Relationship Between Tourist Product And Cruise Tourism Essay

This paper seeks to discuss the concept of product life cycle apply to the cruise product selling in Wing On Travel Agent (Hong Kong). First, the relationship between tourist product and cruise product is defined. Then the concept of product life cycle is introduced. Finally, a case study of Wing On Travel Agent (Hong Kong) is presented to illustrate the life cycle of selling the cruise product.

Transportation by carrier; accommodations; rental of motor vehicles; or any other service related to travel. Depending on the jurisdiction this may or may not include time shares. Travel services includes transportation by air, sea, or land, or the provision of other goods or services related to recreational, cultural or educational travel, including but not limited to lodging, food, guided tours, or instruction.

The cruise industry is one of the fastest-growing segments of the travel industry – since 1980 the industry has had an average annual passenger growth rate of 8.1%. Almost 45 million people have cruised at least once; of these, nearly 23 million have cruised in the past 3 years. (By: Miller, Richard K.; Washington, Kelli. Travel & Tourism Market Research Handbook, 2009, p88-91, 4p, 5 Charts;)

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Between 1999 and 2005, passenger levels for conventional cruises have expanded from about 8.5 million to 13.9 million. During the same period, the Asia Pacific region accounted for between 5 % and 8.6 % of the worldwide market. Between 1999 and 2005, Hong Kong’s typical rate1 of capture of the Asia Pacific conventional cruise market ranged from 16% to 30%. The total cruise passenger throughput in Hong Kong including local residents and international passengers traveling on conventional cruises and cruises-to-nowhere has increased from 1.38 million in 1999 to 2.15 million in 2005. The number of cruise vessel calls has increased from 409 to 1 051 over the same period.

The growth of tourism even exceeded the growth of GDP worldwide by approximately 1.3 times in the last 25 years of the 20th century (WTO, 2003).

The cruise industry is a niche market in the tourism industry. The market share of cruises in the tourism market is small and account for only 0.6% of the hotel beds offered worldwide (WTO, 2003). This number seems small, but the cruise market has shown incredible growth figures and is seen as a market with high potential. The cruise industry has grown with an average annual percentage of 7.4 since 1980. An estimated 15 million travelers cruised in 2008. The North American cruise market dominates the industry and it makes a significant contribution to the American economy. The cruise industry generated $38 billion in the total U.S. economic output in 2007(CLIA, 2009). The cruise industry becomes however more and more globalized with a growing number of destinations and calls in Europe and other regions (Cruise Europe, 2009).

Between 1990 and 2004, passenger levels expanded from 4.4 to 13.2 million worldwide (Bermello-Ajamil & Partners, In 2005c). Accorrdint to B&A, passenger carrying levels could expand from the present 13.2 million to between 19.3 and 30.1 million by 2020 (see Figure ES-1).

Target Market

Hong Kong as a Port-of-Call

Hong Kong as a Homeport

China

F

S

Far East

F/S

F/S

Southeast Asia

F

F

Trans-Pacific / Repositioning

F

F

World Cruises

S

S

Australia/Asia/N.Z.

W

W

Cruise to Nowhere

N/A

S

Key: Strong (S), Fair (F), Weak (W)

Fit of Hong Kong within Identified Target Markets

Source: B&A and GP Wild, 2004

Hong Kong’s cruise season is characterized by both year-round regional operations by Star Cruises and seasonal (October to May) operations by international cruise operators.

Cruise ships are not, like ferries, just seen as a mode of transport. These ships are often a destination on itself, and can be typified as floating hotels, or even floating resorts (Dowling, 2006).

The Product Life Cycle

The product life cycle theory says that the development of sales and profits of new developed products shows a clear pattern. The product life cycle theory states that a product goes, after its introduction, through different phases. From the introduction, the product will know a phase of growth, maturity and finally decline or revitalization (Dekker et al, 1995). Butler developed, based on the product life cycle, the life cycle of tourist locations. Instead of the quantity of products sold, the life cycle of tourism development uses the number of visitors as the indicator of the level of destination development (Butler, 1980 from van der Borg et al, 1996). The development process of any tourist destination may, just as the development process of products, be represented cyclically (van der Borg et al, 1996). Figure 1 shows the destination life cycle curve with the phases of introduction, growth, maturity and decline/revitalization.

With reference to the cruise industry the introduction of a cruise destination begins of course with the necessary infrastructure. Initial costs are high since the cruise port should ‘often’ be made accessible for cruise ships and should have the required facilities to accommodate these cruise ships. During the phase of introduction a limited number of cruise ships visit the cruise port. In this phase costs are relatively high in relation to the benefits. During the phase of growth the number of cruise ships and cruise passengers visiting the city increase and facilities need to be improved. Since the available capacity is used more efficiently, costs will drop in relation to the revenues. The expenses made by cruise passengers in the city will increase and the cruise sector will contribute significantly to the economical development of the destination. During the phase of maturity the cruise sector can be considered a major contributor to the local community. The cruise port is visited by a large number of the largest cruise ships and facilities are state of the art. The cruise port city has achieved an international reputation. The destination life cycle shows however that there is a possibility of decline. Cruise destination could lose their position and reputation which would result in a decline of the number of cruise ships visiting the destination. A decline can be caused by, for example, negative environmental impact or nuisance due to the large number of cruise passengers visiting the destination (Gibson, 2006).

The life cycle differs of course for each and every product or tourism destination. Marketing strategies that should be adopted in the different stages of development differ as well. In the phase of product development it is necessary to meet the customer needs. The needs of cruise lines and cruise passengers should be satisfied in order to develop into thriving cruise destination. The destination should build upon its brand based on the needs of its customers. During the introduction phase it is important to create awareness among cruise lines and cruise passengers. In this way the cruise destination will secure its place in the market. With an increase in passenger volumes, costs will decline and profits will rise. In this stage promotion shifts to creating loyalty in order to remain and improve the obtained position (Plog, 2001).

Application

Cruise ships are not, like ferries, just seen as a mode of transport. These ships are often a destination on itself, and can be typified as floating hotels, or even floating resorts (Dowling, 2006). This has not always been the case. The main purpose of the big Ocean liners of the past, like the Normandy (1932) and the Queen Mary (1934), was primarily to transport passengers and cargo between Europe and America [1] . Transoceanic liners sailed on fixed schedules and routes and the different classes in the society were separated with first class cabins and public spaces in the front, second class in the middle and steerage class in the back of the ship (Maxton-Graham, 1985 from Chin, 2008). The speed of these ocean liners was not only important economically, but also for prestige [2] . The Ocean liners lost however market share due to the rising popularity of the airplane and finally lost their function as transport mode. Many ships were taken out of business or were used only to make pleasure trips. The cruise industry as we know it emerged in this period. Nowadays, airplanes do no longer compete with the passenger ships operating in the cruise sector and actually have become an important extension of the cruise product. The cruise product is not, as the ocean liners, based on the transportation of passengers but on the experience they are able to give to their passengers.

6.3 Market analysis

6.3.1 Introduction

The cruise sector is an exclusive part of the leisure industry and has developed rapidly in the last four decades. The sector is still expanding, not only in number of passengers, but it becomes also more and more globalized. In the market analysis we will look more closely to the major cruise regions, the growth of passengers in these regions, the characteristics of cruise passengers, the properties of the cruise product and cruise line economics.

6.3.2 Cruise regions

The major cruise regions in the world are based in North America and Europe. Figure 2 gives an overview of the total overnights per region in 2008. The Caribbean is the major cruise region, followed by the Mediterranean and Central America. The Caribbean and Central America are not negatively affected by seasonal weather patterns, apart from the hurricane season, and cruise ships are deployed in these regions throughout the year (Gibson, 2006). Between April and September, a large part of the cruise fleet is however relocated to Europe and Alaska. These regions show a clear seasonal pattern with no cruises in the winter period and a peak in the summer months (Dowling, 2006). Climate can be considered as a determining factor in the deployment of cruise ships.

Figure 2: Market share 2008 per region, based on the total overnights.

Source: CLIA

6.3.3 Passenger growth

Cruise tourism has, together with the whole leisure industry, shown a phenomenal growth. The cruise sector developed from a small market with cruise lines operating with only a single ship, to a globalized industry with a fleet of numerous unique vessels (cruiseweb.nl). Table 1 shows that especially the European market and transatlantic voyages have shown significant growth figures between 2000 and 2008 of respectively 238% and 279%. The market of North and Central America showed a passenger growth of 141%. The spectacular growth in number of cruise passengers can also been seen based on the number of cruise ships ordered by the different cruise lines. The CLIA Five-Year Capacity Report and Passenger Carrying Report of 2008 shows that 34 new ships were contracted or planned to be added to the fleet from 2008 to the end of 2012 (CLIA, 2008).

Table 1: Total bed days per region 2000-2008

Source: CLIA

6.3.4 Characteristics cruise passengers

The general profile of the cruise vacationer is upscale and well educated, with a median household income of $93,000 and 69 percent having a college degree in 2008. The median age of cruisers is now 46 years old, down from 49 in 2006 (CLIA, 2009). This shows that that the cruise sector continues to attract younger travelers. The cruise market is dominated by American cruise passengers, followed on distance by passengers from Great Britain. Other passengers come mainly from other European countries like Germany, Italy, Spain and France (Gibbons, 2009).

The tourist industry experience the trend that people do no longer take one big holiday per year, but make several shorter trips instead (Bargeman et al, 2002). This trend can also been seen in the cruise industry. The length of the cruises has declined over the years. Especially short cruises with a length between 2 and 5 days have become more popular in comparison with 25 years ago. Figure 3 shows the length of cruises in 1980 and 2006.

Figure 3: Length of cruises

Source: B&A, 2008

6.3.5 Cruise product

The cruise industry is characterized by substantial heterogeneity similarly to other tourism products (Papatheodorou, 2001). Each cruise is different in terms of ports of call, or vessel. Besides that, the experience people have, does differ among every individual. Cruise lines have the opportunity to differentiate in terms of quality and in terms of variety and offerings. Differentiation is used as a strategy by some cruise lines in the cruise industry. Cruise lines developed products that meet the preferences of different types of passengers by offering for example thematic cruises and cruises to different regions. An example is Disney Cruise, which offers cruise passengers a unique experience by focusing on the theme of Disney [3] .

The cruise product, offered by cruise lines, has changed from an ‘all-inclusive’ package to a more customized product. This means that ‘amenities’ and ‘experiences’ can be booked together with the cruise itself. Onboard sales have become a significant proportion of the turnover of a cruise ship and the profits derived from on shore excursions are significant. A typical Royal Caribbean cruise ship can, for example, generate close to a half million dollar tour income with a single call to St. Petersburg, Russia (Peisley, 2003). According to Royal Caribbean’s Vice President for Commercial Development, John Tercek, US$100 million of the profit of Royal Caribbean’s US$ 351 million profit in 2002/3 was derived solely from shore excursions (Klein, 2006 in Ross, 2006 pp. 262). Most people who take a cruise do not live in the area of the port of departure. Therefore, fly-cruise packages are very popular and play, next to the offering of excursions and other services, an important role (Papatheodorou, 2006).

6.3.6 Cruise line economics

Economies of scale are important for cruise lines. The average cost per passenger drop as the scale of operation increases. Two main categories of cost savings can be identified, namely: economies of density and economies of fleet size (Papatheodorou, 2006). Economies of density means that cruise lines are able to operate more efficiently with larger cruise vessels since fixed costs are spread over a large number of passengers. Economies of fleet size are derived by spreading fixed costs over a large number of cruise ships. Besides this, a large fleet makes it for cruise lines easier to expand in many different regions and thus establish a network of operations (Papatheodorou, 2006). Cruise lines are able to operate more efficiently with an increase in the number of ships and capacity, since the variable costs rise by a rate which is less than proportional with the increase of passenger capacity (Blauwens et al, 2007). Ships have therefore become bigger and bigger and are in some cases even considered as the main destination, instead of the ports of call (Chin, 2008). Royal Caribbean has recently ordered a new vessel, the ‘Ocean of the Seas’ with a capacity of 5400 passengers, which will come in operating in the end of 2009 (www.royalcaribbean.com). In comparison, in the 1970s and early 1980s, the typical cruise ship accommodated between 500 and 800 passengers (Klein, 2006).

Due to the importance of economies of scale the cruise industry is consolidated among three major players. The passenger capacity of the Carnival Corporation, Royal Caribbean Cruises and Star/NCL Cruises cover 80% of the total worldwide cruise capacity. The allocation of the passenger capacity among the major cruise corporations is shown in figure 4.

Figure 4: Cruise capacity by Cruise Corporation in 2008

Source: B&A, 2008

Under the three main cruise corporations, several cruise brands operate with a great degree of independency. Each brand looks after their own itinerary planning, marketing, on shore excursions and other operations. Each of the brands has specific core consumer markets that are based on demographics and nationality. Table 2 shows the three corporations, with the number of ships in operation and the brands operation under each corporation.

Table 2: Major Cruise Corporations

Parent group

Number of ships

Brands

Carnival Corporation

99

Carnival Cruise Lines

Holland America Line

Princess Cruises

Seabourn Cruise Line in North America

P&O Cruises UK

Cunard Line

Ocean Village

AIDA

Costa Crociere

P&O Cruises Australia

Royal Caribbean Cruises, Ltd.

42

Royal Caribbean International

Celebrity Cruises

Pullmantur

Azamara Cruises

Celebrity Xpeditions

Star/NCL Cruises

18

Star Cruises

Norwegian Cruise Line

NCL America

Orient Lines

Other

Disney Cruise Lines

Crystal Cruises

MSC Cruises

Regent Seas Cruises

Oceania

Silversea Cruise Lines

Sources: B&A, 2008; Dowling, 2006

Cruise lines have very high occupancy rates, compared with the hotel industry. The average room occupancy in the cruise industry lies above 95%, compared to 59% for the hotel industry (Toh, 2005). The seasonal movement is a key factor of the financial success of the cruise industry. Cruise lines are, unlike hotels, flexible in the positioning of their capacity.

5.3 Conclusion and hypothesis

The development of tourism destinations shows, just as the development of products, a cyclical pattern. The concept of the destination life cycle says that a tourism destination goes through different phases of development. Instead of the quantity of products sold, the concept uses the number of visitors as the indicator of development. A cruise destination will, based on this concept, know a phase of product development, in which the necessary infrastructure is constructed, a phase of introduction, growth, maturity and a phase of possible decline or revitalization. Each phase asks for a different marketing approach. After all, a precondition for the development of a competitive tourism destination concerns the effectiveness of tourism development efforts. During the initial phase it is important to develop a desired image brand which creates awareness among cruise lines and cruise passengers. During later phases it is important for a cruise destination to create loyalty in order to secure its place in the market.

CONCLUSIONS