Cruise Industry Aims to Double Market by 2000
Critics say industry may be overbuilding, as hotels did in the 1980s. THE OCEAN'S THE LIMIT
CHRISTOPHER COLUMBUS never dreamed that exploring the Earth could be so much fun," beckons the luxury cruise brochure. Nor so expensive, it might have added. At $500 to $1,000 a day this sort of "fun" is for the decidedly well-heeled.Skip to next paragraph
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But as prices sink, destinations increase, and the young and less affluent take to the seas, this elitist tip of the cruise market no longer does justice to the industry's broadening appeal.
Middle America has discovered cruising.
The industry is building for a boom. New fleets of ships are on contract to keep pace with the growing tide of custom. The headiness of rapid expansion has the Cruise Lines International Association (CLIA) touting a $50 billion to $80 billion market opportunity over the next five years.
The appeal is in the packaging, officials say. For as little as $800, you can go on a seven-day Caribbean cruise with air fare, ground transport, full board, and taxes all thrown in.
"We've barely scratched the surface of the percentage of Americans who can afford that type of vacation," enthuses John Estes, president of the Washington-based International Council of Cruise Lines.
An aggressive $230-million industrywide advertising budget last year has helped etch the new cruise image onto public perceptions.
"People used to think cruising was only for fat cats," Mr. Estes says. But almost half of today's cruise passengers earn less than $39,000 and are under 45 years of age. Close to two-thirds are repeat customers.
For more than a decade, Cruise lines have outstripped the growth rate of all other vacation categories in the United States. Industry officials expect the current 9.8 percent growth to hold till the year 2000; the annual number of passengers is projected to double by then to 8 million.
Even the Gulf war and a slumbering economy, which scared people off air travel and made them fiscally tight-fisted, could not stunt the industry's growth.
Royal Caribbean, the largest carrier in the industry, seems to have taken CLIA's growth forecast to heart and has tripled capacity in less than four years to 14,000 berths. In all, 26 new ships are under contract or planned to be added to the North American fleet by 1996, according to CLIA - 12 this year alone.
Gerald Celente, director of the Socio-Economic Research Institute in Rhinebeck, N.Y., thinks cruise lines are heading for a fall.
"They continually play the rosy scenario and think that they are an island just because they're floating out there," he says.
Half a dozen cruise lines closed last year through buyouts or bankruptcy, he points out.
In view of the stagnating economy and its own price war, the industry is overbuilding, Mr. Celente says. The hotel/motel business offers a cogent example of the pitfalls. Five years after its building boom, 40 percent of rooms stand vacant.
Celente predicts in his quarterly publication, the Trends Journal, that the nearly 90 percent occupancy rate of cruises will drop to at least 70 percent by 1996.
"Cruise companies will soon find themselves faced with an oversupply of cabin space as the demand from their market sector shrinks," he writes.
Cruise lines are cutting fares an average of 35 percent in 1992. "You cut prices so much and then you start cutting your heart out as costs keep rising," Celente says.
He sees the airline industry as proving the case. Caught in a Pyrrhic price war, a number of airline companies have already gone under while others are running just shy of bankruptcy.
John Crotts, director of the Center for Tourism Research and Development at the University of Florida, Gainesville, says it is too early to determine if the cruise industry is building for growth that may never materialize.
The only serious softening of demand - often an early sign of a mature market - was in 1989-90, when capacity started to exceed demand. But one year's drop is not enough to make a prediction, he says.
"It takes a few years to be able to ... determine [if] an industry has truly moved into its maturation stage," Dr. Crotts says.
He adds that most cruise ship passengers come from New York, California, and Florida - all states that have been wracked by the recession. This may have helped cause a temporary lull in demand, but not necessarily of interest in cruising.
Another cloud on the horizon is the Ship Builders Reform bill. It was passed by the House of Representatives earlier this year, but awaits Senate action.
Sponsored by Rep. Sam Gibbons (D) of Florida, the controversial bill is aimed at stimulating shipbuilding in the US. It would force cruise companies that build ships in subsidized foreign yards to repay the subsidy to either the foreign government or the US Treasury or be banned from US ports. If made law, it could force up the price of passenger tickets.
American shipyards have not built a cruise ship since the 1950s. "With the end of the cold war, the shipping industry has been left in the dust," Mr. Estes says. "And now they expect to be bailed out at the cost of cruise lines and their passengers."