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Cruise Insight Spring 2020 45

By Tony Peisley

In 2018 the four largest cruise companies carried 23.7 million passengers, or 83.3% of the 28.5 million total of global cruise traffic. In fact, as that CLIA Global total includes a small but unspecified number of US river cruise passengers, their share of the ocean cruise market was probably nearer 84%.

It will have been a similar story last year, when the global passenger total topped 30 million; but, in vessel number terms, their share of the ongoing orderbook has declined. This is because of the surge of small Expedition and Luxury ships, which are mostly for brands not owned by the Big Four companies – Carnival Corporation, Royal Caribbean Cruises, Norwegian Cruise Line Holdings and MSC Cruises.

Of the 96 ships currently due to be delivered between the beginning of this year (2020) and 2027, just 52 will be for those four – a 54% share. But their share of ordered capacity over that period still reflects their huge dominance of the market because 37 (71%) of those 52 ships are of mega-ship size (100,000t-plus).

To date, 170,000 of the 260,000 lower berths – i.e. 66% – coming on stream between 2020 and 2027 will be for the four companies. When the exact number for total berths on all these ships is known, that share will be more than 70%; and this will almost certainly increase as more orders are made for the 2024–2027 period, when the current surge for smaller ships is likely to have tailed off.

With the emergence of some new players such as Virgin Voyages and the expansion of the Genting Hong Kong group’s involvement in the sector, the four companies’ share may still fall a little below the current 84% but for the foreseeable future the global cruise market’s growth, success and profitability will be inextricably linked to that of the Big Four.

It therefore is instructive to subject them to that

favourite device of investment companies: the SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis.

This time, though, it is not so heavily weighted in favour of guiding investors towards potential short-term gains; rather it is a guide to the long-term prospects not just of these companies but, by extension, those of all stakeholders in the global cruise industry.

All four companies now have a global presence, and continue to be in expansionist mood; but they have quite different histories, corporate/brand structures and geographical priorities. As a result their SWOTs are equally diverse.

There is also an emerging fifth major cruise group – Genting Cruise Lines, a subsidiary of Genting Hong Kong which develops and operates integrated Asian casino resorts. The cruise division now includes three lines: the established international Luxury brand Crystal Cruises and Asian mass-market brand Star Cruises, alongside the new Premium brand Dream Cruises. Critically it also includes a shipbuilding/repair multi-location facility, MV Werften, which it has developed to ensure it has somewhere to build new ships as it expands all three brands.

A combination of the investment in the shipyards and payments on the various newbuilds ordered for Crystal and Dream have kept the cruise group in the red to the tune of $244 million in 2017, $213 million in 2018. Although two Global Class ships on order for Dream will have the highest passenger capacities – 10,000 – of any cruise ship built to date, as a group the company will not reach the passenger numbers of the other Big Four companies; but, because of their concentration on the upper end of the market, both in Asia and globally with Crystal, their revenues should edge closer to those of the four companies.

How they measure up: Analysing the Big FourHow they measure up: Analysing the Big Four


Latest year-end30 November 2019

Revenue$20,825 (2018: $18,881 million)

Operating profit/income$3,276 (2018: $3,325 million)

Net profit/income$2,990 (2018: $3,152 million)

Number of ships107 (2018: 103)

Number of passengers carried (’000)12,866 (2018: 12,407)

Brands, their key markets and sectorAIDA Cruises (Germany, Austria, Switzerland, China) – ContemporaryCarnival Cruise Line (North/South America, Australia) – ContemporaryCosta Cruises (Europe, South America, China/Asia) – ContemporaryCunard Line (UK, North America, Germany, Australasia) – PremiumHolland America Line (North America, Australasia, UK/Europe) – PremiumP&O Cruises (UK) – PremiumP&O Cruises Australia (Australasia) – BudgetPrincess Cruises (North America, UK, Australasia, China, Japan) – PremiumSeabourn (North America, UK, Europe, Australasia) – Luxury

“We overcame a high number of unusual events compounded by a significant downturn in leisure travel demand from our large source markets in Continental Europe to achieve record revenues and in adjusted earnings. This demonstrates the robustness of our business model.”

Carnival Corporation & plc CEO Arnold Donald

Carnival Cruise Line’s new 180,000-ton Mardi Gras will be the first North American-based LNG powered ship.

48 Cruise Insight Spring 2020

Strengths• As global market leader, carrying 44% of global ocean

cruise passengers – double the share of the second-largest cruise company – Carnival can leverage the greatest economies of scale.

• It operates the leading brands in most of the global cruise sector’s largest source markets: Carnival Cruise Line (North America), AIDA Cruises (Germany), P&O Cruises (UK) and Costa Cruises (Italy). This enables it tobenefitmorethanothercruisecompaniesfromallcruise promotional activity, not just its own, in these markets.Itbenefitsfromitshighbrandrecognitioninthose markets.

• It owns the brands – Costa and P&O Cruise Australia – which are, respectively, the longest-established in both China (the fastest-growing source market of recent years and the one with the greatest potential for growth) and Australia, which is the most successfully penetrated cruise source market.

• It owns more brands – nine – than any other company, and that gives it more flexibility to transfer shipsbetween them rather than have to sell ageing vessels to potentially rival brands.

• It has brands in all the traditional product niches – Budget, Contemporary, Premium and Luxury –which provides a clear pathway for persuading past passengers to trade up to higher-yielding brands as theirfamilyandfinancialcircumstanceschange(e.g.from young families to empty-nesters).

• Itsmuch-increased profitability of recent years hasenabled it to invest in the crucial technology required to meet the demands of destinations, regulatory authoritiesand–tosomeextent–passengersforitto provide the most environmentally friendly product possible.

• Those same profits are also helping it to fund and create – either directly or through joint ventures – the port and destination infrastructure which exactlymeet itsoperationalneeds.Thiscan in turnalso create an attractive return on investment (e.g. Grand Turk).

• Anotherkeybenefitfromitsescalatingprofitabilityhasbeen the much higher level of promotional activity it can now justify in under-penetrated source markets, such as Europe. This alone is stimulating demand in markets which had previously struggled because of thecruising’shistoricallylowprofile.

• Its foresight in setting up its own production company to make and sell programmes (initially to the US TV networks), which market the generic concept of cruising while soft-selling its individual brands, has not only generated a broader demographic interest in cruising across North America but has also raised theprofileofallitsbrandsinthatmarket.Itisdifficultto imagine that spending an equivalent amount on a major advertising campaign would achieve equivalent results.

Weaknesses• Its policy of building simpler, less innovative and

therefore lower-cost new ships than its major rival RCC was, at one stage, seen as a Carnival strength reflected in its healthier bottom line.However, overtime, it became a weakness as it lagged behind RCC in terms of both consumer perceptions of their respective leading brands – Carnival Cruise Line and Royal Caribbean International – and also in terms of the rates which their new ships could command. Carnival has taken steps to redress this (most recentlypromotingthefirstrollercoasteratseaforitsnew Mardi Gras), but CCL has a way to go before it will match the ‘Wow’ factor that the RCI brand has grown to embody.

• Similarly,CarnivalLuxurybrandSeabournhashadtoplay catch-up in the wake of several rival brands as wellassomenew-to-the-LuxuryExpeditionsector.Itseemed slow to see the potential in a sector which has become the fastest-growing niche in global ocean cruising. It has, though, moved to address this through expedition-designated newbuilds and theadaptationofexistingships.

• Although the broader impact of the Costa Concordia disaster was limited and short lived, there is no doubt that the Italian cruise market has yet to recover fully. As the ‘face’ of that disaster, and also as that market’s brand leader, Costa also lost ground which it has yet tomakeup.ThedecisiontoreduceCosta’smainfleetby five shipsmaybea reasonable response to thesoftness of the market generally in Southern Europe, and its decision to introduce several new ships; but the lingering Concordia impact cannot be disregarded asacontributoryinfluence.

• ThereisnodoubtofthebenefitCarnivalgainedfromitsprescienceinbeingthefirst–throughCosta–toopen up the Chinese cruise market, but its caution aboutthespeedofexpansion intheregionandtheequally understandable reluctance to spend too heavilytooquicklydidmeanthatthefirst-responder– RCI – was able to steal its thunder by sending its latest, highest-quality and – ultimately – the firstcustomised ships to China. Again Carnival has since responded, mainly through the Princess brand, but the damage was done.

• Carnival Corp. and, in particular, Carnival Cruise Line remains the industry’s biggest name across North Americabut,althoughthisbringsmanybenefitsinsalesandmarketingterms,thereisadownside:itmeansfirstlythat any negative cruise incident will have some impact on its standing and, secondly, that – if it is the company or brand involved in that incident – it will receive more media attention than would be the case for any other company/brand. This was highlighted in the recent past when several CCL ships had problems during cruises and found themselves all over social media as well as in the conventional Press.


Opportunities• Thehuge–yet still unquantified– investment in its

OceanMedallion technological development couldyetproveawiseone.Thecomplexityofretro-fittingallthewiringandothertechnologyneededtocreatethe enhanced passenger experience promised bythis innovation led to successive delays in its roll-outacrossthePrincessfleetandof itsextensiontootherCarnivalbrands.But lastyear thesebegan tobeovercomeandbytheendof2020mostPrincesscruises will have the Medallion Class option forpassengers. At the same time the company isreporting not just improved satisfaction ratings onMedallionshipsbutthattherehasbeenan‘uplift inticketprices’forthoseships.

• Althoughthecruisecompanieshavepromisednottouse ‘sustainability’ issues as competitive weapons,the increasingsensitivityofmediaand–toa lesserextent–consumerstosuchissuesmakesitinevitablethatthosecompaniesmakingthegreateststridesinthis directionwill benefit commercially.Carnival ledthewaywithitsLNGshipordersand,althoughRCCrespondedwith the trialling of battery power on itsown LNG ships, Carnival has since raised the barwithtwomoves:theinstallationofthelargestbatterystoragesystemtogoonaship(AIDAperla),onethatwill contribute to the propulsion system for limitedperiods; and the trialling (onAIDAnova) of the firstfuelcellsystemdesignedforlargepassengerships.As long as it leads theway – not by anymeans agiven,withthefast-movingnatureofthistechnologydevelopment – it will have not just a commercialadvantage but one in terms of public relations,which will prove increasingly important in terms ofrelationshipswiththedestinationstowhichitsshipsoperate.

• Like theothercruisecompanies,Carnival –CCL inparticular – had allowed distance to form betweenitselfandthetraveltradeduringtheearlypartofthiscentury as it focused on using new technology tomarketandsellitsproducts.Thentheseriesofshipincidentsearlier thisdecadesawCCL’s image takeabattering,withtravelagentssingularlyunwillingtodefend it to its clients.Since then it hasattemptedto get themback onsidewith a series of initiativesincluding its Why Use A Travel Agent (WUATA)campaign and, most recently, its most expansiveprogramme of ship tours and seminars at sea forthetrade.Atsomestageonlineprogrammeswillbedevelopedthatwillbesophisticatedanduser-friendlytoencouragemanymorepassengerstobookdirectwithoutgoingthroughanagent;butthatstilllooksalongwayoffand,until then, themore travelagent-friendlyacruisecompanyshowsitselftobe,themorechanceitwillhaveofmeetingitstargets.

• It is coincidental – but still instructive – that all thecompaniesinvolvedinopeninguptheChinesecruise

sourcemarket agree that a key reason thatmarkethasstalled is the lackofanetworkof travelagentssuchas thatwhichexists in theestablishedsourcemarkets. Having to deal through wholesalers hasbeenproblematicfromthestartand,in2018,Carnivalwasthefirst–butonlyjust–tostartswitchingawayfromthewholesalerchartermodel,initiallytowardsagroupsalesmodel.

• The South American market has also provedproblematicforavarietyofreasons,andthismeantthat pioneer and long-time market leader Costasteppedbackforacoupleofyears,allowingMSCtotakeoverasleader.Butthepotentialremains,anditissignificantthatCostahasaddedathirdshiptoitsfleetpositionedthereforthe2020/21winterseason.

• In the sameway that it missed (albeit deliberately)onthe‘Wow’factorsofRCI,CCLalsoeschewedthedual-classapproachofMSC(withitsYachtClub)andNCL(withitsHaven).Butitsnewclass,ofwhichMardi Gras isthefirstship,willhave180ExcelsuiteslinkedtoLoft19, itsnewopen-air enclaveconceptwhichofferssuitepassengersexclusiveaccesstoarangeof amenities. This is CCL’s opportunity to benefitfrom the extra revenue the Excel accommodationwillbringin,butalsothebroaderdemographicwhichit will attract – a demographic which presents animprovedopportunitytoswitch-sellCCLpassengerstoahigher-yieldingCarnivalproductinthePremiumorLuxurysectors.

Threats• The most invested in the burgeoning Australian

market,Carnival is themostconcernedthat lackofinvestmentintherightportinfrastructure–particularlyinSydney–couldstallgrowthofamarketthatisnotjust important in its own right but also because ofhowitdovetailswithseasonalChinesedeployments.

• RCC’s purchase of two-thirds of Silversea Cruisesmeans that arguably the main competitor toCarnival’sLuxurybrandSeabournisnowbackedbya much better resourced company. It must expectSeabourn’sshareoftheNorthAmericanmarkettobeparticularlytargeted.

Untitled-3 1 13/08/2019 11:14

Latest year-end31 December 2019

Revenue$10,951 (2018: $9,494m)

Operating profit$2,083 (2018: $1,895m)

Net profit/income$1,908 (2018: $1,816m)


Number of passengers carried (‘000)6,554 (2018: 6,084)

Brands, markets and sectorAzamara Cruises (North America, UK, Australasia) – Premium PlusCelebrity Cruises (North/South America, UK, Australasia) – PremiumPullmantur (Spain, South America) – a joint venture with Springwater Capital – BudgetRoyal Caribbean International (North/South America, UK, Europe, Asia, Australasia, Asia) – ContemporarySilversea Cruises (Global) – a joint venture with existing Silversea owners – LuxuryTUI Cruises (Germany) – joint venture with TUI AG – Contemporary/Premium

Strengths• Recent research suggesting that Millennials not only

embrace cruising as much as its loyal core market of Baby Boomers but that they are likely to book even more per year. This plays right into the deliberately created images of both RCI and Celebrity as the most innovative, on-trend brands in their sectors. Their use of the latest technology to enhance the passenger experience will have clear appeal to both Millennials and Generation X-ers.

• Carnival’s closure of Ibero Cruceros left Pullmantur in pole position to exploit a recovering Spanish economy and, whereas its full ownership of Pullmantur had been a significantbottom-lineweaknessforRCC,thenewjoint-venture structure (with RCC’s share reduced to 49%) has turned the brand into a potential strength for the co-parent.

• RCC’s much-improved financial performance in recentyears–andthesolidprojectionsforfutureprofitability–hasput paid to the unrest among some of the key shareholders, which at one stage was undermining the top management. Without this turnaround it is quite possible that the June 2018 $1 billion investment (plus assumption of $350 million debt) to buy 67% of Silversea would not have been sanctioned.

• It can be a two-edged sword, but there is no doubt thatsocialmediacanbeamajorforceininfluencingconsumer opinion and purchasing habits. Among the Big Four, RCC was an early adopter of marketing strategies using this new tool and is well placed to benefit from its ever-growing influence. Initiativessuch as the appointment of RCI’s own ‘Insta-traveller’ to select land-based experiences to form the basis of shore excursions, and its concentration on bloggers and podcasters rather than conventional media, has clearly paid off in terms of product visibility in thesocial media community.

“We are pairing ambitious business and environmental goals because we all understand that businesses must do our part to meet the needs of all our stakeholders. Our people have worked hard to deliver strong performances on both profitability metrics and important societal goals.”

Royal Caribbean Cruises Ltd Chairman and CEO Richard Fain


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Weaknesses• The very strength and quality of each new class of

RCI ship – and the unprecedented level of investment to revitalise (or, more recently, ‘revolutionise’) the existingfleetofshipshasonlyservedtoexacerbatethecompany’slong-termissueoffindingitdifficulttosecurepremiumrates forCelebrityCruises,even inspiteofthatbrand’ssimilarinvestmentsininnovativenewshipsandcostlyrefurbishmentprogrammes.

• RCC’s cost control has never been as strong andeffectiveasCarnival’sand,althoughithasclosedthegapinrecenttimes(henceitsimprovedprofitability),itstillisn’t.

• TheCaribbeanremainsamajorpartofthedeploymentmixforRCC’sthreemainbrands,andthetrendisformore capacity to be sent there in the near future.This is because themajor players – RCI, CCL andNCL–haveallworkedtominimisetheleveloflast-minutediscounting,butthesecouldbeunderminedifMSC’sdesiretowinamuchbiggershareoftheNorthAmericanmarketturnsouttobepricedriven.

Opportunities• TheadditionofSilverseaCruisestoitsbrandportfolio

givesRCCitsfirstaccesstotheLuxurymarketwhichiscurrentlybuoyantbecauseofitsdiversificationintothepotentiallylucrativeexpeditionniche.Therearesomeobvious synergies with the demographic bookingAzamara and top-endCelebrity accommodation butit does put a question-mark against the CelebrityXpeditionsub-brandintheGalapagos.MergingitintoSilversea’sExpeditionoperationwouldseemtobeanopportunity to reduce overheads. The more recentadditionofHapag-LloydCruisesintoitsTUICruisesjvofferssimilaropportunities.

• TheintroductionofLNG-poweredshipsforRCImayormaynotproducecostsavings,buttheuseoffuelcells on the same Icon class vessels is certainly a chance to test a propulsion source which could prove evenmoregame-changinginthelongtermthanLNG.

• AlthoughitwillhavebeendisappointedathavingtowindupitsSkySeajointventureinChina,thatattempttooperateadomesticChinesebrandwillhavegivenit added insight into a uniquely challengingmarketwhich,alongwithitseffortstomodifyitsdistributionnetworkintosomethingmoreinlinewiththoseitusesinWesternmarkets,willhelpitgainmaximumreturnfromits investment inChina. Its latestdecision–todeploythefifthOasisship(thelargestclassofcruiseshipintheglobalfleet)fromShanghaiafteritsdeliveryin2021–isasignthatthecompanyisconfidentofachievingjustthat.

• Private islands have long achieved the highest satisfaction ratings for ports of call on the itineraries of allthebrandswhichfeaturethem,butitlooksasthoughRCChas found theway to take themonetisationoftheirpopularitytoanew,muchhigher,level.Thecost

of converting its existing private Bahamian island CocoCayintothefirstofaseriesofso-calledPerfectDaydestinationswasabreathtaking$250million,buttheinclusionofapremiumexclusivebeachclubvenue(Coco) represents a new and potentially substantialrevenuestream.Passengerresponsetotherevampeddestinationhasreportedlybeenverypositive,andhasprompted RCI to begin operating four-day cruiseswhichincludetwocallsatCocoCay.Thisshouldboostthebottomlineonthosecruises.

• There will inevitably be some negativity about thePerfect Day concept from more conventional ports of callwhichhavealreadyprotestedaboutcruiselinesbuildingshipswhichencouragepassengerstospendmoretimeonboardduringportvisits.RCCwillhopeits50:50involvementwithMexicancompanyITMina new destination company (Holistica) will deflectsuchcomplaints.Itsbriefistocreatedestinationsforcruisevisitorswhichprovidethemaximumbenefitforlocal communities while creating minimum disruption to those communities and their environment.In the current climate of overtourism concerns, Holistica should provide visible evidence of RCC’scommitment to the sustainability of its operations.

Threats • Asthelargestcruisecompany,Carnivalmaybefirst

inlineforanybrickbatscomingthecruiseindustry’swayfromthegrowinganti-cruise lobby;butRCCisnot far behind, simplybecause it builds the largestandmostnoticeableshipstocall inmostportsanddestinations.Thosewillbetheships initiallysingledoutwhen–asnowseemslikelyatsomestageinthefuture–an increasingnumberof thosedestinationsstartlimitingcruisecallsorbanningthemaltogether.

• RCC was once in negotiations with the Virgin group about a possible joint-venture cruise brand. Thisapparently foundered, inter alia, on the issue of whichbrandname(RoyalCaribbeanorVirgin)wouldbeused.NowthatVirgin isaboutto launchitsownbranded cruise line, RCI (along with CCL, NCL,PrincessandCelebrity)willbefirmlyinitssights.Thatsaid, the threat is far greater for Virgin than for those establishedbrands.

• Viking Cruises has been adding more orders fornew ships (some apparently for a new Expedition sub-brand) so that it will have 16 ships by 2027,butAzamarahassettledforadding justoneship (asistertoitsothertwo).Thisappearstoshutthedooron its long-held plan to order its own newbuilds –andmakes the brand vulnerable to Viking Cruises’dominance.

Latest year-end31 December 2019

Revenue$6,462 (2018: $6,055m)

Operating profit$1,178 (2018: $1,219m)

Net profit/income$930 (2018: $955m)


Number of passengers carried (‘000)2,696 (2018: 2,795)

Brands, markets and sectorNorwegian Cruise Line (North America, UK, Europe, Australasia, Asia) – ContemporaryOceania Cruises (North America, UK, Europe, Australasia) – Premium-PlusRegent Seven Seas Cruises (North America, UK, Europe, Australasia) – Luxury

“Our business model once again demonstrated its resilience in the face of significant exogenousheadwinds by delivering

yet another successful year in 2019. As a result of the strong global demand for cruises, we entered 2020 in the best booked position and at prices higher than last year’s record levels. This trend continued until the COVID-19 outbreak began having an adverse impact but our company has an exemplary track record of resilience in challenging environments and we remain confident in our ability to deliver strong financial performance over the long-term.” Norwegian Cruise Line Holdings President and CEO Frank Del Rio

FUEL & ENERGY EFFICIENCY LED LIGHTING UPGRADESDuring Norwegian Jewel and Norwegian Star’s dry docks in 2018, the lighting instruments in all onboard guest entertainment areas were upgraded to more energy-efficient LEDs. Over 200 units were replaced per ship. This change results in a 70 percent reduction in daily energy consumption and 50 percent reduced heat output.

NEW HULL COATING Propulsion power represents just over fifty percent of the total energy use on a ship. Ninety-two percent of our ships have had low friction coating applied, which helps increase propulsion efficiencies.

WASTE HEAT

RECOVERYOne of the most successful programs implemented on our ships is Waste Heat Recovery (WHR). This process works by recovering heat from the engines and transferring it to freshwater piping—allowing us to utilize a free source of energy for improving water production and saving fuel.

FUEL-SAVING MEASURES Data is collected from all our ships to track the largest energy consumers on board and to assist in establishing Key Performance Indicators to identify where energy efficiency improvements can be made. In 2018, we worked to optimize the speed and trim of ships. We also implemented new air filters and essential components in the air conditioning systems to reduce energy consumption.

EXHAUST GAS CLEANING SYSTEMSOne innovative technology our ships use to decrease exhaust emissions is an Exhaust Gas Cleaning System (EGCS). This technology reduces the amount of sulfur oxide (SOx) and particulate matter emitted from the ship by cleaning, or scrubbing, the emissions before they are released from the stack. Ships equipped with this technology are able to reduce SOx emissions by up to 99 percent. Ninety-one percent of systems installed on our ships can operate in open or closed-loop, which is known as a hybrid system. This allows the ships to operate the systems within compliance in expanded areas of the world.

COLD-IRONINGOur ships continue to generate their own power in ports. Less than one percent of the ports we visit have installed infrastructure for cruise ships to connect to onshore electrical power grids to supply much of the power needed while docked—a process known as cold-ironing.

Six of Norwegian Cruise Line’s ships are equipped with cold-ironing, also referred to as shore power, and we are continuing to evaluate the availability of shore-power connections for future new builds and itinerary planning.

2018 ENERGY-SAVING HIGHLIGHTS

4% ESTIMATED INCREASE IN PROPULSION EFFICIENCY FOLLOWING NEW HULL COATING APPLICATION

11.3% ESTIMATED

DECREASE IN BOILER FUEL CONSUMPTION, COMPARED TO 2016

© 2019 Norwegian Cruise Line Holdings Ltd. Ships’ Registry: BAHAMAS, MARSHALL ISLANDS AND UNITED STATES OF AMERICA.


Norwegian Cruise Line’s next generation ship – the Leonardo Class

Strengths• Themoreconservativedeploymentstrategy that the

companyhasadoptedforthemainNorwegianCruiseLinebrandhasbeendictatedbythegapbetweenthesize of its fleet and that of its twomain rivals,CCLandRCI,which hadbeen allowed todevelop underprevious ownership andmanagement. This, though,has helped it avoid exposure to the higher costs(and risks) of opening up new markets like China,whereithelpedthecompanythatitonlyhadoneshipthere (which itmovedquickly to redeploy)when theKorea travel restrictions were imposed in 2017 andcontributedtoastallingofthemarket’sgrowth.

• Its capacity growth has been equally measured,culminating in its latest order for NCL which is forsix shipsof a smaller size than itsmost recent shipclasses (Breakaway and Breakaway-plus). With arelativelymodest3,300lowerberths,theseLeonardoclassshipswillgiveitsfleetmoredeploymentflexibility,includingtheoptiontoopenupnewmarketsoncethefleethasreachedasizeatwhichtherisksofdoingsoaremuchreduced.

• There must have been a temptation to grow theOceania Cruises fleet more rapidly than has beenthecase,followingthepositivepassengerreactiontoits launchandhaving thebenefitofaveryattractivefinancialdealtocharterandacquirethreeshipsfromthe ashes of the RenaissanceCruises collapse. Butsince then it has been content just to add a fourthex-Renaissance ship and build two new ships forintroductionin2011/12.Theseweredoublethesizeoftheoriginalships,butitwillbeafulldecadebetweentheirintroductionandthatoftwonewships(ofsimilarsize) currently on order for 2022 and 2025. By thatstage the original ships will be 25 years old, andlikelytobephasedout–moderatingwhat isalreadyaclearlysustainablecapacitygrowth.Thenewshipswill, though, allow it to compete with fast-growingVikingCruiseswhilegivingitanedgeoverAzamara.

• Thegambletakento includeshoreexcursions inthecruisepriceandmakeRegentSevenSeasCruisesthemostall-inclusively-pricedLuxurybranddoesappearto have paid off, with its profitably improved to theextent that ithasbeenable tocommit to threenewshipsandinvest$150milliontoupgradeitsfirstthree.

• HavingafullyfledgedLuxurybrandwithintheNCLHgroup gives the presence of The Haven – a LuxuryproductwithintheNCLships–addedimportanceasanalternativeoptionforRSSCclientslookingtotaketheirextendedfamilies(includingchildren)onalargershipwithmoreentertainmentoptionswhilestillbeingaccommodated inaLuxuryenvironment.The recentmovetocreateanon-landversionofTheHaven–theSilverCoveon itsGreatStirrupCayprivate island–strengthens its position with potential Luxury brandcustomers, while also further monetising its privateislandconcept.

Weaknesses• The company still remainswell behindCarnival and

RCCintermsofscale,butarguablyitsrealweaknessisthatitdoesnothaveabrandtocompetewithCelebrity,Holland America Line and Princess in a Premiumsector which is growing faster than ever and hasfoundmorewaystoboostonboardspendingthroughnewdiningandentertainmentoptions.Thisgapinitsportfolioexplainsitscontinuedattempts(all-inclusivepricing is the latest) to position NCL as a Premiumproduct–somethingthat,giventhepassengerdensityof its ships, seems doomed to failure.There alsoremains someconcernabout the lackofdepth in itstopmanagement structure. Itwoulddescribe its leanstructureasapositive,cost-savingfeature;buthavingaCEO(FrankdelRio)seentobeinvolvedinsuchnitty-grittyoperationalactivitiesasitinerary-planningandartselection for newbuilds does suggest there could bedelegationissueswithinthecompany.

Opportunities• NCLH is the only one of the Big Four yet to order

an LNGship. This couldbe seen as aweakness –certainly in PR terms – at this stage but it equallyprovedtobeanopportunitytosecureabetterdeal,usingnewertechnologywithalaterdeliverythatalsoallowsittobenefitfromamorecomprehensivesupplyanddistributionset-upwhichitsrivalswillhavehadtoplaytheirpartinestablishing.

• In an increasingly complexmassmarket-place, thesimplicity of the all-inclusive message could be asignificant plus for the NCL brand. It is, though, arelativelyhigh-riskstrategy.

• There are signs of recovery in the South American(primarily Brazilian)market, and formermarket leaderCosta’splan toaddcapacity (which ithadpreviouslyredeployed)suggestsanopportunityforNCLtoreclaimitsownshareofthepotentiallylucrativewintermarket.

Threats• MSCisaclearthreattoNCLHgloballybutparticularly

intheUSmarket,asitsexpansionplanstherecoulddamage NCL yields in the Caribbean. The sameapplies to CCL and RCI, but the threat of losingbookings to MSV is greater for NCL because itssimilaritieswith that product aremorepronounced.BothbrandshavepretentionstoPremiumstatusandalso their own inbuilt Luxury products within theirownships.

• The other key threat for NCLH is that – despitethe addition of twobrandswithin the group –NCLremains far and away the largest contributor to itsrevenues,so thegroupdoesnothave the rangeofmarket-sourcing of either Carnival or RCC. ThismakesNCLHmorevulnerabletothefall-outfromanysingle-brandincidents,suchasthosethathitCostaandCCLinrecentyears.

Cruise Insight Spring2020 55

Latest year-end31 December 2019 – results due April 2020

“We need to have a strong and clear vision for the future while combining this with timeless style. Through

intelligent innovation and design we will be able to facilitate all kinds of future experiences.” MSC Cruises Executive Chairman Pierfrancesco Vago

Revenue(2018: €2,751m)

Operating profit(2018: €484m)

Net profit/income(2018: €348m)


Number of passengers carried (‘000)2018: 2,400

Brands, markets and sectorMSC Cruises (Global) – Contemporary

MSC Cruises has named its first World-Class ship MSC Europa – the first of five LNG-propelled ships to be built for the company in France.


Strengths• The parent company, Mediterranean Shipping

Company, is the world’s second-largest containershipping company, and as such has agents, othercontactsandoperationalexperience inmostglobalportdestinations.Thishasbeenasignificantfactorinthesuccessithashadinbuildingupaglobalcruisebrand from relatively humble beginnings. The otherfactorshavebeenthestabilityandprofitabilityoftheparent company (celebrating its 50th anniversarythisyear)alongwiththecommitmentofitsfounder–owner,GianluigiAponte,tobecomeamajorplayerinthecruiseindustry.

• MSCCruisesisstillalargelyprivatefamilycompany,although a move into the bond market to raisecapital for its ongoing fleet expansion programmehas meant that it now has to publish its financialresults toawideraudience.Thismeans itcanstillbe quicker on its feetwhen it decides it needs totakeexecutivedecisions.

• Based in Switzerland, but with strong links to Italy(Naples in particular), it has been able to claimsupremacy (in passenger numbers) in theMediterraneancruisearena.

• Having deliberately used a hotel design specialistto create their style, MSC ships have a uniqueboutiquehotel lookand feelwhichgives thebranda USP which is particularly effective in Europeanmarkets

Weaknesses• Operating justasinglebrand inonemarketniche

continues to limit its reach across the globalcruisesector.IthastriedtopositionthisbrandasaPremiumproduct,but inreality– itsMSCYachtClubimplantaside–itisinthesamemass-marketContemporarynicheasCCL,RCIandNCL.ThisisonereasonthatitsprofitablyislessthanhalfthatofNCLH’s,despitepassengercarryingsbeingsimilar.In2018 itcarried just14%fewerbut its revenueswerelessthanhalfthesizeofthosegeneratedbyNCLH brands – which include the higher-earningLuxury and Premium-plus brands RSSC andOceania.

• It has yet to become a substantial player in theUSmarket, although its latest attempt is themostambitious yet and stands the greatest chance ofsuccess.AlthoughCostahasspentyearspromoting‘Cruising Italian-style’, it has never deployed thepercentage of capacity that MSC plans, becauseCarnival knew its CCL brandwas better placed toattract US passengers. If anything, MSC onboardstyle isevenmoreItalianthanCosta’s;andthis justdoesnotplaywellinsomedemographicswithintheUSmarket.MSCrecognisesthis,andiscustomisingto some extent; but it remains to be seen howsuccessfulthiscanbe.

Opportunities• MSC already has a toe in the Luxury cruise sector

withinitsexistingshipsthroughitsexclusiveupscalearea (MSC Yacht Club) so its decision to launch aseparateLuxurybrandwithnewbuildsmakesgoodsense.ItwillallowthecompanytoretainYachtClubpassengers who currently have to book elsewhereif they decide they want a similar environment buton a smaller ship catering exclusively for Luxurypassengers.

• ForsimilarreasonstoNCLH(i.e.smallerfleet)MSCwasdeliberatelynotamongthepioneersofex-Chinacruising,but itsrapidfleetexpansion isnowallowing it tosendmuchlargerandnewershipstotheregion.Thisshouldestablishitasakeyplayerasthemarketexpands.

• The substantial involvement of its parent in thebroader maritime sector should provide it withenhancedaccesstotheevolvingemissions-reducingtechnology,asevidencedintheinclusiononitsfirstWorldClassnewbuild(delivery2022)ofthefirstLNG-poweredfuelcellonacruiseship.

Threats• The scale and speedofMSC’s capacity expansion

– the target is to more than double passengernumbersto5.3millionby2026–willputpressureonitsprofitabilityoverthecomingdecade.ThiswillbeexacerbatedbyitsNorthAmericaambitions,asthesewillsetithead-to-headagainstCCL,RCIandNCLaswellasstart-upVirginVoyages. Itwill test thenew-foundresolveoftheestablishedbrandstoholdpricesandeschewlatediscountingiftheybelievethatMSCintendstousepricetogainalargershareoftheUSmarket.AnypricewarwouldhaveanimpactonMSCprofitability.

• EconomicandgeopoliticalissuesintheMediterranean– particularly in Southern and Eastern Europe, theMiddleEastandNorthAfrica–havebeenaffectingyields for thepastcoupleofyears. If thiscontinuesandworsens,itwouldaffectMSCmorethananyoftheBigFourbecauseithasthehighestshareofthatmarket.

Cruise Insight Spring2020 57

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