During its latest earnings call, Royal Caribbean once again emphasized growth in overseas-sourced business. While that in itself isn’t news, the intensity of the trend is at an unprecedented level.
RCI President Adam Goldstein indicated that the "clear majority" of Royal's passengers on European sailings in summer 2011 will come from Europe. RCI Chairman & CEO Richard Fain added, "Most of the first-time cruisers we're introducing our product to are international guests. In fact, our North American guest sourcing has been flat for the past several years."
The number of Continental Europeans who took cruises last year increased by nearly 16% over 2008, while the number of North Americans taking cruises grew by only 1%. As a whole, 5 million Europeans cruised in 2009, compared to just over 10 million North Americans.
As for cruise capacity marketed in North America, the total number of bed days dedicated to European itineraries and marketed to North Americans saw nearly 23% growth in 2009 compared to only a 4% increase of Caribbean/Bahamas bed nights and negative growth in Alaska (-1.5%) and Western Mexico
(-14.3%).
While this levelling of capacity in North America might stabilize pricing, it also means little hope for sales growth here. Given the changing cruise sourcing patterns, the best chance for cruise growth for some North American agents may lie in marketing to passengers overseas, but that is easier said than done. Retailers say Carnival, Crystal, Disney, and Regent encourage cross-border selling, but Cunard, Costa, Princess, Holland America, and MSC not only prohibit the practice, but consistently enforce the prohibition.
In the middle, agents say, are lines including Celebrity, NCL, Oceania, RCI, and Silversea, which have policies against cross-border selling but don't consistently enforce them.
While this is a hot topic today among large sellers, it's not a new issue. One cross-border seller puts it in perspective: "About ten years ago, a few savvy cruise customers around the world discovered via the Internet that U.S. agencies had the lowest cruise prices, and they began to purchase their cruises here. Recognizing an opportunity, U.S. agencies began to proactively advertise U.S. rates in foreign markets like the U.K."
But as more international customers began to book through North American agencies, local agencies complained they could not compete on price, so some cruise lines created barriers. Even so, for years agencies just got their wrists slapped. But when global consumers became more comfortable scouring the Internet for the best cruise deals, complaints from overseas rose to a fever pitch.
"Simultaneously," reports one cruise seller, "some cruise lines became more reliant on customers sourced from outside of North America, both to fill their new ships and to hedge against a sliding U.S. dollar by collecting payments in Euros. As a result, the lines began to more strictly enforce their cross-border selling policies. Today, you won't see U.S. agencies advertising these brands online, for example, on google.com.au or google.co.uk."
While advertising has stopped, it has proven much more difficult to stop the actual sales. "When cruise lines cracked down on the biggest U.S. agencies, customers simply found another U.S. agency to book through," reports one seller. "Some customers do not give up when one agency refuses their business, since they are told they must pay 50% to 100% more than the U.S. price simply because they are Brits, Australians, or Germans."
Perhaps the most telling fact is that agents report they have yet to see a situation where an international client has ever been denied boarding.
With newbuilds and existing capacity now increasingly dedicated to the U.K., Australia, and Europe, why don't more large North American agencies open offices overseas? Because it’s not easy, says one cruise seller, citing costs of doing business in other countries coupled with ever-shrinking margins on cruise sales. "In the U.K., for example, rebating is rampant and cannot be reined in by the cruise lines, to the extent that the most established and successful cruise agencies only retain 7%-8% commission, including overrides."
North American agencies based abroad would be forced to sell cruises at the higher local rate for that market, while customers in those countries would continue to try to get around the higher fares. "As cruise lines try to build fences around each country and charge higher local rates, the Internet undermines their efforts by making cruise shopping more transparent," argues one agent.