Comment: Rough seas in Europe for cruise operators

The sinking of the Costa Concordia in January 2012 sparked a turbulent year for the cruise industry in Europe, writes Michelle Grant, travel and tourism analyst at Euromonitor International.


"The sinking of Concordia in January 2012 impacted the entire European cruise market with bookings declining in the months after the accident.


Carnival Corp held prices steady after the accident and monitored consumer sentiment through weekly surveys.The company felt enough time had passed for it to restart its marketing campaigns in Costa's key markets of Italy, France and Germany at the beginning of April. The company found that it needed to discount by 20-30% to get experienced cruisers back on the ship—first time cruisers are still wary of cruising after the accident according to the company's research. The efforts have been working as the company stated in its second quarter call with investors that booking volumes for the Costa brand were up by 25% in May through June 2012 compared with the same period in 2011.


While the cruise industry gradually recovers from the reputation damage inflicted by the Costa incident, the economic troubles in Europe are also impacting performance. The pricing picture varies by country, but in general, yields are down in Europe for Carnival and Royal Caribbean. Both highlight significant weakness in the Spanish market due the severity of the country's economic problems. Spain is the fourth largest source market for passengers, accounting for 11.4% of European cruise passengers in 2011.Royal Caribbean's Spanish brand, Pullmantur, has gone from sourcing 87% of its customers from Spain to 40%, shifting more towards South Americans and Brazilians.


The good news is that Northern European markets are holding up relatively well. Carnival noted that the UK has been doing well and Germany bounced back from a dip earlier in the year. Those countries account for 49% of European cruise passengers.

European Cruise Passengers by Source Country 2011
('000s passengers)	Total	% Share
UK	1,639	26.5
Germany	1,388	22.5
Italy	923	14.9
Spain	703	11.4
France	441	7.1
Scandinavia	259	4.2
Benelux	159	2.6
Switzerland	121	2.0
Austria	104	1.7
Ireland	61	1.0
Other EU + 3	382	6.2
Total	6,180	100.0
Source:European Cruise Council

 


A short term blip in long term growth prospects?


It is likely that 2013 will be better than 2012 for the cruise industry with pricing and load factors bouncing back, but those metrics may not be as good as 2011.


Southern Europe is likely to remain a weak spot with disposable incomes falling for Italy and Spain by 0.5% each in 2013 according to Euromonitor International. Since a short term solution to the countries' economic problems is not likely, Southern Europe could be undergoing a structural decline in cruise passengers, which will force companies to divert their ships to other locations or find new sources of passengers. It is likely that many companies will focus their efforts on the stronger Northern European economies, which may result in stronger competition.


Despite the waves in the industry, the long term growth prospects for cruise in Europe are bright .According to industry sources, cruise penetration for Europe is only 1.1% compared with 3.3% for North America. Western Europe has an ageing population with the number of people over 65 growing from 80.1 million in 2011 to 88.7 million in 2016 and cruising has proven popular with this age segment. Furthermore, the cruise industry has positioned itself as a good value for holiday takers with its all-inclusive nature.

Population Over 65 in Western Europe 2011/2016
	2011	2016
Population over 65 in Western Europe (000s people)	80,121.8	88,659.4
Share of Total Population(%)	16.5	17.9
Source:Euromonitor International

 

Friday, August 17, 2012

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