1/2017 www.cruisebusiness.com – CRUISE BUSINESS REVIEW 26th Year of Editorial Excellence Caribbean Developing next-generation ports Northern Europe Breaking the winter barrier Expedition ships Placing high demands on technology MSC Cruises Doubling down on Miami Untitled-1 1 1.3.2017 13.40
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CONTENTS MAIN FEATURES Cruise Business Review 1/2017 5 16 MADRID CRUISE SUMMIT Alan Lam attends Madrid Cruise Summit, where the main focus was finding passengers for new ships. 30 SILVERSEA’S MARTINOLI TALKS GROWTH Fran Golden talks with Silversea CEO Roberto Martinoli about the company’s new ship Silver Muse and growth in expedition cruising. 50 MSC CRUISES DOUBLES DOWN ON MIAMI Jason Leppert visits Fincantieri Monfalcone shipyard, where the new MSC Seaside is on the outfitting stage. MSC Seaside will be home-ported in Miami year-round. 53 NEW INNOVATIONS SHAPE THE MEGASTAR Kalle Id and Kenny Leong sails on the the new LNG-powered Megastar cruise ferry, which provides luxurious passenger areas for a short crossing between Helsinki and Tallinn. 62 HEADLINES 2016 – FORECASTS 2017 Kari Reinikainen glance back at last year and look ahead to see what’s in store for cruise business. CRUISE BUSINESS REVIEW 1/2017 5-6 uusi.indd 3 27.2.2017 10.27
10 Cruise Business Review 1/2017 Publisher’s Letter HOW TO CONTACT ME editor@cruisebusiness.com twitter.com/cruisebusiness youtube.com/cruisebusinessreview W hen I was a kid in the 1980s living in my native country of Finland, my family had a tradition of taking a cruise from Helsinki to Stockholm every December between Christmas and New Year’s. Cruise ferries, such as the ms Finlandia and ms Silvia Regina of Silja Line or the ms Viking Saga and ms Viking Song of Viking Line, became very familiar to us and helped pave the way for me to become a journalist covering the passenger shipping industry. During the 1980s and later in the 1990s, the cruise ferry industry was pioneering. Operators in the Baltic had created an onboard product that attracted both Finnish and Swedish passengers for short getaways, no matter whether it was the summer or winter season. The ships in those days were already fitted with multiple dining and entertainment options, saunas, swimming pools and so on. The accommodations were comfortable enough for a two-night mini-break (although if the cabin booked was below the car deck, nights were sleepless due to the noise of the ship breaking through the ice). Meanwhile, the cruise vacation business at that time was very much centered in the Caribbean and just a few other warm-weather destinations, and most cruise ships were designed to be operated in the Caribbean. During the 1980s, both Carnival Cruise Lines and Royal Caribbean Cruise Line were operating solely in the Caribbean. What we can learn from the success of short cruises offered by Baltic ferry operators is that winter (or should we say year-round) cruise operations in Northern Europe can become a sustainable business. Cruise guests from source market such as Germany can easily reach the embarkation ports without boarding a flight, and ships can be built with yearround operations in mind. The cities in Northern Europe offer the same sights and attractions (with a few exceptions) as during the summertime, but are less crowded during the winter months. As it is said, there is no weather that’s too cold – just the wrong clothing. W ith this history in mind, I was excited – over 30 years later – to embark the new ms AIDAprima in Hamburg at the end of January. AIDA Cruises, which celebrated its 20th anniversary last year with the introduction of its new flagship, has always been at the forefront of innovation. The AIDAprima and its sister ship the ms AIDAperla – to be introduced in summer 2017 – have been designed to operate year-round in Northern Europe. During its inaugural season, the AIDAprima sails weekly from Hamburg on a “European Metropolises” itinerary, drawing its passengers from the German source market and calling at Southampton, Le Havre, Zeebrugge and Rotterdam. Hamburg is easy to reach by private car, train or plane, and there is ample parking at the new Cruise Center Steinwerder for passengers arriving in their vehicles. But here is what’s most important: AIDA Cruises has created a product that is attractive year-round. The ship itself works well during all four seasons. There are multiple dining and entertainment options both indoors and outdoors, the spa is massive in size and two indoor waterparks offer family-fun for all ages no matter what the weather conditions. The sailing distance between ports-of-call is short and time in port is generous, which allows for shore excursions to capital cities such as London, Paris and Brussels. But not surprisingly, as modern cruise ships have become destinations unto themselves, many guests on the AIDAprima choose to spend their day in one of the waterparks onboard even when in port, rather than in taking shore excursions. Teijo Niemelä February 2017 THE WINNING CONCEPT OF WINTER CRUISING Publisher Teijo Niemelä visiting at the Port of Hakata in Japan during December 2016. Hakata is currently among the most popular ports-of-call in Japan catering mostly cruise ships arriving from China. On the background is Princess Cruises’ Sapphire Princess. Japanese ports will be more in our focus during the entire year of 2017 P h ot o cr ed it : R yo ji M ae sh im a
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The year 2016 marked a rapid expansion for Genting Hong Kong, which culminated in the christening of the brand-new Genting Dream in November – marking the start-up of an entirely new upmarket cruise line, Dream Cruises. Earlier in the year, Crystal Cruises (the ultra-luxury cruise operator Genting acquired in 2015) unveiled its Crystal Luxury Air product and began river cruising in Europe. However, perhaps Genting’s most daring step was to acquire Nordic Yards in Germany. Consisting of three newbuilding yards in Rostock, Stralsund and Wismar, the new MV Werften is expected to fulfill the future newbuilding requirements of Genting, whose portfolio also includes Star Cruises. Puan Sri Cecilia Lim (pictured above), the wife of Tan Sri Lim Kok Thay (pictured below), Chairman and Chief Executive Officer of Genting Hong Kong, acted as the Genting Dream’s official godmother. PICTURE OF THE YEAR 2016 Cruise Business Review 1/2017 13 12-13ndd.indd 3 20.2.2017 11.44
14 Cruise Business Review 1/2017 PICTURE OF THE YEAR – RUNNERS UP What other news photos made headlines during 2016? There was no other cruise ship naming ceremony with more glitz, glamour and royalty during 2016 than the christening of Regent Seven Seas Cruises’ new Seven Seas Explorer in Monte Carlo. Her Serene Highness Princess Charlene of Monaco delivered the traditional maritime blessing before the bottle of champagne broke against the ship’s hull, officially christening the vessel, while President and COO Jason Montague, the ship’s Captain and Norwegian Cruise Line Holdings Ltd. President and CEO Frank Del Rio witnessed the event. The Crystal Serenity completed a 32-day and 7,297nautical-mile journey through the famed Northwest Passage – a first for a large cruise ship. During 2016, Arctic cruises increased in popularity and several cruise operators entered into agreements to build new tonnage for polar operations. The Adonia of Carnival Corporation & plc’s newly-founded Fathom brand became the first cruise ship in decades to sail from the U.S. to Cuba. Since June, U.S.-to-Cuba cruising has evolved to now also include, among others Carnival Cruise Line, Norwegian Cruise Line, Oceania Cruises, Regent Seven Seas Cruises, Royal Caribbean International and Pearl Seas Cruises. In September, a joint venture between Carnival Corp., China State Shipbuilding Corporation (CSSC) and Fincantieri announced a landmark memorandum of agreement to build cruise ships in China. In late February 2017 the agreement was updated, further expanding the cooperation between the three parties to include two firm orders and four options for 133,500 gross ton newbuilds. 14-15indd.indd 2 24.2.2017 12.38
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16 Cruise Business Review 1/2017 CONFERENCE REPORT EUROPE MADRID SUMMIT FOCUSES ON FINDING PASSENGERS FOR NEW SHIPS With the cruise industry’s orderbook bursting at the seams and confidence at an all-time high, the focus of the Madrid International Cruise Summit 2016 was firmly on how to source more passengers to fill this additional capacity. By Teijo Niemelä and Alan Lam From left: Massimo Brancaleoni, Richard Vogel, Chris Coates and Kerry Anastassiadis 16-23 .indd 2 20.2.2017 11.53
Cruise Business Review 1/2017 17 I n a presentation by Cruise Business Review correspondent Alan Lam , the extent and implication of the industry’s orderbook were clearly demonstrated. As it stood in November 2016, including options, more than 80 units of cruise ships were on order, representing over 9.5 million gross tons and above 242,000 lower berths, driven mainly by the vibrancy of the Asian market – China in particular. In his presentation, Lam compared the current optimism with that of the container-shipping sector a few years earlier. He spelled out the risks and highlighted the fact that the cruise industry’s confidence is almost entirely based on the recent performance of and prognosis for the Asia market, because growth elsewhere is, at best, moderate. In fact, this confidence is based almost solely on China – on Shanghai and its surrounding area in particular – as most international cruise lines are based there. Outside of this region, the market is still imponderable. Royal Caribbean Cruises Ltd. (RCCL) recently reported a softening of the Shanghai market. During the summit, major cruise lines in attendance were asked if any of them were making money from China. The silence in the conference hall conveyed a resounding “no!” In addition, there are so many other uncertainties in the world today, ranging from Brexit to terrorism, eurozone crises and geopolitical issues, that cruise business development is at risk of being derailed by unforeseen events. More new orders are being continuously added. If this newbuilding boom continues, it is believed that by 2026, more than 50% of current capacity will have been added to the global fleet. To avoid a possible disastrous future overcapacity scenario, as experienced by the container-shipping sector right now, the industry will need to ensure, first and foremost, a steady and continuous increase in passenger numbers corresponding to the increase in newbuilding capacity. More passengers needed This target is, in fact, achievable if the current rate of growth continues. t ti b C i B i Alan Lam 16-23 .indd 3 20.2.2017 11.53
More opportunities sought In its unrelenting effort to find new source markets, the industry is urged not to overstate the challenges, but to see them as opportunities. Indeed, certain pioneering segments of the cruise business have chosen to act counterintuitively in their efforts to source passengers for their ships. While most cruise lines abandoned Turkey on account of the perceived geopolitical threat, Celestyal Cruises headed in the opposite direction. “We decided to focus on the Eastern Mediterranean,” said CEO Anastassiadis. “The reality is that there is Turkey with 80 million population. We simply cannot and will not ignore this market. The [cruise market] penetration there is infinitesimal. For the Turkish, there is no geopolitical issue. We focus on serving this market, and we see it as an opportunity rather than threat. We go where nobody else goes. We can turn it into an advantage.” It would appear that there are opportunities everywhere, even in Turkey. Celestyal has always had that pioneering spirit. “We were the first to re-enter Cuba when everyone else pulled out,” Anastassiadis said. “Cuba for us is a very interesting market.” This different approach appears to have paid off. Today, Celestyal is among the best performing 18 Cruise Business Review 1/2017 Seven percent may seem like a small, achievable figure. Yet this can be an uphill struggle for the traditional markets in Europe. – Pierfrancesco Vago – There is Turkey with 80 million population. We simply cannot and will not ignore this market. – Kerry Anastassiadis – to create a strong brand positioning in the Asian market. This forms part of a pioneering MedCruise project that commenced in 2014 and promotes the attractiveness of MedCruise destinations to the Far East, in a strategy aiming to transform Asia into a key passenger source market for cruises in the Med” – thus further qualifying the MedCruise strategy. “Realistically,” said Kerry Anastassiadis , CEO of Celestyal Cruises and the new Chairman of CLIA Europe, “the maximum the cruise industry can grow is 7% per year, owing to shipbuilding constraint, which means by 2030 we will still be infinitesimally small compared to other holiday industries.” Therefore if the current trend continues, a containershipsector-style disaster can be averted. But a great deal of marketing and sales effort is needed to fill these ships in order for the industry to remain viable, not to mention profitable, in the future. If all the ships on the current orderbook are delivered according to plan, a corresponding percentage increase in overall passenger numbers will be key. In other words, by 2026 at least 36 million annual passengers are needed; that is to say an average increase of 1.2 million per year must be achieved for the next ten years just to maintain the current level of supply/demand ratio. And price pressure must be eased at the same time. To do this, marketing and sales efforts must be redoubled and must be more effective. There are numerous challenges ahead. Seven percent may seem like a small, achievable figure. Yet this can be an uphill struggle for the traditional markets in Europe. Spain, for example, peaked in 2011, according to Pierfrancesco Vago , Executive Chairman of MSC Cruises and the incumbent Chairman of CLIA Europe; in 2015 it only managed 3% growth, less than half of the anticipated 7%. So the main engine is undoubtedly China, and China must continue to deliver. More marketing required Marketing is central to driving future passenger growth. The focus of the summit was firmly on China-targeted campaigns and seeking new opportunities elsewhere, which also meant increasing penetration in traditional markets that require innovative products and a change of perceptions. As in all other cruise-related professional gatherings in recent years, sooner or later China became the focal point of discussion. In Madrid, this was no exception. It soon became apparent that much of the industry’s marketing efforts have been China-oriented. “In 2017, China will represent 20% of global passenger count, with 21 ships [deployed],” said Massimo Brancaleoni, Senior Vice President Global, Costa Crociere. “The business is there. Then there is Chinese coming to Europe, which is of more interest to me. Their spending per capita is in the range of $800-$1,000. They now account for up to 85% of duty-free sales. We are offering them packages with strong shopping potentials built in.” There is one other important aspect of pursuing the Chinese clientele. “I can understand cruise lines are always looking for new markets,” said Richard Vogel , the new President & CEO of Pullmantur Group. “They are looking for sustainable growth. In comparison to India, China is relatively more sustainable.” Indeed, sustainability is an important element in investing in a new market. It is therefore natural that organizations such as MedCruise have a clear vision concerning China. “Two years ago, we saw the potential in China,” said Kristijan Pavic , President of MedCruise. “We work with Chinese travel agents. We approach Chinese companies to build business strategy on China. Through WeChat, we are communicating with that market. Outside of Asia, the Mediterranean is their [Chinese travelers] next destination. We are discussing through our board, what is the next step to take for the Chinese market? We are already thinking and communicating with our members about how we can approach this market. We need promotion of destinations as well.” Later, in a press release, he added, “Since July 2015, MedCruise has worked Pierfrancesco Vago 16-23 .indd 4 20.2.2017 11.53
The leading cruise port in the Mediterranean 16-23 .indd 5 20.2.2017 11.53
small-size cruise lines, and it is expanding its capacity while other cruise lines, such as those operated by the All Leisure Group, have fallen victim to geopolitics. In its search for new passenger sources, the industry now recognizes the role that independent travelers play in filling its cabins. “We are all becoming more independent travelers,” said Clare Ward , Senior Commercial Planning Manager, Fred. Olsen Cruise Lines. “We all want to tailor our experiences and not be herded into a bus.” The industry has finally recognized this longstanding fact, and its response is to become more f lexible. “We need to differentiate our products by personalization,” she added. “Flexibility is important. Independent travelers are here to stay. We should be looking at how we cater for them. So we must embrace the trend; we can’t fear them.” She pointed out that some destination management companies tend to give independent travelers a hard time so they will book tours. This, for her, was not the right way to go. “If independents are served poorly, the ports will get poor ratings and the port will be dropped.” The industry is now fully aware of the need to be inclusive. “Quite often we treat independents as second-class citizens,” said Shirley Henderson , Manager Shore Excursions, Carnival UK. “We need to look at how to include them and make a bit of money out of them as well. Guests want personalized, authentic experiences. We can provide that through small groups. But small groups are expensive; we need to look at how to overcome this.” More challenges for ports More than half of the capacity on order will come from megaships of over 150,000 gross tons. This is transforming the cruise industry, and it will present a major challenge particularly to itinerary planners and ports as they strive to source more passengers. To fill these ships, cruise lines will need to revolutionize their products. This becomes difficult because the size of the ships will restrict the number of ports-of-call, thus impacting the variety of cruise itineraries offered and making this holiday option less appealing. On the other hand, the dominance of megaships also presents an opportunity for smallership operators that 20 Cruise Business Review 1/2017 through small groups But small groups In 2017, China will represent 20% of global passenger count, with 21 ships [deployed]. – Massimo Brancaleoni – can call at twice as many ports, at least, as their bigger competitors – unless port infrastructure upgrades can keep pace with newbuilding deliveries, which is unlikely. Here also lies the opportunity for smaller ports. The speed and size of newbuildings coming into service has overwhelmed ports. Bigger ships and more passengers mean bigger needs. The effort to find more passengers for tomorrow’s ships will come to nothing if landside development does not keep pace. “It is inconceivable for the industry to continue to grow without working with the ports,” said Celestyal’s Anastassiadis. Here lies the biggest challenge: It is virtually impossible for the ports to keep up at present. “The pace of change on ships is not kept up by ports,” said Captain Michael McCarthy , Chairman of Cruise Europe. “It takes years for them to apply for planning permissions, overcome local opposition and sort out environmental issues, etc. We simply cannot keep up the pace. Besides, how can you justify investing €20-€30 million without guaranteed ship calls?” There seems to be a stalemate on this issue. But cruise lines are forever seeking new ports and new destinations in their Massimo Branceleoni Kristijan Pavic 16-23 .indd 6 20.2.2017 11.53