Chapter 14 Cruise Ships: Floating Resorts

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Chapter 14Cruise Ships Floating Resorts
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Identify the changing trends in and demographic
profiles of the cruise ship market.

• Travel by Ship
• The introduction of intercontinental commercial
  airline service precipitated the rapid decline in
  the use of ships as a scheduled passenger
  transportation mode.
• Cruising has taken the place of scheduled liner
  services.

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Changing Trends (cont.)

• The Cruise Experience
• Many tourists who choose to cruise perceive
  cruising as safe, social, service-oriented, and
  customer friendly.
• Cruise ships combine familiarity with the
  excitement of travel.
• Some travelers perceive cruising as expensive,
  claustrophobic, elitist, seasickness-inducing,
  and reserved for older couples only.

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Changing Trends (cont.)

• Major Players
• The major companies in the field include Royal
  Caribbean Cruise Line, Carnival Corporation, and
  Star Cruises/NCL.
• Cruise brands take great care when it comes to
  their reputations because customers believe a
  brand name implies a certain standard of cruise.
• Branding is essential for garnering new business,
  encouraging repeat customers, creating brand
  recognition, defining the companys approach to
  operations and marketing, and most importantly,
  establishing customer loyalty.

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Changing Trends (cont.)

• Ship Classifications
• Luxury
• Small liners with few passengers who enjoy
  five-star-level accommodations
• Premium
• Above-average service, food, and amenities
• Resort/Contemporary
• The modern floating resorts, complete with
  swimming pools, golf ranges, and climbing walls

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Changing Trends (cont.)

• Ship Classifications (cont.)
• Niche/Specialty
• Rely on specialization to attract their
  clientele. Emphasizes one or more aspects of the
  cruising experience, such as cultural
  interaction, soft adventure, or language
  enrichment.
• Value/Traditional
• Involves mid-sized, older cruise ships with fewer
  facilities than the newest megaships.

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Identify the critical variables in determining a
cruise ships profit potential.

• The Distribution System
• The cruise market can be divided three ways
  focused on the product, on customer identity, and
  on satisfying a need.
• Cruise Operators
• Cruise operators or brands dominate the market.
  They either lease or own cruise ships for which
  they create itineraries or products.

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Profit Potential (cont.)

• Cruise Operators (cont.)
• Cruises have a variety of fixed costs, such as
  fuel, port administration, and customs.
• To increase profits, the cruise operators seek to
  reduce these costs without adversely affecting
  quality. Larger companies can negotiate for such
  items as fuel and consumables much more easily
  than smaller companies. Through negotiations,
  costs can be effectively reduced, often by quite
  a bit.

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Profit Potential (cont.)

• Cruise Operators (cont.)
• Traditionally, cruise companies relied on travel
  agents to help them book cruises.
• Cruise operators rely on printed brochures to
  sell their cruises.
• Brochures are carefully designed to encourage
  advance booking, through such strategies as
  making off-season prices look dramatically lower
  than their on-season counterparts, and promising
  discounts for booking early.

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Profit Potential (cont.)

• Market Segments
• Six segments of the cruiser market include
  Restless Baby Boomers, Enthusiastic Baby Boomers,
  Luxury Seekers, Consummate Shoppers, Explorers,
  and Ship Buffs.

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Profit Potential (cont.)

• Travel Agents
• Travel agents who specialize in arranging cruises
  often form strong alliances with cruise
  companies, who frequently support their agents
  through training, sales events, and customized
  marketing materials.
• Alliances
• Cruise operators may decide to form alliances
  with other vacation service providers in order to
  create a more attractive package, or to create
  additional reasons for customer loyalty.

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Identify potential solutions to financial ratios
relevant to cruise ships.

• The Cruise Product
• Cruises have three different economic features
• Inelasticity - a cruise product is perishable
  because it cant be stored if its not sold
• Heterogeneity - the product consists of a variety
  of components that make the cruise experience
  different for each customer
• Complementarity - the cruise is not one single
  experience but a host of elements that combine to
  form the cruise experience

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Solutions to financial ratios (cont.)

• Dining
• The Buffet
• Main Restaurants
• Other Options
• Bars
• Entertainment
• Entertainment generally does not produce
  additional revenue for the cruise, but small
  sales can be made indirectly.

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Solutions to financial ratios (cont.)

• Shore Excursions
• Shore excursions are sold to passengers both
  before and during the cruise. Alone, they
  generate revenue, but the shore excursions true
  purpose is to add value to the cruise experience.
• Beauty and Therapy
• Cruise brands may contract concessionaires to
  provide the service or other brands may have
  their own staff.

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Solutions to financial ratios (cont.)

• Shopping
• Shops generally include fashion stores for both
  sexes, a gift shop, a general store, and a
  jeweler.
• Photography
• The presence of the photographers ensures that
  passengers can purchase professionally taken
  pictures, some of which are available in special
  presentation packs.

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Solutions to financial ratios (cont.)

• Casinos
• Cashless ships are becoming more popular within
  the cruise industry, with special cards for
  passengers to use that credit purchases to their
  account.
• Celebrations
• Many brands have developed special, inclusive
  wedding packages.
• Other celebrations can be catered to as part of a
  package, such as honeymoons, birthdays, and
  anniversaries.

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Identify the most important financial ratios
relevant to cruise ships.

• Managing the Hotel Department
• Managing Service
• Five elements must be consistently maintained in
  order to provide the best customer experience
• Officers, managers, crew, and staff must all be
  sufficiently trained
• Employees should be instinctively
  customer-oriented in their thinking
• Crew at every level should be empowered to solve
  customers problems
• Employees should be aware of company standards
• Employees should be capable of exceeding said
  standards

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Important Financial Ratios (cont.)

• Role of Tipping
• Cruise lines have different methods for tipping
  several choose to enact a no-tipping policy
  others provide a helpful brochure which suggests
  tipping in a very formulaic and orderly system,
  while some automatically levy a daily service
  charge.

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Important Financial Ratios (cont.)

• Managing Food and Beverage
• Supplies and Services
• Planning food and beverage supplies for an entire
  cruise ship relies on analyzing prior consumption
  patterns, planning menus for different types of
  passengers, forecasting needed quantities, and
  identifying expected changes to routine.

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Important Financial Ratios (cont.)

• Managing Facilities
• One of the main challenges involved in operating
  a cruise ship involves dealing with the lack of
  space.
• Yield management
• Defined by offering the proper type of inventory
  (cabins/staterooms) at the correct price to
  maximize revenue.

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Important Financial Ratios (cont.)

• Yield Management (cont.)
• The perishability of the product (a cruise cabin
  unsold on a particular cruise can never be
  resold) drives the yield management policy.
• The multiplier effect suggests that revenue can
  be made after the booking is already made, and
  therefore the yield management system needs to
  concern itself with attracting sales once onboard.

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Important Financial Ratios (cont.)

• Accommodation
• Because capacity may exceed 100 due to strategic
  booking, accommodation management must be
  extremely efficient, thorough, and above all,
  flexible

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Important Financial Ratios (cont.)

• Environment
• Traditionally, the hospitality industry has not
  been terribly environmentally friendly
• The industry as a whole uses immense volumes of
  energy, water, consumer goods, and rare luxury
  items while seemingly ignoring the environmental
  consequences of its consumer-driven product.
• Cruises in particular must take care that they
  are operating in a more ecologically friendly
  manner, simply because they operate in the ocean.

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Important Financial Ratios (cont.)

• Health, Safety, and Security
• Onboard diseases, such as the norovirus, tend to
  garner a lot of media attention, but they are in
  no way the only threats. Security is also a
  significant concern, especially because cruises
  have recently begun marketing themselves as a
  very secure vacation option.

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Important Financial Ratios (cont.)

• Centers for Disease Control
• In the 1970s, the US Health Services CDC
  introduced the vessel sanitation program as a
  reaction to several severe disease outbreaks
  aboard cruise ships.
• Sanitation Program Inspection
• Vessels that have a foreign itinerary, carry more
  than 13 people, and call into the U.S. must
  undergo a twice-yearly environmental health
  inspection as per the orders of the CDC.

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Important Financial Ratios (cont.)

• Safety
• There are a few downsides to the increase in
  security more bureaucracy, longer lines for
  passengers and crew to wait in, less privacy,
  increased costs, and a higher level of complexity
  when planning.
• Interestingly, security equipment are not as
  effective at preventing security issues as is
  creating a security philosophy and mindset
  among the staff, crew, and officers.

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Important Financial Ratios (cont.)

• Managing the Operation
• One key to successful management is understanding
  the attitudes and behaviors of the crew - knowing
  the employees.

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Important Financial Ratios (cont.)

• Cruise Destinations
• Todays ships are more like floating luxury
  resorts than a means of transportation, so its
  safe to say that the cruise ship itself can be
  interpreted as the destination.
• For cruises from the U.S., the most important
  cruise destinations are Alaska, the Caribbean,
  and the Mexican Riviera.

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The End!