By
Bill Becken |
The growth of the global cruise industry in the last few decades is the stuff of legend. Periodically, of course, certain events expose the industry’s growing pains – such as unfortunate, highly publicised groundings or strandings. But the growth itself, as the saying goes, is the kind of problem we’d all like to have and, of course, heralds future viability for the business.
With 22 ships, Royal Caribbean Cruises Ltd (RCCL) is the world’s second-largest cruise operator and holds about a quarter of the global market. Its closest competitors are 100-ship Carnival Corporation & plc, with about half the market, and 11-ship Norwegian Cruise Line, with about a tenth.
Among RCCL’s executives, one who personifies careful but energetic oversight is Brian Rice, who went from executive vice-president to vice-chairman late last year. “My role since then, frankly, hasn’t changed much,” says Rice. “I oversee things like supply chain, relations with shareholders, and succession planning. But I have been able to move a bit farther away from day-to-day matters, focusing more intently on some of our strategic initiatives, including new markets (such as Latin America and China) and trying to help our brands put together the best possible strategies for achieving their goals in global markets.”
Well before RCCL’s February release of its 2012 full-year results, it was known that, of the brands, Pullmantur was most challenged, due to the weak Spanish economy. Rice says Pullmantur will definitely diversify to counteract such weakness. In 2013, more than ever, the brand will be sourcing customers in Spanish-language countries other than Spain, mostly in South America.
“This is a major change for Pullmantur,” says Rice. “When we bought it in 2006, close to 90 per cent of its customers came from Spain. I believe this year we’re looking at about 40 per cent. So that’s been an evolution Actually, when we bought it, we foresaw the opportunity to make it more than a Spanish brand. The Latin American market loves to cruise, and has not really had a lot of focus put on it. So we felt that Pullmantur, with its Latin experience, the Spanish language aboard, the later dining and the cuisine, could become more of a pan-Latin brand. And it has.
“Indeed, the Southern Hemisphere is a market for all our brands, one we’ve actually focused on for many years. One of the reasons is that typically cruise lines don’t have enough ships during summer and have too many during winter – due to seasonal patterns in Northern Hemisphere vacations. By developing the Southern Hemisphere – including places like Australia as well as South America – we get a complementary season in which to create new demand to help improve our overall performance.”
China, on the other hand, is more in the way of a unique, wholly new market, says Rice. “It has a massive economy. We view developing such an area as less an opportunity to compensate for Europe than to prove our value in an exciting new market. We’ve been incredibly pleased with consumer receptivity to our brand in China, and RCI has wonderfully adapted the product offering to the market’s unique needs.
“On the other hand, a big challenge has been the regulatory front. It’s a completely different market to work in. We’ve had to overcome some of the legal entity requirements and the tax environment; we’ve had challenges with procurement – although lately we’ve mitigated those. So we’re very excited about China. It’s a market that I think, frankly, the jury may still be out on, but the early signs are very promising.”
In the meantime, Rice is proud to have maintained, over the last few years, more usual, ‘steady-as-she-goes’ benchmarks at RCCL such as increased profits, decreased costs, increased onboard revenue, lower-interest debt service and thrifty fuel hedging. He’s most proud that “we got through the great recession of 2008 to 2009 keeping our brands and products intact, not having to go through and do wholesale cost-cutting – although we’ve found great efficiencies and were able to keep lowering our costs.
“Above all, we preserved the quality of our brands, attained record-high guest satisfaction levels and kept building new ships. In 2009, one sell-side analyst questioned our viability and whether we could do all of this. Our share price dropped to just over US$5, mainly out of concern that we could not finance the buildout of the Oasis- and Solstice-class vessels. In fact, my team and I pulled off that financing at the very height of the financial crisis; we are all very proud of that.”
Rice says RCCL is highly transparent and consistent about its three basic business objectives: driving double-digit returns to shareholders; returning its credit rating to investment-grade; and ensuring that the company’s brands are well-positioned in the key markets. “I think we’ve been successful in doing all of those. And while we’re not yet investment-grade calibre, we’ve recently received some upgrades from the ratings agencies, we’ve been able to complete financing at incredibly attractive rates, and we have great access to the financial markets right now,” he says.
Looking ahead, he says: “The world evolves. We’re looking at the newest Oasis-class vessels as 30-year investments and not just at how they’ll perform in the first year or two. At the same time, we go in with a clear idea as to our options. We do want to make sure that we have sufficient demand for them over the long haul. You know, they’re big ships. But, for our guests, they have features and benefits that nobody else can touch. And so it follows that they’ve been incredibly well received in the market – they really do create new demand out there. All the more so, we’re excited about them.”