Employees should be capable of exceeding said standards

Important Financial Ratios (cont.) Role of Tipping Cruise lines have different methods for tipping: several choose to enact a “no-tipping” policy; others provide a helpful brochure which suggests tipping in a very formulaic and orderly system, while some automatically levy a daily service charge.

Important Financial Ratios (cont.) Managing Food and Beverage Supplies and Services Planning food and beverage supplies for an entire cruise ship relies on analyzing prior consumption patterns, planning menus for different types of passengers, forecasting needed quantities, and identifying expected changes to routine.

Important Financial Ratios (cont.) Managing Facilities One of the main challenges involved in operating a cruise ship involves dealing with the lack of space. Yield management Defined by offering the proper type of inventory (cabins/staterooms) at the correct price to maximize revenue.

Important Financial Ratios (cont.) Yield Management (cont.) The perishability of the product (a cruise cabin unsold on a particular cruise can never be resold) drives the yield management policy. The multiplier effect suggests that revenue can be made after the booking is already made, and therefore the yield management system needs to concern itself with attracting sales once onboard.

Important Financial Ratios (cont.) Accommodation Because capacity may exceed 100% due to strategic booking, accommodation management must be extremely efficient, thorough, and above all, flexible

Important Financial Ratios (cont.) Environment Traditionally, the hospitality industry has not been terribly environmentally friendly The industry as a whole uses immense volumes of energy, water, consumer goods, and rare luxury items while seemingly ignoring the environmental consequences of its consumer-driven product. Cruises in particular must take care that they are operating in a more ecologically friendly manner, simply because they operate in the ocean.

Important Financial Ratios (cont.) Health, Safety, and Security Onboard diseases, such as the norovirus, tend to garner a lot of media attention, but they are in no way the only threats. Security is also a significant concern, especially because cruises have recently begun marketing themselves as a very secure vacation option.

Important Financial Ratios (cont.) Centers for Disease Control In the 1970s, the US Health Service’s CDC introduced the vessel sanitation program as a reaction to several severe disease outbreaks aboard cruise ships. Sanitation Program Inspection Vessels that have a foreign itinerary, carry more than 13 people, and call into the U.S. must undergo a twice-yearly environmental health inspection as per the orders of the CDC.

Important Financial Ratios (cont.) Safety There are a few downsides to the increase in security: more bureaucracy, longer lines for passengers and crew to wait in, less privacy, increased costs, and a higher level of complexity when planning. Interestingly, security equipment are not as effective at preventing security issues as is creating a “security philosophy and mindset” among the staff, crew, and officers.

Important Financial Ratios (cont.) Managing the Operation One key to successful management is understanding the attitudes and behaviors of the crew - knowing the employees.

Important Financial Ratios (cont.) Cruise Destinations Today’s ships are more like floating luxury resorts than a means of transportation, so it’s safe to say that the cruise ship itself can be interpreted as the destination. For cruises from the U.S., the most important cruise destinations are Alaska, the Caribbean, and the Mexican Riviera.

The End!