By
Michele Witthaus |
Since Richard Fain took up office in 1988, much has changed in the global cruise industry. Back then, Sovereign of the Seas had just made its debut, impressing with its 73,192 gt bulk. When Quantum of the Seas is launched in 2014 it will weigh in at 167,800 gt – more than twice the size. Similarly ambitious growth has been seen in many aspects of the cruise business, not least in Royal Caribbean’s founding share of it. The company’s core product offering has developed from largely Caribbean-based vacations for the comfortably retired to encompass active holiday options for all ages in many different geographies. Now deploying a total of 41 ships through its six brands – Celebrity Cruises, Royal Caribbean International, Azamara Club Cruises, CDF Croisières de France, German joint venture, TUI Cruises and Spanish operator Pullmantur – RCL carries more than five million guests annually.
The steady upward movement on the graph in terms of ship size, market share and profits, which quickly became the hallmark of Fain’s leadership, has been challenged in recent years by the global economic recession, geopolitical changes and other factors. A look back over the last year in particular reveals significant highs and lows; with some signs of recovery in the global economy and housing markets, consumer confidence has begun to rise in some regions but remains stagnant in others.
Subject as they are to market fluctuations, economic indicators and world events, the individual cruise brands bring different things to the company’s overall balance sheet at any point in time. The last few months have been testament to the changing fortunes of cruise lines, from the excitement over the launch of Celebrity Reflection and the continued take-up of luxury cruising evidenced by Azamara, to the difficulties faced by Pullmantur, which swung from US$36 million profit to more than US$ 390 loss in the wake of southern European economic hardship and austerity.
On the whole, although he says that last year held disappointments for him, Fain believes the company did a good job in navigating the economic and other storms. “There were a lot of headwinds in 2012, including the situation in the financial community in Europe and the tragedy in Italy, and I think to do as well as we did against that backdrop really showed the underlying strength of our business model. Guest safety reached record levels and our surveys of our crew members showed their engagement and satisfaction with what they are doing reached record levels. I’m pleased that we showed our resilience and I look forward to stronger growth, particularly as we put these kinds of things behind us.
“I think the most encouraging thing last year was the strength of the performance of our individual brands,” he remarks. “I am happy to say that all six of our brands have really demonstrated their ability to operate in a difficult environment last year. Azamara’s focus on destination immersion and new kinds of experiences, most recently ‘AzAmazing Evenings’, has helped propel that brand and its market penetration quite amazingly. The brand has really struck a responsive chord with the product.
“Croisieres de France has been a joy to behold, particularly because there was such scepticism about whether there was enough interest in France for cruising. France has never been a major cruising market and a lot of people felt that cruising wasn’t the style of vacation people wanted. I think the CDF brand has been able to demonstrate that if you offer a product tailored to French market, the French will respond aggressively. They’ve rewarded our foray into the French cruise market by solid bookings on the brand.”
The company’s joint venture with TUI cruises has enabled it to make a highly successful debut in the booming German market. With two more cruise vessels due for construction, the brand will comprise four ships by 2015. “The German cruise market has continued to thrive and TUI Cruises has done an excellent job to fill demand in that market,” says Fain. “I think Mein Schiff 3 will take TUI cruises to yet another level.”
He believes that even the beleaguered Pullmantur is finding ways to diversify in response to a very difficult environment in Spain. “The management has done a good job of facing up to the inherently challenging economic environment and it’s worked to make sure that its product serves its customers better. It has also focused more on non-Spanish guests so has diversified its reliance on one economy and has dramatically grown its Latin American market.”
Both source markets and deployment have shown divergent regional trends for the company in recent months. Overall, there has been a growing gulf between the US, which has seen rising demand and bookings, and Europe, which has continued to present difficulties. Despite strong demand for a two-month European summer ‘micro deployment’ for Oasis of the Seas following its Rotterdam drydock, RCL has said that it expects to further reduce its European deployment year-on-year by another 10 per cent and predicts that European itineraries will account for just a quarter of its overall 2014 capacity.
Fain is sanguine about the changes to itineraries. “The US market recovered more quickly than we might have expected, with other markets proving the attractiveness of our product,” he says. “We are lucky to be in an industry where our assets float and so we are in a position to move from one market to another, albeit not necessarily quickly. We continue to seek out the best markets but also try to add new ones that are more attractive to our guests.”
This is an abridged version of an article that appeared in the Autumn/Winter 2013 edition of International Cruise & Ferry Review. To read the full article, you can subscribe to the magazine in printed or digital formats.