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UK Cruise Industry

The UK is the biggest cruise market in Europe and is growing

Matthew Goodman  Apr 11, 2010

Darcey Bussell twirled across the floor in a red Jasper Conran dress, watched by an admiring audience of 1,200 guests nursing flutes of Taittinger champagne.

Afterwards, the crowd sat down to a five-course dinner. They had smoked salmon and rack of lamb, washed down with a sancerre and passopisciaro.

This was not the West End or an oligarch’s private party, but a cruise ship moored at Southampton docks. The guests gathered last night to watch Bussell dance before she smashed the customary bottle of champagne to launch the Azura, the seventh and newest ship in P&O’s fleet of cruise liners.

At 115,000 tonnes and with room for 3,100 passengers, the £380m Azura is the largest passenger ship registered in London. Its launch and maiden voyage — tomorrow it is off for 16 nights in the Mediterranean — is the latest sign the industry is returning to health after two years in the doldrums.

“We are starting to see light at the end of the tunnel,” said Howard Frank, chief operating officer of Carnival Corporation, owner of P&O.

The recovery cannot come quick enough for the cruise companies — they have had to slash prices during the recession to keep ships full.

It has been great news for passengers. Anecdotal evidence suggests some cruises were selling for about $30 per night — and that’s not just bed and board, but all the entertainment too. Cruise holidays have the advantage that customers know exactly how much they will be spending and precisely what they will get for their money, a good thing in a recession.

Britain has been one of the biggest beneficiaries of the discounting. Recent figures from the Passenger Shipping Association, the industry’s trade body, show that more than 1.5m people took a cruise last year, a 4% increase on the figure for 2008 and up nearly 50% since 2005.

“The UK is the biggest cruise market in Europe and is growing,” said Carol Marlow, managing director of P&O Cruises. “Other countries, such as Germany and Italy, are performing well, but they are growing from a smaller base.”

While passengers have been having a ball, cruise operators have been forced to take it on the chin. In recent weeks, however, they have had reason to be more optimistic, with prices finally moving up rather than down. In January, Royal Caribbean, one of the two biggest players, said it was enjoying record bookings “at pricing ahead of this time last year”.

A little over a fortnight ago, Carnival, the other leading player, surprised the market when it announced it was beginning to reverse the price-cutting trend. Its share price jumped 5% on the day, hitting a high for the year. Bookings, for the next nine months, it said, were up 8% compared with a year ago, while the price passengers are paying for their cruises had shot up 17%. Executives told investors they had been “surprised” at the scale of the increases.

Today, it costs about £1,600 to join the Azura on its maiden voyage round the Med. A spring cruise to the Caribbean is dearer at £2,000. In many cases, prices are still below the peak levels seen in 2008 but they are at least moving in the right direction.

Nobody knows precisely when they will get back to their peak. “It will be a slow recovery,” said Frank, “extending out to 2012 or 2013 until we see pricing getting back to more normal levels.”

It is a pattern that others in the sector are also seeing, particularly in Britain, which held up better than America. David Selby, director of Thomson Cruises, a division of Tui Travel, said passenger numbers and prices are higher again this summer after charges were nudged up in 2008. “We are encouraged by the way this summer is shaping up,” he said.

It is not just cheap fares that have boosted takings. A string of launches has also attracted strong interest in cruise holidays. As well as the Azura, this month will see Thomson take delivery of its latest cruise ship, the Thomson Dream. Of all the new vessels the Royal Caribbean’s Oasis of the Seas has hogged the limelight. Launched in December, the ship is the world’s largest cruise liner, capable of carrying 6,300 passengers. It weighs 225,000 tonnes, making it nearly twice the size of the Azura.

Carnival does not want to run ships that big, but even it admits that the hype surrounding the Oasis provides a halo effect for the industry. “Any publicity is good news,” said Marlow.

The rush of launches will slow. Most of the new ships were commissioned several years ago, before the recession began, and orders have since tailed off. This should be positive for the cruise companies, allowing them to go on pushing up prices. Investment analysts are keen to ensure that operators concentrate on sweating their assets harder rather than splashing out on bigger and better ships.

It should not be a problem if Britain continues its love affair with holidays afloat. Cruises took off here in the 1970s — which some in the industry attribute, half-seriously, to the cheesy American television series The Love Boat.

The sector got a second wind in the late 1990s, partly thanks to the blockbuster film Titanic, but more importantly from P&O’s first ship built specifically for the British market, the Oriana, launched in 1995. Since then, the growth in demand has never looked back. Marlow said there are two fundamental reasons for the industry’s appeal — convenience and value.

“The basic reason people like it is that you can wake up in the morning and see a different view out of your window and you only have to unpack your suitcase once,” she said.

Traditionally, cruising has been regarded as the preserve of older people. That image has faded, as the cruise crowd has broadened along with the range of holidays on offer.

Jamie Rollo, a leisure analyst at Morgan Stanley, the investment bank, points out that the number of people taking a package holiday has fallen from 20m five years ago to about 15m today. Cruising, he said, is picking up a chunk of that business, because people still want an arranged holiday, and cruising offers good value for money. It is often denominated in the customer’s currency, which can offer protection against exchange rate swings and is all-inclusive.

The industry still has some problems, however. Rising fuel prices are eating into profits. Ships will conserve fuel by cutting their speed. Other action is also being taken, such as treating hulls with a special paint that prevents marine life from sticking to them, allowing ships to move more efficiently through the water.

Despite the bounce in holiday prices, rises need to be carefully managed. “There is still sensitivity on pricing on some products,” said Carnival’s Frank.

Analysts suggest that cruise operators could save more money if they cut back the level of commissions paid to the travel agents who sell their holidays, in the same way that airlines such as British Airways have done.

Industry executives suggest, however, that such a move would not generate a significant financial benefit and could potentially harm the sector because of the role agents play in explaining cruising to new customers.

The last thing the industry needs, as it emerges from the crisis of the past two years, is to sail into yet more stormy waters.

Celebrity chefs on board

Cruising has traditionally been all about the views and less about the food. Dinner-dances and all-you-can-eat buffets were the order of the day.

Now there is far greater choice.

The biggest change has been a rise in the number of celebrity chefs with outposts on cruise liners.

P&O’s new liner the Azura, for example, boasts an Indian restaurant run by Atul Kochhar, while other ships in its fleet boast kitchens overseen by culinary stars such as Marco Pierre White and Gary Rhodes.

Ocean Village, a sister brand to P&O, has a restaurant run by James Martin among its dining rooms.

Michelin-starred sushi chef Nobuyuki “Nobu” Matsuhisa has a tie-up with Crystal Cruises, a luxury brand.

The UK is the biggest cruise market in Europe and is growing
P&O Azura / Image via


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