Cruise Line Sets Sales With Deals

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Cruise Line Sets Sales With Deals
Crystal’s Jack Anderson at the cruise line’s Century City office.

Century City’s Crystal Cruises Inc. is carrying a load of concerns about selling lavish cruises as the company tries to steer its fleet toward renewed riches.

Since the recession began in 2008, Crystal has struggled to fill cabins. Competitors in its ultraluxury liner market have added ships, and some downmarket companies have taken customers.

Now, Crystal is hoping to get cruisers back on board by offering promotions, such as two-for-one fares.

For next year’s cruises, the line is offering fixed-price packages, with no charges for bar service and no tipping. Crystal has included the price of airfare in cruise packages since last year.

The discount and fixed-price packages are part of a larger effort by the cruise line’s parent company, Tokyo-based Nippon Yusen Kabushiki Kaisha, a shipping division of Mitsubishi Group of Cos., to increase revenue from Crystal’s ships. The ocean liners cater to customers that Crystal Vice President Jack Anderson calls “working wealthy and retired rich.”

NYK Cruises, a division of NYK, owns the two Crystal ships, Crystal Symphony and Crystal Serenity. The division also owns Japanese luxury cruise ship Asuka II, which used to be named Crystal Harmony until it was spun off in 2006.

Now, passenger occupancy is at about 70 percent, according to an NYK executive speaking during an earnings call in July. The three ships posted a net loss of about $29 million in the first quarter of this year and NYK hasn’t reported a profit for them since 2008.

NYK, which trades on the Tokyo Stock Exchange, isn’t happy with Crystal’s performance. In its first quarter earnings reported in July, the company cited marketing mistakes for low occupancy on the ships. The company also said it had “already deployed new personnel to bring about a 180 degree turn in our marketing.”

Hiring Anderson as vice president of marketing and sales in June was one such personnel move, according to industry insiders. He was previously vice president of sales and marketing at Carnival Corp. of Miami’s Yachts of Seabourn, a competitor in the ultraluxury segment.

NYK’s shareholders are tiring of the losses from the cruise business, and want a sale, said Janet Lewis, an analyst at Macquarie Capital Securities in Hong Kong. Investors would rather see NYK put focus on cargo shipping, and the current efforts at Crystal may be in preparation for a future sale.

“The priority is to turn around the business,” Lewis said. “Investors would be happy if NYK exited the cruise business.”

Anderson said he had no knowledge of plans for a sale.

Teijo Niemela, editor of Helsinki, Finland-based Cruise Business Review, said Crystal needs to focus on marketing to a younger baby boomer crowd instead of older retirees.

The younger cruisers tend to bring families, and that fills rooms and brings money to onboard shops. Older travelers are more likely to travel alone and spend less.

Anderson said he’s trying to attract first-time cruisers, an average of 10 years younger than repeat customers, by offering perks such as credits for spending on the boats.

Wave season

Crystal sails in the ultraluxury segment of the cruise industry, which commands top prices and offers more amenities than mainstream cruise lines such as Santa Clarita-based Princess Cruise Lines Ltd.

A two-week holiday cruise from Los Angeles to Hawaii on the Crystal Symphony costs $7,500 to $21,000 per person depending on the room. A comparable 14-day itinerary on Sapphire Princess costs $1,500 to $3,000.

Crystal’s boats have an occupancy of about 1,000 passengers, while Princess is building its largest boat, for a 2013 launch, to accommodate about 3,600.

Mike Driscoll, editor of trade publication Cruise Week in Brookfield, Ill., said ultraluxury cruise lines were especially hard hit by the economy in 2008 because of the wealthy clientele’s exposure to the stock market.

As consumer spending has remained tight, an influx of new ships is spurring tough competition among high-end cruise lines, which offer a balcony for every room, designer shopping and restaurants run by big-name chefs.

Yachts of Seabourn added ships in 2009, 2010 and 2011. Silversea Cruises, based in Fort Lauderdale, Fla., unveiled an addition in 2009. Miami’s Oceania Cruises is planning to have two new ships in the water this year.

Meanwhile, Crystal, which has about 200 employees in its Century City office and about 1,200 shipboard personnel, hasn’t christened a ship since 2003, and doesn’t have immediate plans to build one. NYK has stated in annual reports that it will look at building cruise ships after profitability.

One problem for Crystal is that recession-whacked consumers have scaled down to larger and cheaper lines such as Miami’s Celebrity Cruises.

“Competition is coming from small ships like Seabourn at the same time as Celebrity,” said Cruise Business Review’s Niemela.

To compete, Crystal has dropped prices and introduced the fixed-price cruises. In a speech to travel agents aboard the Crystal Symphony earlier this year, Chief Executive Gregg Michel said Crystal had cut prices about 15 percent since 2009, according to an industry insider. The price cuts helped increase bookings last year.

Anderson plans to raise prices for 2012 cruises. He said that strong sales this year led the company to raise rates by about 5 percent for 2012, and he’s hoping to boost occupancy on the ships by about 2 percent or 3 percent.

He said occupancy on Crystal’s cruises averages 85 percent to 90 percent, which conflicts with the 70 percent estimate from NYK. He declined to comment on any statements made by NYK.

Anderson is looking to book 2012 cruises now rather than wait until the usual January-March booking window, called the “wave season” by travel brokers.

The two-for-one deal expires at the end of October. After that, rates will rise incrementally every two months.

Deep discounts such as the two-for-ones have been a staple of the cruise industry since its inception, but Crystal didn’t introduce those kinds of deals until 2009.

New experiences

Crystal also is shaking up its onboard experience. In addition to eliminating bar bills and tipping for fixed-price cruises, following the example of Lauderdale’s Regent Seven Seas Cruises and Silversea, Crystal started offering open seating in its dining rooms this year. The cruise line had traditionally assigned fixed meal times.

In addition, the line’s two ships will focus in 2012 on Mediterranean and Baltic itineraries, Anderson said.

By including airfare in the European packages, Crystal is hoping to specialize in regions that have been a tough sell for those cruise lines catering to less affluent demographics, such as Princess and Disney Cruise Line in Burbank.

Cruise Week’s Driscoll said both Princess and Disney cruises have withstood the recession because of an emphasis on sailing from easy to reach domestic ports.

Disney will move all of its European itineraries back to the United States next year and will add domestic ports Seattle; New York; and Galveston, Texas. Princess has an especially strong presence in Alaska.

While Disney and Princess can market a value-based domestic vacation during a recession, Crystal will continue marketing to the wealthy.

Macquarie analyst Lewis said despite all of the line’s promotions, Crystal will need a strong economy to return to 2007 form.

“At the end of the day the biggest driver is the U.S. economy,” she said. “A lot of people who take cruises are living off of an investment income.”

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