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The cruise industry: itineraries, not destinations

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Author(s): Dr. Jean-Paul Rodrigue, Hofstra University, New York, USA, & Dr. Theo Notteboom, ITMMA, University of Antwerp, Antwerp, Belgium

From liners to cruise ships

The global cruise industry carried about 19.1 million passengers in 2011, up from 7.2 million in 2000. Since 1990, over 154 million passengers have taken a cruise of more than two days. Of this number, over 68 percent of the total passengers have been generated in the past 10 years and nearly 40 percent in the past five years. The global growth rate of the cruise industry has been enduring and stable, at around 7 percent per year, in spite of economic cycles of growth and recession.

The emergence of the cruise industry can be traced to the demise of the ocean liner in the 1960s as it was replaced by fast jet services for which it could not compete. The last liners became the first cruise ships; the availability of a fleet of liners, whose utility was no longer commercially justifiable, incited their reconversion to form the first fleet of cruise ships. However, liners were not particularly suitable to the requirements of the emerging cruise industry. For instance, since many liners were designed to operate on the North Atlantic throughout the year for scheduled passenger services, their outdoor amenities such as boardwalks and swimming pools were limited. Additionally, they were built for speed (which was their trademark) with the related high levels of fuel consumption.

The first dedicated cruise ships began to appear in the 1970s and could carry about 1,000 passengers. By the 1980s, economies of scale were further expanded with cruise ships that could carry more than 2,000 passengers. The current largest cruise ships have a capacity of about 6,000 passengers.

The cruise industry finds its business model

The modern cruise industry began in the late 1960s and early 1970s with the founding of Norwegian Cruise Line (1966), Royal Caribbean International (1968) and Carnival Cruise Lines (1972), which have remained the largest cruise lines. The early goal of the cruise industry was to develop a mass market, since cruising was until then an activity for the elite. In doing so, it developed a business model reflecting the mobility of its assets: the cruise industry sells itineraries, not destinations, implying a greater flexibility in the selection of ports of call and adaptability to changing market conditions.

Applying this business model in the past decades, the cruise industry developed into a mass market using large vessels and adding more revenue generating passenger services onboard. The Caribbean, with its winter peak season, remains the key market, but its dominance is being slowly eroded by the Mediterranean market, which offers a complementary summer peak season. Furthermore, strong niche markets have developed, focusing on, for instance, history (Hanseatic cities in northern Europe) or natural amenities (Alaska). Since the cruise industry is a relatively small segment of the global touristic sector, it has so far been very successful at finding customers to fill ever larger ships. The cruise product has become diversified to attract new customers and to respond to the preferences of a wide array of customer groups. In doing so, the cruise industry has innovated through the development of new destinations, new ship designs, new and diverse onboard amenities, facilities and services, plus wide-ranging shore side activities.

Capturing passengers and value

What is novel with cruising is that the ship represents in itself the destination, essentially acting as a floating hotel (or a theme park) with all the related facilities (bars, restaurants, shops, theaters, casinos and swimming pools). This permitted cruise lines to develop a captive market within their ships as well as for shore based activities (for example, excursions or facilities entirely owned by subsidiaries of the cruise line). Some cruise operators go very far in developing new entertainment concepts on board of their vessels, such as surf pools, water parks, ice skating rinks or rock climbing walls.

Onboard services typically account for between 20 and 30 percent of the total cruise line revenues. The average customer spends about $1,700 for their cruise, including on ship and off ship expenses for goods and services. The majority of these expenses are captured within the cruise ship, as passengers spend on average $100 per port of call.

 

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Edition 54

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