MSC Cruises chief warns yields could drop amid mass growth

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MSC Seaview

Cruise line yields could fall in the future due to the volume of new ships entering the market in the next decade, according to the boss of MSC Cruises.

A total of 106 ships are expected to launch between 2017-26, including 12 alone from MSC Cruises. Other mainstream cruise brands such as Royal Caribbean International has six ships on its order books and Norwegian Cruise Line has seven. 48 expedition and luxury ships are also planned.

Asked whether occupancy levels were at risk of falling from so much growth, chief executive Gianni Onorato told delegates at the ITT Conference in Sicily: “No, we are not crazy. But in difficult times it can have an impact on yields more than occupancy. So I think this will be more of an issue than occupancy levels.”

Onorato said the slowdown in cruise bookings last year in the UK was due to a “lack of capacity” in 2017 and said he was very “optimistic” about the British market going forward.

He said the biggest challenge facing cruise lines was future proofing ships which are built to last 20 years.

“Knowing what guests want in 2040 when you’re building them now is very difficult to predict so we need to have a flexible mindset and be able to follow guests’ needs (in terms of technology) but at the same time maintain human contact,” Onorato said.

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MSC Wins Bid for Durban Cruise Terminal

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MSC Opera

The Durban Cruise Terminal will be getting a significant upgrade as KwaZulu Cruise Terminal, a joint venture between MSC Cruises and Africa Armada Consortium, has won the bid build a new two-ship terminal and operate it for the next 25 years.

It also underlines MSC’s leadership position in the South Africa cruise market, where it remains the only company with a significant presence.

MSC plans to start construction later this year with a completion date of 2019. The cruise company owns 70 percent of the venture. 

Can Virgin Group Solve the Cruise Industry’s Old-People Problem?

A worker leans over a railing on the Celebrity Constellation cruise ship while docked in Falmouth, Jamaica, on Monday, Dec. 17, 2012.

Tim Boyle/Bloomberg

Sun, fun and drinks on a boat? That’s about as logical a brand extension as one could imagine for Sir Richard Branson’s Virgin Group, which plans to field two new, 4,200-passenger cruise ships late this decade and begin selling Caribbean voyages.

Virgin Group’s expansion into the cruise market seems inevitable, given the company’s long experience in travel and hospitality, from airlines to passenger rail to space travel to its first Virgin Hotel, which opens next month in Chicago. In fact, Virgin has been considering a cruise brand for several years, says Evan Lovell, a U.S.-based Virgin executive, but only moved ahead this year, after judging its brand image suitably well-formed and appreciated in the U.S. The United States is by far the world’s largest cruise market, contributing more than half the estimated 22 million people who took a cruise this year, followed by the United Kingdom, Ireland and Germany. There is also room for new brands: Today, three cruise players control more than 80 percent of the market.

Virgin, along with its lead investor, Bain Capital, is betting it can solve for a longstanding problem in the cruise industry: Most customers are loyal, return cruisers, and the industry is keenly seeking to attract first-timers—cruise virgins, as it were. Along with what the industry dubs “cruise nevers,” Virgin will target younger cruisers who “value a fun, youthful, energetic experience,” Lovell says. “There is a misperception that the cruise business is an older person’s experience.”

The company will probably offer four-to-seven-day cruises in the Caribbean, complemented by sailings in the Mediterranean. Virgin’s plans also were delayed due to deliberations about whether to retrofit older ships for the venture or to order new.

Also to Virgin’s advantage, the industry has dialed back its effort to construct ever-larger ships, with more varieties of dining and entertainment. “They’ve reached the point where you can’t simply build a bigger boat,” says Ryan Cotton, a principal with Bain Capital. That suggests to Bain and Virgin that a cruiser’s focus is shifting from the vastness of novel options onboard—bumper cars! rock climbing! skydiving! chocolate buffets!—to a cruise’s overall service and experience. Ship size and over-the-top amenities will fade as the industry settles on ships that accommodate 4,000-4,500 passengers, Cotton says: “The industry has realized that this is almost exactly the sweet spot. It’s big enough to provide all the onboard amenities you need but it’s not too big that customers get lost.”

The largest player in the industry, Carnival, considers land-based vacations its main competition and welcomes a new cruise brand, spokesman Roger Frizzell said in an email.  “The cruise marketplace represents only a small percentage of the overall vacation market today, so anything that can help stimulate new cruising guests is good for the industry as a whole,” he wrote.

Of course, as the owner of a 105-foot luxury catamaran called Necker Belle, Virgin founder Branson has plenty of personal seafaring experience. If a Virgin Cruises voyage seems too mass-market, Necker Belle is available for charter–only $110,000 per week.