Sep
10
As oil prices surged to nearly $150 a barrel earlier this year, a lot of people started to ask what the impact would be on the travel industry. And in particular, what it would mean for the cruising segment, where bunker oil represents the single largest expense of any voyage.
The immediate response from both the airline and cruise industry was to bring in fuel supplement charges, which recovered only part of the added cost. But while airlines were free to raise additional revenue by increasing fares and adding extra charges for items like luggage, these were not viable options for cruise ships.
Oil prices are now back down to less than $105 per barrel (and forecast to tumble further), but people may still be wondering how the cruise industry will cope with oil prices if they remain above the $80 level.
Well, for starters – and this is good news for everyone who loves to cruise – it likely won’t come from an increase in basic cruise fares. With 34 new ships being launched in the next 4 years, and a net increase in lower berths of 11,686 in 2008 and 21,574 in 2009, there are simply too many cabins going begging to justify higher per diem rates.
In addition, with airlines cutting back on flights and increasing fares, we are beginning to see some booking weakness in long haul cruise destinations like South America and Europe. So my guess is that we will continue to see very attractive cruise rates for several years to come, particularly in markets where demand is soft.
I suspect we’ll also see cruise lines altering various itineraries to shorten routes and reduce fuel consumption. In fact, Royal Caribbean International (RCI) recently announced changes to the New England / Canada itinerary for the 3,000-passenger Explorer of the Seas. Rather than sail from New Jersey to Quebec City, next year the ship will add ports of call in New England and only sail as far north as Halifax.
According to a recent story by the Associated Press, some cruise lines are also looking at spending less time in certain ports so that ships can travel more slowly between destinations, thus saving on fuel. And the savings can be substantial. For example, a new Solstice-class ship in the Celebrity fleet will consume half as much fuel at 15 knots than it will at 23 knots — a savings of nearly $100,000 per week on fuel costs.
The AP story also noted that most cruise lines are now fitting ships with reflective window coatings to keep rooms cooler, and painting hulls with drag-resistance paint (the Disney Wonder was the first ship to use this technology).
In addition to cutting costs, cruise lines are also looking at ways to increase revenues from optional onboard activities. For example, by increasing margins from “pay-as-you-play” items like alternative restaurants, health spa treatments, liquor sales, shore excursions, retail shops, etc. And by adding new options such as cabana rentals and special activities, as well as creating new classes of premium cabins that fetch higher rates.
So while higher oil prices have and will continue to impact the cruising industry, the major cruise lines have figured out some smart ways to mitigate the effects on passengers while maintaining their profitability.
However, there remains one potential issue that is beyond the control of the cruise industry – competitively priced and reliable airlift. If the major airlines don’t get their acts together, it will become increasingly difficult for cruise lines to sell-off vacant cabins close to sailing dates for overseas voyages, because reasonably priced airplane seats will be in short supply that close to departure. If that happens, cruise ship occupancy rates could start to tumble.
In that scenario, you can bet that cruise lines will quickly shift capacity away from long-haul destinations, and into ports that are easier to get to by both air and car. In other words, the waters surrounding Alaska, New England, the Panama Canal and the Caribbean could get a lot more crowded in future — and cruise fares for these destinations more competitive than ever.
