President of Seabourn Cruise Line
I would like to comment on four pressing issues facing the cruise industry today.
The four main issues I see facing the cruise industry at this time are: Cruise Line Consolidation or Eradication; The Necessity of Developing New Cruisers; The Cruise Industry Distribution System and a variety of External Factors. Let's take them one at a time.
Cruise line consolidationI began making these annual statements when I was a rookie cruise line president back in 1992.
Much of the cruise industry is in a state of great challenge. We have seen the dissolving of cruise lines and even bankruptcy. In my view there will be more of both. It appears to be a fact of life in this industry. No more than six or seven cruise lines are making a profit at this time and I do not foresee a major change in this in the near future. The industry needs more multi-disciplined senior executives who have a wide range of talents, education and experience. Senior management must understand finance, strategic planning, marketing, sales and operations. Many executives who have displayed weaknesses in one cruise company are merely transferring their existing skills to other cruise companies. The results are self-evident.
The necessity to develop new cruisersThe cruise industry has had its poorest 24 months of growth in the last 20 years. Cruise capacity is increasing and there are fewer cruisers. The number of visitors to Las Vegas, Hawaii and Orlando grows while cruising has a slow growth at best.
According to the Cruise Lines International Association (CLIA) only five to seven percent of the North American population has ever taken a cruise. In 1995 the organisation says approximately 4.4 million persons cruised. Only about 4.6 million are expected in 1996. This is fewer persons than visit Hawaii or Disney World in Orlando each year - well over one hundred million. It would seem that the cruise industry is incapable of expanding the market when there is every reason to be able to do so. Studies by CLIA and other organisations show that cruises have an incredibly high satisfaction rate. But the cruise industry seems to be preaching to the converted - those who already know and love cruising. We need to step beyond this and so does the distribution system. Also, at last count there were more than 21 new cruise ships on the drawing boards or already being built in shipyards around the world. These are coming on line at a rapid rate. Many of these new ships will be in the 70,000 to 100,000-ton range.
With all this tonnage being added it is imperative that cruise lines expand the market and attract new cruisers. One should also note that as many as ten to 12 vessels could be retired due to SOLAS (Safety of Life at Sea) regulations. This fact alone could help to stabilise the cruise industry within 48 months at least for a period of time.
My observation is that the cruise industry and the travel agency community are simply regurgitating the same cruisers over and over again. They are all involved in market share shifting - moving cruise guests from one line to another by pushing the inevitable 'deal'. Is it any wonder that there are cruise lines that are simply disappearing, closing up shop and giving the end-user more bad cruise news?
Instead of promoting the 'deal' and selling on low-price and cluttering the nation's publications with an overload of price-led advertising until the consumer mind is reeling, cruise lines should sell the total vacation experience.
Cruising is a magnificent leisure time 'experience'. It is not confining or limiting contrary to some consumer thinking. It is as broad as the horizon and as diversified as the ports-of-call, cultures and social customs one encounters all over the world. Many cruise lines are hell-bent on stealing market share from other cruise lines. Does that make sense? It certainly has not proved profitable. Cruise lines need to go beyond these current horizons and figure a way to attract the land-locked vacationer. In doing so cruising could expand dramatically. Why fight the land vacation when you can be a part of it?
The cruise industry distribution systemToday, travel agents book approximately 95 per cent of all cruising. Will travel agencies continue to be the distribution system for cruising in the future? This remains to be seen. Travel agencies face tremendous challenges these days. Many segments of the worldwide travel industry are challenging the supremacy of the travel agent. Certainly these are difficult times for agents. But at the same time, this may be seen as a time for great opportunity for travel agencies. Some agencies take what they believe to be the easy way out, which is to sell on low price and without imagination. That may be an easy way for some to sell, but that way erodes the very integrity of the agent, not to mention his or her income. Travel agents need to not only focus on the vacation experience but the value of that experience as well. I interpret the word 'value' as meaning that which pleases and meets the expectations of the traveller. Value is not just low price. Value is that elusive quality of pleasing the customer, of meeting his or her desires.
What is the answer for the travel agency community? I believe it lies in one word - 'education'. Travel agents should stop being complacent order-takers only trumpeting the 'deal', and through education, learn how to sell travel experiences, study geography and generally focus on marketing and sales skills. A better business understanding is also needed. If they don't acquire this, they run a higher risk of becoming extinct. In a sense technology has surpassed the inactive and complacent travel agent already. Knowledge is power and consumers have never had more opportunities to educate themselves and to take the purchasing power literally into their own hands.
For example, consumers are surfing the Internet in growing numbers. It is believed that by the year 2000 there will be one billion users of the Internet. Travel is the fastest growing segment of the World Wide Web. While it is true that young people are the largest users of cyberspace, the next largest and fastest growing group per capita is the 55 and older group, 30 per cent of whom have their own personal computer. It seems that somebody out there is trying to tell us something. Researchers are saying that by the year 2000 the World Wide Web will account for more than seven billion dollars in sales. And that's just the tip of the iceberg. I said last year that travel agents must become dream merchants; not vending machines. Travel agencies must re-tool, so to speak. They must learn how to sell. They must take advantage of the fine training programmes offered by various travel industry organisations. In short, they must become travel counsellors and sellers. Having stated the above, the demise of the retailer is grossly overstated. Travel retailers are as good or poor now as they were five years ago. It seems that the commission 'cap' has given licence for trash talk. The distribution problems of five and ten years ago are basically the same today. There are great travel retailers who are talented and there are weak ones who simply don't have a clue. It is my prediction that retailers will continue to dominate cruise sales, but that the percentage of overall sales is likely to decrease by five or so points in the next three years.
When compared to sales of all other segments of the travel industry this is still impressive. This shift will entirely depend on distribution performance in this period.
Agents must step above this and declare their difference by performing. Actions speak louder than words. One of the travel retailers' greatest challenges is their own somewhat tarnished image.
Given the above it seems logical to conclude that cruise lines may explore establishing 'distributorships' and experiment in this area aggressively in the next five years. In other words, agencies and agents will be set up to focus on a limited number of products more aggressively. In doing so they will receive the lion's share of co-op monies, extensive training and receive more income-generating opportunities than the average agent. Finally, I see retailers and suppliers connecting with each other in unique ways. Suppliers will have little time for those who do not produce. Retailers will have little time for those products that don't move.
External forcesCertainly an explosion in technology is affecting travel agencies now and will impact on them even more in the future. The issue of a consumer's direct access to the travel product is a force to be reckoned with. However, direct access is not a replacement for good sales and marketing organisations. It is only a replacement for those who are weak in knowledge.
This is a Fed-Ex world. Speed of dispatch is all important. Agents who lag behind 'real time' service will lose out. The consumer wants convenience and choice with dispatch.
Then there is what I like to refer to as the 'value equation'. Value and pricing must be in delicate balance. Companies must control cost and offer the best value. I believe cruise pricing will stabilise and become firmer by 1998. It is my fervent hope that rampant discounting will decrease. Discounting will always exist, but generally it should not be every company's total marketing focus.
Obviously worldwide economic conditions will continue to impact the travel agency community and the cruise industry. This is where knowledge is power. The alert, therefore strong, players in this industry will be able to anticipate changing economic conditions and will move to overcome their effect. Similarly, world events - political and social problems - will continue to provide a strong challenge and can upset even the best devised forward planning.
I am optimistic about the cruise industry and optimistic about Seabourn's place in it. I am also optimistic about the future of the travel agency distribution system for cruising. Both must remain flexible and be able to assimilate changing conditions.
Seaborn Cruise Line