The hotel industry talks a lot about Airbnb as being a major disruptor, but what about cruise lines?
Every hotel conference I have attended in recent years has addressed Airbnb and other alternative lodging facilities as disruptors. It’s a term in which the “victim” industry—in this case traditional hotels—typically sees an innovation that they did not think of to be the source of kidnapping business that was once “rightfully” theirs.
Although the “victim” and “kidnapping” framework may not be helpful, the growth of Airbnb and more recently Oyo is cause for concern as the lines between different approaches to lodging and renting living accommodations continue to become more blurred. However, at these conferences the growth of the cruise industry is rarely mentioned.
After recently taking a one-week cruise for the first time in more than a decade, my observations of the cruise vacation concept are many and varied. For example, though many cruise lines and ships have extensive health and wellness programming, ironically, the message gets overwhelmed by the accessibility of pastries, pizza, grills, snack counters, bars, etc.
According to iProperty Management, as of November 2019, Airbnb averages roundly 500,000 stays per night. In the U.S., only 11% of its listings are occupied on any given night, demonstrating a much larger potential market for the higher-quality better-located listings and those with more professional marketing and management talent.
For a comparison with the size of the cruise industry, a snapshot of current cruise line capacity per at Cruise Market Watch indicates that there are currently 314 ships among the top companies (Carnival, Royal Caribbean, Norwegian, MSC and others), with a total capacity of 537,000. At this level, the industry is carrying approximately 26 million passengers per year with a compound annual growth rate of 6.6% since 1990.
With 500,000 passengers per week and two passengers per cabin at an average length of stay of five nights, the equivalent of 1,250,000 potential hotel roomnights are “diverted” from hotels to the cruise industry each week if we view the situation through the victim and kidnapper paradigm. If this impact were evenly distributed geographically, the impact might not be so impressive. However, it is reasonable to assume that one-third of worldwide cruise ship capacity converges on the Caribbean each year between December and April. This volume could represent roundly 400,000 hotel roomnights per week for 15 weeks, or roundly 6 million hotel roomnights per peak season annually. If we make allowances for unoccupied cabins, and unpopular weeks and routes, even 50% of this volume or 3,000,000 hotel room nights would be sufficient to sway resort hotel investment decisions.
In a recent interview, Harry Sommer, the incoming CEO of Norwegian Cruise Lines, said: “Our biggest task is in letting people know that this is a much better vacation than a resort. One of the statistics we have seen is that of every 50 vacations people take, one is taken on a cruise and 49 are taken at some land-based alternative. We’re not necessarily looking to compete with Royal and Carnival for the one. I’d rather compete with the resorts for the 49, because we can grow 50 times the size we are today.”
Are cruise customers a profitable target market? In our consulting experience, all-inclusive resorts experience visitor non-package revenue (revenue spent during the stay) of 8%-15% of the package rate. Cruise Market Watch reports passenger on-board spending of roundly 39%, though beverages are not included in cruise pricing and they are typically included in all-inclusive hotel package pricing. A typical couple spends roundly $1,000 per cruise in on-board products, upgrades and services including casino, bar, excursions, spa and miscellaneous costs.
And the cruise lines are not complacent about the experiences they deliver. The boarding and disembarking experiences for cruises have never been elegant, with long lines in warehouse type facilities. To combat this, in Miami alone, six cruise lines are investing $1.5 billion in new boarding facilities that match the downtown Miami skyline for architectural style.
On-shore experiences are also receiving upgrades. Norwegian Cruise Lines announced its new “resort-style” beach area called Silver Core on its private island in the Bahamas, Great Stirrup Cay. The reception area resembles that of a resort hotel and the beach destination offers 38 “villas” and 12 cabanas for guest enjoyment during the port call.
The villas at Silver Core are rented for $499 for the day, and accommodate up to six people with air-conditioning, private restrooms, television with on-demand movies, an umbrella and two lounge chairs on the beach and admission to the lunch buffet.
As Sommer stated, the industry is counting on continued growth. In the three-year period from 2018 to 2020, 37 new ships will enter the market with capacity of 100,000 passengers or approximately 20% capacity growth industrywide.
For resort hotels of the Mediterranean, the Caribbean and Oceania, Airbnb and upscale hostels are not the only “alternative lodging” threats. Land-based resorts should have strategies in place to either differentiate their offers further or to partner with cruise lines. It won’t be long before these amphibious hotels evolve to reptilian form and further penetrate the traditional territory of resort hotels.
Andrew Cohan, MAI, is the Managing Director of the Horwath HTL office in Miami primarily serving Florida and the Caribbean Basin. A seasoned hospitality professional with extensive real estate, marketing and account management skills in North and Latin America, Andrew has consulted for leading branded management companies such as Canyon Ranch, Six Senses, Montage, Solage and Bulgari. He has extensive experience with health and wellness resort properties and has performed numerous feasibility studies for planned resorts in the Caribbean and Central America. He especially enjoys working on greenfield projects, teaming with land planners to determine the optimal resort configuration in order to fit market demand with destination and site attributes. As health and wellness have moved from the margins of the industry to become important components of mainstream hospitality projects, Andrew’s expertise has been in demand to conduct an increasing number of assignments for proposed resort properties, particularly in Central America, the Caribbean, Mexico and the “sunbelt states” of the United States. Acohan@horwathhtl.com; 305-606-2898
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