Read Cruise Ship Blues: The Underside of the Cruise Ship Industry Online

Authors: Ross A. Klein

Tags: #General, #Industries, #Transportation, #Hospitality; Travel & Tourism, #Travel, #Nature, #Essays & Travelogues, #Environmental Conservation & Protection, #Ships & Shipbuilding, #Business & Economics

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The cruise passenger who buys art at an onboard auction has some surprises ahead. In most cases, the auction house adds a charge of 10 to 15 percent to the winning bid — a charge that is added only after the auction is over. Granted, that’s standard practice at onshore auction houses, but in my experience, cruise ship passengers aren’t made aware of the surcharge until they go to pay for their purchases. As well, because the art is shipped from the company’s warehouse in the United States, expect to pay additional charges for shipping and handling. Art that seems to be a bargain can quickly exceed the expected price.

The unsophisticated buyer is also taken advantage of in other ways. Because the numbered piece being bid on is not the same piece that the buyer will receive, its actual value may be different. A serigraph numbered 3 of 300 has a different value to a collector than one numbered 298 of 300. In addition, cruise passengers tend to believe the advice and appraisal of the auctioneer. As suggested by Stephen Abt, CEO of ArtFact Inc., “You should never get your market information from someone who’s selling art.”
24
Despite the hype, you may not find bargain artwork on a cruise ship. Regardless, most passengers are unable to resist the temptation to purchase art by a recognizable name, or in the face of being told that the piece they are being offered is a steal. Remember the old saying: If something seems too good to be true, it probably is.

Table 2.1

PER CAPITA REVENUE FROM ONBOARD SPENDING,

HOLLAND AMERICA LINE, 1996-2001

REVENUE SOURCE

INCREASE OVER 5-YEAR PERIOD

Bar Sales

18%

Casino

22%

Miscellaneous*

60%

Photography Retail Sales

30%

38%

Shore Excursions

73%

Spa Services

53%

Overall Average

41%

Source:
Mark Barnard (Manager, On-Board Revenue; Holland America Line - Westours, Inc.), powerpoint presentation given at trade show, Session 9: "Maximizing On-Board Revenue and the Benefits of I.T.," Seatrade Cruise Shipping Convention (Miami, FL), March 14, 2002.

* This category includes communication charges, art auctions, bingo, gift orders, Internet use, and onboard promotions.

Our Private Island

Designed for Your Enjoyment

Private islands are another way that cruise lines generate income. In the early 1990s Norwegian Cruise Line was the first to introduce the concept. The innovation provided an alternative to landing passengers in already congested ports. It could also serve as a port of call on Sundays to eliminate passenger complaints about shoreside shops being closed.

For cruise lines, the private island has several economic benefits. For one, passengers on a private island are a captive market. The cruise line runs all beverage sales and concessions such as tours, water activities, souvenirs, and convenience shops. There is no competition so all money spent on the island contributes to its revenue and profit, and as an added benefit, passengers tend to enjoy the experience. This provides both a positive impression of the cruise line and an indirect source of future revenue in the form of passenger referrals.
25

Private islands also contribute to the economic bottom line of the cruise line because of their location. Most are in the Bahamas or Haiti. With a stop at the private island, ships are able to save fuel by cruising at a slower speed between two primary ports. Rather than sailing nonstop from St. Thomas to Miami, for example, a ship may reduce speed between the two ports with its scheduled stop at the private island. The ship saves money and at the same time increases passenger satisfaction.

If You Have Any Money Left
...

While most people go on a cruise to relax, many of them also want to participate in a range of activities. Cruise ships of the 1980s provided many activities, and most were offered at no cost. Cruise ships today have increased the choice of activities, but many come with a fee.

Bingo is a traditional activity on cruise ships. As recently as the mid-1990s, you could purchase cards for the four or five games in a bingo session for $5. Now, the cost of playing has increased to $25 or $35 for an equivalent set of bingo cards. The size of the jackpot has increased accordingly. Combined with promotions such as offering a free cruise to the winner of a particular game, bigger jackpots serve to increase the level of participation.

Bingo games, like spa treatments, are used for cross-promotions, a chance to advertise other products and revenue-generating activities.
26

Innovations and new activities for children include video games and virtual reality centers, rock-climbing walls, computers, child-only shore excursions, and ice-skating rinks. Adults may be attracted to golf simulators ($20 an hour) or to culinary workshops ($395 a session). The price for activities varies from ship to ship; cruise lines tend to change with what the market will bear. No matter what the charge, those fun activities quickly contribute to the overall cost of your supposedly all-inclusive vacation.

Come to Our Outdoor Steakhouse

One of the newest waves on cruise ships is the provision of alternative dining rooms. While attractive in that they offer a change from the main restaurant, alternative dining rooms come with a cost. This starkly contrasts with the idea that cruise fares include all meals.

Carnival Cruise Lines unveiled its alternative supper club in 2001 with a $20 surcharge, a year later raised to $25. Celebrity Cruises introduced its alternative dining in 2001 under the banner of Michel Roux cuisine and charged $25. Portofino’s, a dining room on Royal Caribbean International’s
Radiance of the Seas,
charges $26. In comparison, Princess Cruises’ alternative restaurants are a relative bargain. Two restaurants charge a reservation fee of $3.50, purportedly to prevent people from not showing for the reserved time. In 2001 Princess introduced an outdoor steak-house with an $8 charge.

One of Norwegian Cruise Line’s newest ships, the
Norwegian Star
, boasts ten separate restaurants; the cost associated with each dining option is not explicitly advertised. While the traditional dining option is free of cost, several of the alternatives have a $10 cover charge. A couple of other restaurants are a la carte with appetizers and entrees, including lobster, fish, and steak, at market prices.

In addition to charging for alternative restaurants, many ships now charge for snacks and other items. Initially, the charges were only for specialty items such as Haagen Dazs ice cream: on Princess

Cruises $1.90 for a scoop, $3.50 for a sundae. Other cruise lines quickly followed suit with charges for gourmet coffees and cappuccino. Today, a passenger is likely to pay extra for pastries, cookies, and chocolates offered through cafe-style food outlets.

The logic of extra charges for food is sometimes difficult to grasp. On Celebrity Cruises, for example, you can order a glass of orange juice from room service at no charge. However, if you order a glass of orange juice at one of the bars, it costs $2.00. The same glass of orange juice ordered in the dining room when it is not the “juice of the night” costs $1.50.

Keep in Touch with Loved Ones Back Home

Cruise ships have always offered telephone service. But before you pick up the phone in your room and make a call, you might want to know that the price for telephone calls ranges from $4 to $15 a minute, depending on the cruise line. As with other income generators, all too often you don’t discover the cost until the end of the cruise.

The growth of the Internet has led many ships to install cyber cafes. A concessionaire provides these services; the largest is Digital Seas. Again, the cost varies from ship to ship, usually ranging from $0.75 to $1.50 per minute, with a minimum charge of 10 or 15 minutes. Crystal Cruises charges an initial setup fee of $5.00 and $3.00 for each e-mail message sent. Like other money grabs, income is sufficient for both the concessionaire and the cruise line to recover costs and make a profit. Although this is unsurprising practice for a business, it is surprising to the cruise passenger who was expecting an “all-inclusive” vacation.

We Can Make Money Even When You’re in Your Cabin

In the mid- to late 1990s cruise lines began to introduce revenue-generating schemes in passenger cabins. They realized there was money to be made while passengers were in their room relaxing, preparing for dinner, or simply lazing away time in bed.

The earliest innovation was interactive multimedia. You can preview shore excursion options and reserve your choices, order wine for dinner from the ship’s wine list, order pay-per-view movies (including X-rated films on some cruise lines), play video poker and similar games, and in some cases even shop. The advent of interactive television transforms traditional shipboard revenue downtime into revenue-generating time.

In the late 1990s minibars began appearing in passenger cabins, offering soft drinks, wine, liquor, and snack foods.
27
Disney Cruise Line, among the first to introduce in-cabin minibars, had one type with a clear glass front. As the manufacturer stated, this would allow passengers to see all the snack items inside, thus precipitating the impulse buy — particularly effective when children are staying in the cabin.
28

As in many hotels, minibars on cruise ships are beginning to use a system employing infrared light that automatically logs an item as purchased when it is picked up or removed; the charge immediately appears on a passenger’s shipboard account. The system is attractive to the cruise line because it eliminates the need for staff to check what has been consumed. However, until passengers become accustomed to these systems, there will be many erroneous charges. If you take an item out and then return it unused, the charge is not reversed. Because of passenger complaints, Royal Caribbean has removed minibars with these systems.

Internet access in passenger cabins is the newest wave for capturing additional income. Many new ships are being built with fiber-optic networks to all cabins, and networks are being installed on some older ships.

MORE WAYS TO IMPROVE THE BOTTOM LINE

In addition to encouraging onboard spending, a company can improve its economic bottom line in two basic ways.

One is to reduce costs. Cruise ships have done this effectively by cutting back on whatever can be eliminated or reduced, particularly amenities (e.g., shampoo, soaps, and other such bathroom items) and “freebies” (e.g., playing cards, pens and notepads, chocolates placed on your pillow at night) that were common as recently as a few years ago. They have also introduced cost-saving systems, such as the SeaSupplier e-procurement system adopted by Royal Caribbean Cruises which is expected to save from 15 to 20 percent of total purchasing expenses — as much as $120 million per year. And consolidation in the industry produces economies of scale and increased purchasing power.

Both Royal Caribbean Cruises and Carnival Corporation projected in early 2002 that a merger with P&O Princess would save $100 million per year.

The other way to improve the bottom line is, obviously, to increase revenue. Onboard revenue is not the only means of doing so.

Port Charges

There was a time when cruise lines earned substantial income through “port charges,” fees added to the advertised cruise fare when you made your reservation, but a class-action lawsuit in 1996 changed all that.
29
Most cruise companies agreed to stop stating additional charges in small print at the bottom of the page or the back of a brochure. Instead, industry practice became to advertise cruises with port charges and all other fees included in the promoted price.

Resolution of that 1996 lawsuit also changed the way port charges are computed. Some previously included items were eliminated, but it’s still hard to figure out exactly what is included. Holland America Line’s general counsel suggested there are a lot of costs incurred when a ship is in port and these are included as port charges. These include not just taxes and fees, but pilot and tugboat services, stevedoring, and garbage hauling. Like others, Holland America Line refused to identify all expenses under port charges, arguing that such information could undermine its competitive advantage.

One estimate during the lawsuit was that as much as 50 percent of the total amount collected as port charges was used to cover overhead rather than what was needed to pay the fees charged by ports of call. The total overcharge was estimated to be $600 million and involved seven companies: Royal Caribbean Cruise Line, Celebrity Cruises, Norwegian Cruise Line, Princess Cruises, Carnival Cruise Line, Holland America Line, and Renaissance Cruises.
30

We’ll Reward You for Bringing Passengers

As a result of recent events, a new wrinkle surrounds port fees. Following the World Trade Center attack in September 2001, many cruise lines redeployed their ships from Europe and Asia to itineraries closer to the United States. Hoping to capitalize on this shift, Cartagena, Colombia, quickly offered a 50-percent reduction in its port charges for any ship adding a stop at its port. San Juan, Puerto Rico, reduced its port charges by 25 percent.

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