Cruise Ship Blues: The Underside of the Cruise Ship Industry (6 page)

Comments by Wall Street analysts during the competition between Carnival Corporation and Star Cruises for the takeover of Norwegian Cruise Line provided a rare glimpse at the amount generated by onboard spending. It was suggested that Norwegian Cruise Line had lower than average levels of onboard revenue, which in 1999 was between $220 and $233 per person, per day.
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HOW TO GENERATE INCOME ... LET ME COUNT THE WAYS

For many people, it’s hard to imagine how you could spend $220 or more a day aboard a cruise ship. True, most passengers do not spend this much. The figure is an average — which means there are some people who spend much, much more. What do they spend their money on? The largest sources of onboard revenue are casinos, bars, and, most recently, art auctions.

Traditional Sources of Onboard Revenue

Strategies for generating onboard revenue first appeared in the late 1970s and early 1980s with establishment of a “Corporate Manager of Onboard Revenue.” Cruise lines have always provided shopping, a service normally contracted to a concessionaire. But then they realized there were other ways to generate income. Some money generators, such as bingo — previously run by the cruise director with the profits either remaining in his or her pocket or being shared with the cruise staff—were brought under the company’s control.

Cruise lines also introduced a system of approved stores at ports. This brought into the corporate coffers income that had previously been paid under the table to the cruise director or the port lecturer. The amounts generated are not trivial. A cruise director could make as much as $250,000 a year in under-the-table kickbacks. Under the new scheme of cruise line-approved stores, in 1994 an upscale store on St.

Thomas in the US Virgin Islands paid as much as $700 per port call to be listed in the promotional materials distributed to passengers on a large ship (“large” meaning one with

1,200 to 1,500 passengers). In 1994 1.24 million cruise ship passengers visited that port, each spending $372 on average.
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In 2001 St. Thomas received more than 1.8 million cruise passengers; average spending was $173 per person. (Changes in the demographics of the typical cruise passenger over the past decade account for decreased spending.)

Drink Up
—
You Won’t Feel a Thing

One of top three income generators is the ship’s bars. In the early 1970s cruises had a reputation for providing cheap drinks. Between purchasing liquor at duty-free prices and the cruise ship bars making a marginal attempt to generate income, a mixed drink could be had for as little as 35 to 50 cents. But once liquor became seen as a source of income, prices increased considerably. In the late 1980s a drink cost $1.50 to $2.00; in 2002 the same drink costs between $4.00 and $7.50.

Cruise lines use a range of strategies to increase bar revenue. Some ships offer a drink as you embark. Unsuspecting passengers take a drink from a tray and are immediately asked to sign so the charge can be added to their shipboard account. Most people are too embarrassed to give the drink back; they have been had. The traditional sail-away party on deck is similarly used. Waiters wander through the crowd with watered-down, pre-mixed beverages, offering them to everyone they pass. During the cruise itself,

consumption is further encouraged with specialty drinks — the “drink of the day” — provided at promotional prices. The drink of the day is often served in a souvenir glass, which justifies a premium price.

Theme nights are another method for encouraging purchases at the bar. A number of years ago, one company capitalized on the popularity of line dancing, and replaced the traditional midnight tropical fruit buffet with a country-and-western theme buffet. Passengers who had previously come to the buffet for a quick look or to sample some fruit began staying longer and either joining in or watching the line dancing. As a result, bar revenue increased by $1.10 per passenger, which on a 2,000-passenger ship sailing 50 weeks a year meant an annual increase of $110,000. In addition, the cruise ship saved $50,000 a year due to lower food costs for the western theme buffet.
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No Competition
—
You Must Buy from Us

In the mid-1990s cruise lines began preventing passengers from bringing aboard their own wine, liquor, beer, soft drinks, or bottled water. Anything that is brought onboard at embarkation or during a port call can be confiscated by the ship, to be returned at the end of the cruise. This policy is designed to ensure that passengers wanting a drink will purchase their beverages from the ship — the equivalent of a hotel requiring guests who want a beverage to use the minibar or room service.

The explanations given by cruise lines for this policy omit the real agenda. A spokesperson for Norwegian Cruise Lines, probably the most restrictive of those serving the mass market, suggests:

A big part of this is really to have control of minors getting ahold of alcohol.... In years past there have been some situations where we have had underage drinking going on, and those passengers were disruptive.
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Royal Caribbean similarly claimed that its policy of restricting the bringing aboard of liquor was a means of reducing the likelihood

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CARNIVAL CRUISE LINE
miimi
DOESN'T WANT YOU TO OVERINDULGE

Although Carnival Cruise Line has a strictly enforced ban on passengers bringing aboard any alcohol at any time, the company knows that the odd bottle arrives on the ship undetected. "But you're not going to get away with bringing in a large volume of drinks at a port of call. We're going to take it from you and give it back to you at the end of the cruise," said a Carnival spokesperson.

If you drink in your cabin, so be it — that's your business..
There are some guests who would interpret that as meaning it is OK to bring large quantities of liquor on board, and then that leads to issues of disruptive behavior. If you're buying it on board at typical prices, it's likely that you're not going to consume as much as if you had 10 cases of beer in your cabin.
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It is difficult not to be cynical: passengers should be thankful the cruise line looks so carefully after their interest. After all, $84.00 is a small price to pay for a case of beer (24 bottles at $3.50 each) to ensure that you don't overindulge. At these prices, it's obvious why bars are such a large source of onboard revenue.

that minors would get their hands on it. Interestingly, that company expressed a different view in 1994 after a 14-year-old boy died with a blood-alcohol level of 0.29. He had been supplied with a bottle’s worth of tequila and rum in a two-hour period by a 24-year-old fellow passenger. At the time Royal Caribbean expressed no responsibility, stating: “A cruise is a resort vacation. It’s not a babysitting service.”
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In January 2002 the company reduced the onboard drinking age from 21 to 18 when in international waters or at a port where it is legal to drink at that age.
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Why Not Mix That Drink with a Test of Your Luck?

Casinos are another major source of onboard revenue.
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Like bar sales, this income source is relatively recent. Prior to the 1980s, you couldn’t take it for granted that there would be a casino onboard your cruise ship. Ships that did have gambling had a small number of slot machines — between 20 and 40 on average — and perhaps a roulette wheel, a craps table, and a blackjack table, all tucked into a small, out-of-the way room.

By the 1990s shipboard casinos not only became commonplace, but considerable competition existed for having the biggest or the best casino afloat. On some ships the casino has two or three floors and 100 to 400 or more slot machines. Other ships offer settings comparable to any top-of-the-line Las Vegas-style casino. Cruise-line brochures often display images of glamour and glitz in casinos at sea.

As in Las Vegas and Atlantic City, the concessionaires operating cruise ship casinos use various strategies to draw people in. Some offer free cruises to players who agree to a minimum (high) level of gambling. Different strategies are used to attract passengers who are not “high-rollers.” Almost all cruise ship casinos offer free champagne or cocktails the first or second night of the cruise to draw people in and to familiarize them with what’s available. Free lessons and/or a limited number of “free play” or “match play” chips may be offered to get people started, and tournaments are staged to attract others.

These strategies not only attract people interested in gambling, but also those who like to watch others test their luck. undoubtedly, many observers become novice gamblers. I watched one man lose $500 in under an hour as he learned to play roulette. I met another man who said he expected to lose $15,000 during his 50-day circumnavigation of South America.

We Have It All
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At Duty-Free Prices

There was a time when the shops onboard a cruise ship provided only a minimum of items. You could buy any toiletries and sundries that you had forgotten to pack, a few souvenir items with the ship’s and cruise line’s logo, and a limited selection of dutyfree liquor and tobacco products. Over the years the selection of items has increased, as has the amount of space allotted for onboard shops.

Almost all onboard shops are run by one of two concessionaires: Greyhound Leisure Services’ International Cruise Ships Division, which in the year 2000 served 77 ships, and Miami Cruise Line Services (owned by Louis Vuitton Moet Hennessy), which has shops on 100 ships spanning 26 different cruise lines.

Norwegian Cruise Line’s
Norway
was one of the first ships to introduce a collection of shops. On its enclosed promenade deck, passengers can stroll along “streets” called Champs-Elysees and Fifth Avenue, where shops and boutiques offer everything from mink coats and diamonds to costume jewelry and casual sportswear. The
Norway’s
success encouraged similar development on other ships. The most lavish collection of shops was on Cunard Line’s
QE 2,
which offered a seagoing branch of Harrods department store and included boutique names such as Gucci, Alfred Dunhill, Christian Dior, Louis Vuitton, and H. Stern. You could buy almost anything aboard the ship.

While this scale was unique in the early 1990s, on today’s ships it is commonplace. In addition to brand-name items, ships now include the same outlets that are found at many ports of call. Norwegian Cruise Line’s newest ships, for example, include a Colombian Emeralds International store.

Shipboard shops have also become more competitively priced. At one time they tended to offer the same items found at ports, but at higher prices. Today the ship’s shops compete aggressively with land-based outlets. Almost all shipboard shops run promotions, such as “gold by the inch” or “designer watches,” to bring passengers into their stores and to increase sales.

Some shipboard shops guarantee their prices by offering to meet the price of any comparable item bought ashore, or to refund the difference between their price and the onshore price. The offer is, however, somewhat empty. You have to actually buy the item ashore and bring the receipt onboard — which means you’d be stuck with two identical watches or two identical necklaces. While the offer gives the impression of competitive pricing, the guarantee has little value.

We Know You’ll Want a Photo of Yourself

“I’m not making any money on this cruise. I had to pay the concessionaire to be here, I have to pay for my film and supplies, I’m taking lots of pictures, but I’m not selling enough to even break even.”

That is what I was told by a photographer on a two-week ultraluxury cruise. Like most ship photographers, she worked under a subcontract with the concessionaire that provided photographers to the cruise line. (Carnival Cruise Line and Princess Cruises are exceptions in that they keep their photographic services in-house.) In addition to taking photographs throughout the cruise — beginning with when you embark and ending the second to last night of the cruise — the photographic outlet sells film and batteries for cameras and provides photofinishing. Some also sell cameras at duty-free prices.