By Ben Sullivan
The Love Boat soon will be making another run. And another, and another, and another.
Next month, the first of four new ships commissioned by Century City-based Princess Cruises will be launched to meet what the company expects to be greatly increased demand for luxury cruises in the coming decade.
When all are finally at sea by the end of 1999, the $2 billion worth of ships including the world’s largest cruise ship will increase Princess’ current passenger capacity by 65 percent.
If industry growth over the last decade is a reliable indicator, analysts say, the purchases will pay off: Since 1980, the number of cruises sold in the United States has been rising about 7 percent annually, doubling between 1985 and 1995, according to the Cruise Line International Association.
Even if that rate were to slow or temporarily reverse itself, they will likely pay for themselves long before being decommissioned, analysts say, given the ships’ decades-long lifespan.
For the last five years, Princess Cruises has been operating near full occupancy, according to Rick James, the company’s vice president for sales. The company’s current nine-ship fleet, with a total capacity of about 17,000 passengers, serves routes with European, Asian, Australian and North and South American destinations. With the strong and rising demand, he said, not bringing on new craft would be akin to turning down people’s money.
“We see a huge opportunity out there,” James said. “That’s why we’re continuing to invest in new ships.”
The company’s operating profits increased 43 percent last year, to $250 million, making it the second-most-profitable cruise line after Miami-based Carnival Corp.
With those profits and the deep pockets of parent company Peninsular and Orient Steam Navigation Co. in London, Princess is usually able to buy its ships outright, James said, though he would not say how the newest ships have been financed.
Ordering four boats in quick succession is “a little odd,” according to Peter McMullin, an analyst at Southeast Research Partners. But given the two years it typically takes to build a cruise ship, Princess’ strategy seems wise, with its new ships rolling out gradually to coincide with rising demand, he said.
Princess officials say they won’t merely rely on overall industry growth to fill their new ships or even to keep their current fleet full. The company is in the midst of a massive marketing campaign, not just to advance its own line, but to promote the industry as a whole.
“We’re on TV, we’re in the newspapers, in magazines. We’re working closely with the travel agent community, we’re using direct mail. We’re in just about every vehicle we can be to get people interested in cruising and in Princess Cruises,” James said. He would not say how much the company is spending on its campaign.
A major part of its promotional effort is focused on the so-called “Love Boat Loan” program the company launched in March with MBNA America Bank. The program lets travelers pay for a cruise over a period of years with credit card-level interest rates.
“We look at vacations as a discretionary purchase, just like a big-screen TV,” James said. “In the arena of retailing, every other item has some sort of credit available, and cruises should too.”
James and others in the cruise industry point to an oft-quoted figure from the Cruise Line Industry Association that 94 percent of Americans have never taken a cruise, though 50 million say they’d like to. “Ultimately, why they haven’t so far is not because they don’t see the great value in it; it’s that they say it’s not as affordable as they’d like,” he said.
Princess promotes its loan program by telling travelers that for the price of a cup of coffee every day for three years they could finance a seven-day Caribbean cruise.
Princess Cruises may get a hand in boostering cruises from Burbank-based Walt Disney Co., which will begin offering its own cruises out of Florida in March 1998. Disney’s entry into the market, Disney Cruise Line, is expected to help each of the “big three” U.S. cruise lines which includes Carnival, Princess and Miami-based Royal Caribbean Cruises, McMullin said.
“They’ve got lots of marketing clout. And Disney products are not cheap, so it should make the rest of the industry look all the more attractive,” he said. Disney’s packages begin at $1,300 per person, compared to packages from Princess and other lines that begin at around $700.
With an initial entry of just two ships, Disney also won’t pose an immediate threat to the other majors, which have at least nine boats apiece, McMullin said.
Disney bought an island in the Bahamas, renamed Castaway Cay, where it will land travelers after three days at Walt Disney World in Florida and several days at sea, said Amy Foley, a spokesman for Disney Cruise Line.
The island, like the ships, have been designed to accommodate not only children, but young adults, adults and senior citizens in a continuum of Disney style, she said.