Cruises face a bumpy journey back to profitability

The cruise is back. Last week, enthusiastic travelers flocked aboard the UK first post-Covid cruise, and the The U.S. Congress passed a law which will allow travel to Alaska for pick up at the end of July.

And three major cruise companies listed – Carnival, Royal Caribbean and Norwegian – reported strong early bookings for 2022 despite limited advertising, and polls suggest that three-quarters of “cruisers”, as regulars are known, expect to go back to sea in the next few years.

The news comes as a relief after desperate passengers were quarantined aboard the Diamond Princess it became a prime symbol of the pandemic, and all three groups were forced to let crew go and pick it up. new piles of massive debts to be solvent.

The sector has been one of the biggest successes of tourism, especially in the United States. Until last year’s arrest, the number of passengers had grown more than 5 percent year for three decades to a record 29.7 million travelers, half of them North Americans, in 2019. Four companies (including the private MSC) control more than 80 percent of berths and post margins of 25 to 30 percent. one hundred.

The industry recovered first, from the recessions and the 2012 downturn Costa Concordia, which killed 32 people. “It’s important to remember the resilience of Americans and to travel. We have brief memories and people want to go on vacation. If you’re a cruiser, you’ll be a cruiser again one day,” says Pete Trombetta, senior analyst at Moody’s.

But this recovery will be particularly intricate this time around. After more than a year of near-total shutdown, companies will need months to requalify and vaccinate equipment and reactivate ships. The new health guidelines will limit capacity and limit roads, at least temporarily. And restrictions on international travel will make it more difficult for those crucial North American customers to take cruises departing in other countries.

The first initial journey of the MSC Virtuosa from Southampton called only in another British port and was limited by government regulations to 1,000 residents in the UK even though the ship may contain more than 6,000. Even if the EU think about welcoming vaccinated travelers, countries like Canada and the Seychelles have banned cruise ships until at least next year.

These limitations affect profits for an industry with high fixed costs and make it more difficult to attract new customers. Historically, one in three passengers has been a first timer, and cruise lines have ordered more than 100 new ships which will launch in the next five years.

Demographic changes can also be obstacles. Despite efforts to attract more young people with more adventurous activities, 51 percent of 2019 passengers they were at least 50 years old, a little over four years ago.

A McKinsey survey found that younger potential customers are twice as likely to be concerned with the environmental impact of their purchases. It’s a problem for an industry that relies on high-sulfur fuel and that has been repeated fine for pollution. Although many ships have scrubbers installed to clean their drains, most discharge acidic wastewater filled with hydrocarbons, ie particularly problematic in popular ports.

Cruise lines say they are looking to improve. Carnival recently launched two ships using liquefied natural gas, the Norwegian increases fuel efficiency and 14 ports around the world now offer plug-in power, allowing anchored ships to shut down their engines. Companies also scrapped 22 ships last year, nearly 6 percent of capacity, including some of the oldest and dirtiest ships.

The pandemic pause has also created a rare opportunity to change the sector’s economy. Now, most passengers rely on travel agents to help them get through the many choices of ships, itineraries and cabins. Morgan Stanley estimates that commissions consume 15 percent of revenues.

While regulars tend to book well ahead, cruise lines offer last-minute discounts to fill ships. The later the reservation, the smaller the opportunity to accommodate the passenger’s travel and extra sales on board such as beverage packages and ground excursions. Poorly advised first-time customers may end up on a cruise that is not a good deal and be returned permanently.

With reduced capacity and short-term demand, cruise lines don’t have to discount as much and can renew their online sites to cut down on middlemen, load more and improve the passenger experience all at the same time. . “This is a possibility for the category to rebuild demand in a new way,” says Bo Finneman, a McKinsey colleague.

If that happens, the cruise will not only return, but it will be better than ever.

Follow Brooke Masters with myFT and also Twitter

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