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Strong demand, record orderbook, China, 'Trump effect' boost cruising, top leaders say

State of the Global Cruise Industry session - from top left, clockwise: Frank Del Rio hones in on destinations; moderator Susan Li of CNBC with Del Rio, Richard Fain, Arnold Donald, CLIA ceo Cindy D'Aoust, Pierfrancesco Vago and Seatrade gm Andrew Williams; Pierfrancesco Vago talks about newbuilds, and Richard Fain with Susan Li State of the Global Cruise Industry session - from top left, clockwise: Frank Del Rio hones in on destinations; moderator Susan Li of CNBC with Del Rio, Richard Fain, Arnold Donald, CLIA ceo Cindy D'Aoust, Pierfrancesco Vago and Seatrade gm Andrew Williams; Pierfrancesco Vago talks about newbuilds, and Richard Fain with Susan Li (Photos: Anne Kalosh)

With demand strong, emerging markets like China and Cuba, a $50bn-plus newbuild orderbook and the 'Trump effect' boosting the stock market, the cruise business may be at its best moment ever, top leaders said Tuesday.

This is the most positive general tone of business in memory, Richard Fain, chairman and ceo, Royal Caribbean Cruises Ltd., told the State of the Global Cruise Industry session at Seatrade Cruise Global.

'We've created demand' and are not dependent on a positive economic cycle to do well, said Arnold Donald, president and ceo, Carnival Corp. & plc. Even in a downturn, cruising offers 'the greatest vacation value.'

'It's going to be a good year,' according to Frank Del Rio, president and ceo, Norwegian Cruise Line Holdings.

'All of a sudden, there's a better understanding of cruise vacations in the US and Europe, and Asia is exploding,' he said.

The NCLH chief added that while it's too early to tell what impact the Trump administration may have, the talk is positive for business, at least—from the perspectives of improving infrastructure, reducing regulations and tax reform that will 'put more money in consumers' pockets.'

When it comes to regulatory matters, though, Brussels probably has more impact than Washington, according to Pierfrancesco Vago, executive chairman, MSC Cruises.

However, geopolitical issues are the biggest threat to cruising, in his view, 'but we give a cocoon to our customers. A cruise vacation feels like a very comfortable way to travel the world,' Vago said.

'We've got things going good now,' Donald agreed. 'The only thing that stops our industry is people's inability to travel. As long as the world stays open to travel, we'll do fine.' If the world shifts to closed borders, the Carnival chief added, that would be a problem.

In a new State of the Global Cruise Industry format resembling TED Talks, each cruise leader fielded a different topic.

Donald's was innovation, and he surprised the audience by not overtly focusing on technology like the Ocean Medallion Class concept Carnival Corp. is introducing.

Innovation is not about technology, Donald said, but about connecting people in life-changing ways. If Carnival can do that, without them realizing it, 'our guests become part of a community and, when they leave, they can't wait to get back.'

Donald said Carnival aims to deliver a personalized experience where interactions with other guests and crew are more meaningful. The Ocean Medallion, of course, is intended to help do that.

The $50bn-plus orderbook, which stretches out 10 years—bigger and longer than ever—is 'amazing,' MSC Cruises' Vago said. At the three main European cruise shipbuilders' yards, 64% of the orders are for bigger ships, while six other yards are building smaller, expedition-style vessels. And Asian yards entering the cruise building arena will be a game-changer, Vago said.

Zeroing in on design innovation, he described how shifting the engines from the back of the ship to the center became the basis for developing an entirely new type of design, MSC Seaside. Putting the weight in the middle sparks a host of positives, Vago said, from effectively splitting the ship in two to comply with Safe Return to Port regulations to improving passenger flow. And because the bigger a vessel's volume, the less the outdoor space, builder Fincantieri came up with novel ways to create more outside areas, including MSC Seaside's hotel towers and a promenade deck that's lower and closer to the ocean.

'What an incredible business this is, what an incredible future we have and what amazing toys we play with!' Vago enthused.

'I love destinations,' was the mantra of Frank Del Rio's presentation. The NCLH chief noted the destination is still the top reason for a cruise purchase decision and 'nothing else influences profitability like the destination does.

'I love their history, their diversity, their quirks and, most of all, I love them because they make us money,' Del Rio said. Where the ships go 'influences everything and is truly critical,' added the leader who still prepares or reviews every itinerary for every ship in his fleet.

Optimizing deployment is essential to optimizing yields, like $300 a day in the Baltic at the height of summer versus $100 in the Caribbean at that time. The same ship commands a $200 daily yield in the Caribbean in the peak winter season, and zero in the Baltic—because 'you'd be frozen in ice,' Del Rio quipped.

Destinations also influence on-board revenues because shore excursions, he said, comprise the biggest chunk of that.

All of this is why geopolitical issues that put destinations off-limits form the greatest threat to cruising, in Del Rio's view. And currently places like Tunisia, Libya, Egypt, Turkey and the Black Sea are 'no go' zones for most cruise ships.

Richard Fain tackled the issues of environment and safety, which he said are the 'sine qua non' for cruising—without them, 'there's really nothing.'

While cruise lines fiercely compete on most everything, environment and safety are rare areas of collaboration.

'We focus on continuous improvement, setting ever higher standards. We harness the collective ingenuity of our crew and our people in the headquarters. Together, we can do great things,' Fain said.

That means enforcing zero trash overboard and commitments to recycling, reducing harmful air emissions using scrubbers and, in future, LNG and fuel cells, and keeping the seas clean via advanced wastewater purification systems. Partnerships, such as Royal Caribbean's with the World Wildlife Fund, also help inspire and measure improvements.

'We're in an era where government is not a good guarantor of the environment's health, so we in private industry have to step up,' Fain said, to applause from the Seatrade Cruise Global audience.

When it comes to safety and security, they're a must. One new step at Royal Caribbean has been equipping security officers with body cameras, which Fain said has a 'calming impact' when people get angry or a fight breaks out.

Posted 14 March 2017

© Copyright 2017 Seatrade UBM (UK) Ltd. Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Seatrade UBM (UK) Ltd.

Anne Kalosh

US editor of Seatrade Cruise Review and Seatrade Cruise News

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