Inside cruise, part 1: Keys to the sector’s smooth sailing in the future

In many ways, cruise is the outlier of the travel industry. While more travelers are turning to digital sources to book their travel – Phocuswright’s U.S. Online Travel Overview 2018 predicts online penetration will increase from 50% in 2018 to 53% in 2022 – in cruise, distribution is predominantly managed offline. Online bookings through suppliers and online travel agencies account for just 20% of overall cruise revenue.

But the reliance on agents doesn’t seem to be a negative factor. Quite the contrary.

While both air and lodging markets are growing, the cruise industry is outpacing all others. According to Phocuswright’s U.S. Cruise and Packaged Travel 2018 report, the cruise segment in the United States jumped 10% in 2018, its third consecutive year of double-digit gains.

And the industry still has substantial headroom for growth: Consider that the global figure for cruise passengers in 2017 was about 26 million – while about 72 million people visited Orlando that same year.

With most ships operating at nearly 100% capacity in recent years, it’s clear cruise lines are confident that if they build it, travelers will come. All major lines are adding to their fleets, with a steady supply of ships setting sail in the next few years: In 2019 alone, more than a dozen new berths are scheduled.

“It’s probably one of the most dynamic times for the cruise business,” says Mary Pat Sullivan, Phocuswright’s leisure travel analyst.

“With the amount of new inventory coming online, there’s tremendous effort to grow the base of customers. It’s a very aggressive time to move that first-to-cruise business up, and they are all seeing it happen.”

Global outlook

That growth is being pursued worldwide. The large – and lucrative - Chinese travel market only accounts for about 9% of all cruise passengers, according to Cruise Market Watch, and some brands are taking notice. In November, Carnival Corporation launched a new China-based cruise company that will operate its own fleet by the end of 2019. In its announcement, Carnival says the Chinese cruise industry currently represents less than 2% of China’s outbound global travelers.

“As a large, embryonic and under-penetrated cruise market with continued long-term projections for outbound tourism growth, China represents a significant opportunity for the cruise industry to raise awareness, consideration and demand for cruise vacations in coming years. As the industry continues to grow and develop in the region, China is widely expected to eventually become the largest cruise market in the world,” the company says.

But even in North America, which accounts for 56% all cruise passengers, only about half of the total market has ever taken a cruise, according to Cruise Market Watch. So cruise marketing executives are getting creative, developing strategies to tap into new and younger audiences.

Marketing methods

Crucial to that effort is the improvement of on-board technology – most importantly, fast, reliable Wi-Fi, as well as more cutting-edge capabilities such as wearable devices to manage payments and reservations.

“[Cruise lines'] technology investments are to make the industry more appealing, more mainstream,” Sullivan says.

“And the cruise industry has done a really good job of embracing social media and knowing that that’s how you get the customers to tell the story. The investment in Wi-Fi is to make sure the customer is telling the story to everyone else at home, because that’s the fastest way to grow.”

As the industry continues to grow and develop in the region, China is widely expected to eventually become the largest cruise market in the world.

Carnival Corporation

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Influencer marketing is also on the rise for cruise lines, with many partnering with bloggers and celebrities, such as Norwegian Cruise Line’s work with Pitbull and Royal Caribbean International's work with actress Shay Mitchell.

Sullivan says cruise lines are also developing content specifically for agents to share on their social channels and content to promote the concept of cruising, such as Carnival Corporation’s “Ocean Originals” shows that air on television and online.

The product itself is also changing. Cruise lines are adding unique experiences onboard, such as open-air cabanas for dining and sleeping aboard the new Celebrity Flora ship when it sails in the Galapagos Islands starting in May, as well as more options for entertainment, dining and ports of call.

“If you look at the itineraries, you’ll see more time in ports and different destinations being added,” Sullivan says.

“For the most part, they are getting into more experiential opportunities in port. They are specifically targeting new audiences to grow that base. You will see them go after them with these new products – new kinds of ships, new kinds of experiences.”

Agent impact

But one thing not expected to change: the reliance of the industry on agents to sell the product. In fact, Phocuswright predicts travel agent share of cruise revenue will grow slightly, to 71%, by 2022.

Sullivan says it is largely a strategic decision by the cruise lines to prioritize investments in onboard, traveler-focused technology and technology to assist the agents rather than systems to facilitate self-service booking.

“Their highest revenue business is coming from travel agents, and so the best investment is to grow that piece and to help them facilitate those sales,” she says.

“I think [cruise executives] have kind of come to an agreement that there is business the cruise lines will go direct with - maybe a three-night Caribbean cruise or someone who has cruised seven times on this cruise line and knows it inside and out - but for new-to-cruise or someone who wants to try a line they’ve never tried or somebody who wants to do a really complex travel experience, they need help either from online, internal reservation people or from the travel agency space.”