CARIBBEAN CRUISE

The ships and passengers

will keep coming but …

By Jan Sierhuis

At the most recent FCCA Caribbean Cruise Conference in Trinidad, the Lines agreed that 2009 will be a bad year, but most were confident that by 2010 the markets will recover.

In fact, the cruise industry is showing confidence that it will survive the financial crisis, which has hit its major source markets. However, despite this confidence, the behavior of the industry seems to spell out a different reality.

The cruise industry, like all segments of the worldwide leisure market, is more severely affected by the financial crisis then it may be willing to admit. The executives’ confidence is rooted in the fact that the industry’s ‘floating assets’ can be moved to markets were people are still willing to cruise. The industry has survived earlier crises in this way. Its objective now is to continue to fill the ships at any price, take the loss and ride out the tide until better times arrive.

Will it survive this time again?

Yes, it will, but maybe not all brands.

Will it affect the Caribbean?

Yes.

How?

That will largely depend on the enveloping nature, length and depth of the recession. Of course, we have no crystal ball to allow us to peek into the future. Nonetheless, to some extent the reaction of the industry can be forecasted and we will attempt to describe its effect on our region.

First and foremost, the redeployment of ships to ‘survival’ markets is already taking place and this will almost certainly benefit the Caribbean in terms of volume. Traditionally, when things go bad the industry returns to its ‘home grounds’ in the Caribbean. This will translate into increased cruise calls and passenger arrivals in the short-term. However, to fill this ‘survival’ capacity in the Caribbean, cruise fares will have to be reduced considerably. The deeper the discounts, the lower the spending power of the public that boards the ships.

This translates into lower yields for the cruise line and less spending on-board and, needless to say, in the destinations. Thus, in 2009 we may expect happy Caribbean tourism officials taking pride in increased passenger arrivals, combined with unhappy Caribbean businessmen and women, because the lines will pass on the burden of discounting to their Caribbean suppliers, in an effort to keep their own yields up. The tour suppliers expressed such fears at the FCCA Conference in Port of Spain last October.

If the cruise industry source markets do in fact recover by 2010, this short-term ‘volume boost’ will be over by 2011 and business will be ‘as usual’ again. However, this remains to be seen. In the present environment, the industry is withholding new ship orders beyond the current order book, which runs up to around 2011. Some lines are cancelling or trying to cancel existing orders. If there are no signs of economic recovery by 2010, this behavior may lead to a complete stop of the new building machine, such as we have seen in the years following the “9/11” incident. This will almost surely lead to capacity problems, once the overseas markets recover. If this happens, the Caribbean could be faced after 2010 with a situation where ships move back to Europe and other markets, leaving the Caribbean with insufficient capacity and no new ships to ‘stir’ the market and recover yields.

In the worst case, if the recession continues beyond 2010, this could lead to a prolonged depression of our market. With no new ships being built, the Caribbean quickly loses its attraction for experienced cruisers and yields will continue to go down.

Hence, we expect that the real crisis will hit the Caribbean in 2010/2011 and even beyond then, depending on how the economic recession plays out and how quickly the cruise industry resumes to ‘business as usual’ and, most importantly, its new-building orders.

On a positive note, things just never work out is predicted by economists and industry experts. Only some things are certain: the sun still shines, the ships still sail and the passengers still come. But be prepared that less money will be made in the coming years. However, if the industry survives, so will the Caribbean. After all, that is what ‘marriages’ are made for!

- December 1, 2008.

Jan Sierhuis is Chairman of the CSA Cruise Committee

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