Cruise Industry News: Luxury Defined

March 2011

This is a post from The Cruise Industry News

Defining Luxury

While rating ships on an intricate point system, luxury is ultimately in the eye of the beholder, according to Douglas Ward, author of Berlitz Complete Guide to Cruises and Cruise Ships 2011. Not so fast, according to Ron Kurtz, president of the American Affluence Research Center, who defines true luxury products by per diems, which should be $500 and higher.     Only a few brands command per diems of $500 or more, Kurtz said, with some of the proclaimed luxury brands merely aspiring to that price level. In addition, exclusive accommodations on some of the premium lines also command very high per diems, he noted.

Five Stars

Ward said that to be considered luxury, ships have to earn a five-star rating in his book – but even so, there is a range. Not all five-star ships are the same, he said, and not all the ships thought of as luxury ships are rated five stars.  Ward’s top rated ship continues to be Hapag-Lloyd’s Europa, which he attributed largely to a superior service level, including the smaller details, such as making tea from loose tea leafs and not bags. “If you are a coffee drinker, you do not expect your coffee from a bag (instant coffee),” he added. “When they serve butter, they ask if you want salted or unsalted butter. And the first time you sit down for dinner, they ask if you are right- or left-handed.” Such attention to details is the difference that distinguishes the top rated ship, Ward said. In all fairness, some of the cruise lines that did not earn top grades from Ward also disagreed strongly with his ratings.  Ward commented that in some cases the service level was friendly and enthusiastic, but it was not refined enough to compare to the top brands, which he attributed to “sloppy middle management.”Some of the older ships are also starting to look a bit date and “tired,” according to Ward, and do not compare well to new ships.Bigger ships are also straddling into the luxury segment, and Ward noted MSC Cruises’ Yacht Club, where “you find good examples of fine European service.”This year’s Berlitz guide is the 26th edition, going back to 1985. Distributed worldwide, the 720-page book rates all cruise ships and has its biggest markets in the U.S., the UK and Australia.

Bi-Annual Surveys

Kurtz said that since nobody has a quantifiable definition of luxury as a concept, per diem is the only reasonable definition. The American Affluence Research Center does affluent tracking surveys twice a year – in spring and fall, and will do its 19th bi-annual survey shortly. In a 2008 survey, respondents put the price points for cruises in this market segment much lower than they actually were, Kurtz said, and few expressed any brand knowledge, except for the top 1 percent of the market.  The surveys target the top 10 percent of the wealthiest U.S. households, and only the top 1 percent expressed much knowledge about luxury products, according to Kurtz. He said that experienced travelers and cruisers have good awareness of the different brands, but demonstrate less understanding of why they should pay so much for a luxury cruise.  “The problem the luxury lines have is to convey the value of their products to the market,” said Kurtz. “To get the value message across, they need better presentation, personal presentation and better websites. They need to justify their rates and that is hard to do in advertising only.”  Another issue is that some of the brands are limited in their market appeal as some guests today want to travel with children, especially during the holiday periods, and many of these ships are not geared to children. It would be wise to dedicate a few sailings to family cruises, he said. In the recent 2010 fall survey, 12 percent said they would like to take a cruise in the next 12 months, compared to 15 percent in the previous spring survey, and 22 percent in the fall of 2007.  Most likely to take a cruise are the oldest and wealthiest.  Eighteen percent of those over 60 said they would like to take a cruise in the next 12 months; 10 percent of those between 50 and 60; and only 7 percent of those under 50.  Twenty-five percent in the highest income group said they would like to take a cruise; 15 percent in the middle income range; and only 8 percent in the bottom half.  The top 10 percent includes 11.4 million households with an average net worth of $3.1 million and an average annual household income of $290,000.

Struggles?

When Carnival Corporation announced that the Yachts of Seabourn will merge its operations with Holland America Line and move to Seattle, it was clear that the luxury brand was not meeting its financial objectives.  The move from Miami to Seattle will take place over several months, according to Carnival, and once the transition has been completed and the synergies are fully realized, the company said it expects annual savings starting in 2012 in the $20 to $25 million range.  Rick Meadows has been named president of Seabourn, taking over from Pam Conover, who assumed the job after Larry Pimentel. Conover has chosen not to move to Seattle at this time, according to Carnival. Meadows has been executive vice president of marketing, sales and guest programs for Holland America.  In addition, at press time, John Delaney has been named senior vice president of marketing and sales; he has been vice president of revenue management for Holland America.  But Seabourn may not be the only luxury brand facing challenges. Silversea Cruises also introduced a new and bigger ship, adding another 20,000 berths to the passenger capacity in the luxury segment, in addition to its luxury expedition ship.  Also, Silversea has had more executive changes at the top any of the other luxury brands.  At Crystal, Greg Michel, who joined as financial officer at the very beginning, has been at the helm since Art Rodney left to help launch Disney Cruise Line, and Mark Conroy has been at the helm of Regent Seven Seas virtually since the start of that line – since 1993.

New Ship

While the North American luxury market is reorganizing, Hapag-Lloyd will add a ship in 2013 “to complement its Europa.”
The German brand operates the 1999-built, 28,600-ton, 408-passenger Europa in the luxury segment, and the expedition ships, the 188-passenger Hanseatic, the 164-passenger Bremen and 420-passenger Columbus in the premium segment.  The new ship, to be named Europa 2, will be 39,500 tons and have a passenger capacity of 516.  Hapag-Lloyd said the ship will be built by a “third party owner” at STX in France, and it will operate the ship on a 12-year charter agreement.  In addition, the line is chartering the 684-passenger Insignia from Oceania Cruises for two years, starting April 2012. Crystal and Regent have not appeared to move any further on their new ship plans. Meanwhile, marketing and sales for the luxury brands continue to be very price-driven, offering discounts up to 60 percent off brochure prices and added values, including free or subsidized air fare, to attract customers, plus bonus commissions to travel agents.