The worldwide cruise market has been growing at large pace during the last decade and such trend is expected to continue in the mid and long term. This future trend is leveraged on a new outstanding additional offer, including larger vessels with innovative services, the development of new cruise destinations and the retrofitting of cruise terminals to guarantee a differential value proposition. Within this context, the Caribbean cruise market, which currently concentrates 40 per cent of the total market, is expected to play a leading role, maintaining its predominant position.
Bearing this in mind, the article aims to provide an overview of the global cruise market and a deep understanding of the Caribbean region, presenting the main cruise terminals’ dynamics and the key factors that drive them.
Cruise sector dynamics and key strategic drivers
Unlike other types of port facilities, cruise terminal’s revenue streams are related, on the one side, to maritime services provided to the shipping line and, on the other side, to ancillary revenues linked to commercial activities.
- Maritime revenues: Generated from services provided to cruise lines such as passenger handling, loading of supplies or waste management, etc.
- Ancillary revenues: Mainly consisting on commercial revenues related to the rental of spaces for retail, food and beverage and leisure. In certain cases, such services can be directly managed by the terminal operator, although it is common to confide commercial and value added services to specialized third parties that focus on the business.
As a result, the attractiveness of a cruise terminal is conditioned by a series of internal and external factors that will determine the potential performance of the terminal and hence the operational results.
Public infrastructure is crucial for cruise ports since it determines the level of accessibility and its potential to attract a large number of passengers. Hence, nearby large international airports and excellent land connectivity is essential to enable passengers to reach their cruise without nuisance.
On this basis, there are two kind of cruise terminals, depending on the nature of its operations, and both require a different level of infrastructure.
- Homeports: Serve as base ports where cruise vessels start and end their voyages. Since the majority of passengers embark/ disembark at homeports, proper connectivity and accessibility is required, as well as abundant hotel capacity.
- Transit ports: Visited by cruises due to their tourist attraction and commercial offer. Generally, cruise ships arrive early in the morning and depart late in the afternoon, after passengers have undertaken daily tours to the sites with tourist attractive. Therefore, ports of call only require fast and efficient systems to transport passengers to the local points of interest.
b. Nearby ports and cruise duration
The existence of other nearby ports with local points of interest is also required to guarantee success as a cruise terminal. Passengers are not willing to undertake long voyages and hence tourists may opt for other forms of travelling to visit isolated regions. In a similar manner, cruise duration will have an impact on the selection of itinerary, as well as on the number of the port calls and their duration.
c. Value proposition
In addition to the local tourism attractiveness, passenger user experience can be improved by terminal operators through a series of value added services, such as luxury shops, high-class restaurants, theaters and music halls, etc. Therefore, successful cruise ports combine a wide offer of services with local appealing points of interest.
d. Weather conditions
Passengers will choose the cruise market depending on the dates they are looking forward to take the trip, avoiding cold temperatures as well as hurricane and monsoon seasons. Therefore, the different cruise markets will be significantly affected by the seasonality produced by the weather conditions and the holiday calendar.
e. Passenger profile
The type of cruise ship and the port calls of the cruise itinerary will be strongly influenced by age and nationality, as well as by passenger’s budget and interests. Hence, the commercial or leisure offering shall be varied to satisfy the different kind of passengers. Most certainly, young passengers from the US with low budgets do not opt for the same cruise options than retired passengers from Japan with higher budgets.
Overall market overview and weight of the Caribbean market
The number of cruise passengers has increased by more than 60 per cent in the last decade, reaching a 28.5 million throughput on 2018. Out of these, 40 per cent of the passengers are concentrated in the Caribbean market, which is the largest market in the cruise sector.
During the last five-year period, the Caribbean market has grown at an eight per cent compound growth rate while the Asian market has established as the second largest market, driven by the rise of the Chinese middle classes. Such growth is expected to continue given the rise in popularity of cruise trips amongst the Asian population and their increased purchasing power.
With regard to the worldwide market source, United States passengers represented around 48 per cent of the total cruise passengers on 2018, followed by China and Germany which represented nine and eight per cent, respectively. Such segmentation clearly evidences the advantageous location of the Caribbean due to its proximity to the largest source market. This is reflected in the fact that 81 per cent of Caribbean cruise passengers are sourced from the United States.
In terms of age segmentation, retired or near retirement people represent around a third of the total market whereas passengers in their 20s and 30s represent a significantly lower share. For this reason, cruise lines are striving to offer value added services (eg. onboard music festivals) that increase the industry’s popularity amongst young travelers.
Focusing on the Caribbean cruise market, the main homeports are located in Florida, being Miami the largest cruise port in the World in terms of passenger throughput. Depending on the cruise duration and the passengers’ interests, these may opt to undertake itineraries that reach the Eastern or Southern areas or may stay in the Northern area of the Caribbean, closest to the main homeports.
Another singularity of the Caribbean market is the hurricane season, which starts in June and lasts until November, reaching its peak in the month of September. It corresponds to the low season in the Caribbean, when strong winds and rainfall are common. As a result, the overall cruise demand drops, being limited the northern area of the Caribbean thanks to shorter cruise trips departing from the US ports. Since low cruise season in the Caribbean coincides with high cruise season in the Mediterranean, cruise lines divert part of their fleet to the Mediterranean market to maximize profits and returns.
Finally, the ongoing verticalization of the major cruise lines towards terminals is changing the shape of the Caribbean competitive landscape. Given that Carnival Corporation represents more than 43 per cent of the total capacity and Royal Caribbean Cruises Ltd. comprises around 29 per cent, the market is highly concentrated on a few large players. Therefore, cruise terminal investors may incur in high risks unless they establish and secure prosperous business relationships with the industry’s major players.
The cruise market has been in constant growth throughout the last decade and it is expected to continue, thanks to the aim of cruise lines to improve the user experience and widen the variety of their offer to attract new customers.
With regard to the Caribbean, there are numerous foreseen expansion plans that will lead to a series of investment opportunities. Consequently, it is expected to maintain its leading position by increasing its capacity and widening its commercial and leisure offer. Such growth will be leveraged on its unique cruising conditions consisting on its large number of islands and archipelagos and the long periods of warm and sunny days.
However, it must be also pointed out rapid growth of the Asia-Pacific market, which counts with a large number of potential passengers that are expected to gain purchasing power and become more interested in this option of travelling.
About ALG activities in the cruise sector
ALG has acquired a solid knowledge in the cruise sector, and more specifically in cruise terminals, by undertaking the evaluation of leading cruise terminals in the Caribbean and the Mediterranean. This has allowed ALG to understand the key issues and drivers of the sector, as well as its threats and opportunities. Furthermore, through the cooperation with top players in the industry, ALG has been able to carry out unique projects and tackle each client’s specific needs.
For more information about this article or if you want to get a better understanding of ALG’s services in the cruise sector, feel free to reach us at the contact emails below.