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THE CRUISE REVIEW PUBLISHED MARCH 2013


CONTENTS

EXECUTIVE SUMMARY 3 CRUISE FANS STAY LOYAL 4 NORWAY NOW HOTTER THAN CARIBBEAN FOR CRUISING BRITS 6 UK PORTS SET FOR MILLION CRUISE PASSENGER EMBARKATIONS 8 NO INFLATION FOR CRUISE-BUYERS 10 OFFERS DRIVE LATER BOOKING 12 NORTH:SOUTH CRUISE DIVIDE WIDENS IN 2012 13 NEW SHIPS AND MORE INCLUSIVE PRICES DRIVE RIVER BOOM 14

EXECUTIVE SUMMARY 2012 UK CRUISE MARKET

Despite a double dip recession and the Concordia accident, ocean cruise passenger numbers increased Norwegian fjords trump Caribbean sun, sea and sand to become the hottest destination for cruising Brits Flight costs, inflated by Air Passenger Duty, prompt a fall in flycruise holidays with cruises departing from the UK now on the verge of catching up with flycruises for first time The number of overseas and UK passengers embarking at British ports has pushed the total to just short of the million mark Cruising continues to account for one in every eight of all package holidays taken More than half of all passengers took more than one cruise during the year - significantly more than in 2011 Sales of summer ultra-luxury cruises increased 30% A record 52 UK ports were visited by cruise ships Strong demand for European destinations boosts river cruise market by 14%

2

3


CRUISE FANS STAY LOYAL

“People are getting back to their normal buying patterns. Purchases, like cruises, that went from being a must-have to being an optional luxury are back to being a must-have. 2013 has the potential to be a good year for cruise sales. Many people went without a second holiday or even a first one in 2012 and, having suffered such bad weather last summer, they will not want to miss out this year, too. When I look at the price of cruise holidays compared to the 70s and 80s - the value now is fantastic” Phil Nuttall,The Cruise Village

More than 1.7m British passengers took an ocean cruise holiday in 2012, a record which represented a major achievement in a year which saw the Concordia tragedy, which impacted bookings in the immediate aftermath, and a UK economy which dipped back into recession. The percentage of first-time cruisers did fall from 40% to 36% - but this also reflected the willingness of regular cruisers to show their confidence in the cruise industry’s safety record.

They were also canny enough to recognise that the inevitable wave of special offers used by the industry to stimulate the market post-Concordia gave them an opportunity to book multiple cruises. More than half (54%) of cruise passengers in 2012 took two or more cruises compared with just 42% in 2011. As this increase was led by the regular cruising fraternity, it had the inevitable effect of pushing up the average age of cruise passengers from just under to just over

2 First Time Cruisers as % of UK Market

1 UK Ocean Cruise Market

Year

Passengers (000s)

%

2006

36

2007

38

2008

32

2009

29

2010

33

2011

40

The UK’s economic woes affected the entire travel sector. This meant that the upturn in 2011 in all foreign holidays turned out to be a false dawn with preliminary figures for 2012 suggesting a small decline.

However, a marginal increase in cruising’s share of the travel market means that it continues to account for one in eight of every foreign package holiday bought and now represents one of 21 foreign holidays compared with 1 in 22 in 2011.

4 UK Cruise Market Age Analysis % passengers Year

Up to 26

26-34

35-44

45-54

55-64

65+

Average Age

2002

7

6

10

20

25

33

54.8

2003

8

5

9

18

25

35

54.6

2004

9

5

10

19

26

32

54.1

2005

10

5

9

18

25

33

53.5

2006

8

5

11

21

27

27

54.3

2007

8

4

9

19

27

31

53.2

2008

8

4

8

18

27

33

53.7

2009

7

4

8

18

28

35

55.6

2010

9

4

9

19

27

33

54.3

2011

9

4

9

19

26

35

55.6

2012

8

4

7

18

27

37

56.1

Source: PSA/IRN Research

2001

776

2.9

2012

2002

820

5.7

Source: PSA/IRN Research

2003

964

17.4

2004

1,029

6.7

2005

1,071

4.1

2006

1,204

12.4

2007

1,335

10.9

Year

1

2

3

4

5

6+

2001

2008

1,477

10.5

2008

50

32

11

4

2

2

2008

2009

1,533

3.8

2009

38

35

15

5

2

4

2009

2010

1,622

5.8

2010

43

33

12

5

3

6

2010

2011

1,700

4.8

2011

58

27

9

2

1

1

2011

2012

1,701

0.06

2012

46

30

14

4

2

2

2012

Source: PSA/IRN Research

4

% change

Year

56 with the 65+ generation increasing its share by two percentage points to 37% - the highest level for a decade.

36

5 Ocean Cruising’s Share of Foreign Holidays Market From The UK 3 UK Passengers Booking Multiple Cruises Annually Cruises taken in last year (%)

Source: PSA/IRN Research

Year

Foreign Holidays (000s)

Foreign Inclusive Holidays/tours (000s)

Ocean Cruise Holidays** (000s)

Ocean Cruises’ share of inclusive foreign holidays

Ocean cruises’ share of all foreign holidays

38,670 45,531 38,492 36,442 36,819 36,279*

20,631 17,914 14,507 14,257 14,740 14,463*

776 1,477 1,533 1,622 1,700 1,701

3.8% 8.3% 10.6% 11.2% 11.5% 11.8%

2.0% 3.3% 4.0% 4.5% 4.6% 4.7%

* Estimated ** Includes Republic of Ireland Source: IRN Research; International Passenger Survey Crown Copyright 2013

5


NORWAY NOW HOTTER THAN CARIBBEAN FOR CRUISING BRITS

The high air cost within a Caribbean flycruise package, which has been controversially inflated by the Air Passenger Duty element, is clearly deterring some UK holidaymakers. But the Caribbean’s loss has not only been a gain for Northern Europe but also for the Atlantic Islands (Canaries plus Madeira) which are enjoying a renaissance in popularity with a 24% increase last year.

A sea-change in British cruise passenger tastes is taking place with that aspirational choice of a sunshineladen Caribbean cruise now losing out to the more traditional appeal of the Norwegian fjords. In 2012, 197,000 passengers booked a cruise to Norway compared with the 189,000 who chose the Caribbean (including Bermuda itineraries).

The 9% drop in Mediterranean cruise passengers is more likely to be a one-off for what remains the number one choice for UK cruise fans. A decade of impressive growth saw cruises to the Mediterranean more than double (+130%) to 767,000 in 2011. The 2012 fall-back is mainly due to the impact of the Concordia accident at the beginning of that year.

As a whole Northern Europe, including the Baltic, enjoyed a 29% increase to 443,000 UK passengers while demand for the Caribbean dropped 21%.

6 Destinations Booked by UK Passengers (000s)

Two other trends also accelerated in 2012. One was for cruises from UK ports increasingly to outsell flycruises. Just five years earlier there was a 65:35 split in favour of flycruises but in 2012 this had dropped to almost level-pegging at 52:48. The Caribbean downturn was a major factor as overall flycruise holidays fell 6% while the number of British passengers choosing to begin their cruise in the UK increased 9%.

The second accelerating trend is the popularity of world cruises, both the full voyage and also the shorter sectors which are marketed as exotic cruises in their own right. These attracted 29,000 passengers last year - a 14% increase on 2011, a rise which means that numbers have more than trebled in less than a decade.

7 UK Port Cruises Vs Fly Cruises % growth

UK Port Passengers (000s)

% share

Fly Cruise Passengers (000s)

% share

Destination

2001

2008

2009

2010

2011

2012

% change

Year

Passengers (000s)

Mediterranean

334

606

592

697

767

698

(9)

2007

1,335,000

11.3

467,000

35.0

867,000

65

Northern Europe

98

247

296

303

342

443

29

2008

1,477,000

10.2

557,000

37.7

920,000

62.3

Caribbean

146

255

275

272

238

189

(21)

2009

1,533,000

3.8

594,000

38.8

939,000

61.2

Atlantic Islands

77

108

102

98

116

145

24

2010

1,622,000

5.8

653,000

40.3

969,000

59.7

Other Areas

121

261

268

252

237

226

(5)

2011

1,700,000

4.8

729,000

42.9

971,000

57.1

Total

776

1,477

1,533

1,622

1,700

1,701

0

2012

1,701,000

0.06

807,000

47.6

894,000

52.4

Source: PSA/IRN Research

6

With the cost of air travel only likely to increase over the next few years, this period should also see cruises leaving UK ports overtake flycruises in popularity - a significant shift given cruising’s history of most winter passengers preferring to fly to the sun to join their cruises.

There has also been a reduction in the number of UK cruises to the Mediterranean in favour of shorter itineraries to the near Continent.

Source: PSA/IRN Research

7


UK PORTS SET FOR MILLION CRUISE PASSENGER EMBARKATIONS

The fourth double digit increase in cruise passenger embarkations in just seven years has put UK ports on course to hit the million mark this year (2013). The 10% growth to 962,000 in 2012 comprised 78,000 extra UK and 6,000 additional overseas passengers and there was a similar (11%) increase in passengers visiting UK ports during their cruises.

This brought the total of passengers visiting British ports during their cruise to 723,000, double the 2007 figure. The number of UK ports receiving cruise calls also increased to a record 52.

8 Embarkations at UK Ports (000s) Year

2006

2007

2008

2009

2010

2011

2012

Total Embarkations

576

591

714

733

833

878

962

% Increase

15

3

21

3

14

5

10

UK Passengers

451

460

557

594

653

729

807

Overseas passengers

125

124

157

139

180

149

155

% share of overseas

22

21

22

19

22

17

16

Source: PSA/IRN Research

9 Port of Call Passengers at UK Ports (000s) Year

2006

2007

2008

2009

2010

2011

2012

Passengers

382 19 50

365 (4) 46

420 15 38

448 7 43

563 26 48

651 16 50

723 11 52

% change Ports Visited Source: PSA/IRN Research

8

9


NO INFLATION FOR CRUISE-BUYERS

“People will pay for customer service and knowledge. When you’re booking a luxury cruise, I don’t think a discount really comes into the equation very much. We sell lots of high-end cruises and that part of the market for the Caribbean has not been impacted by the higher airfare. Some of the TV advertising by the cruise lines is brilliant and is increasing the interest from families.” Julie Gibson, Midcounties Co-operative Travel

Everything else on the retail price index may be costing more every year but UK holidaymakers who bought cruises in 2012 were paying less than they did seven years earlier in 2005. With average durations varying year-on-year, the most accurate price comparison for cruise holidays are the daily rates and these show that cruises cost an average £128 per day in 2012 - £4 lower than in 2005. The average price paid for a 2012 cruise fell by £46 to £1,388 with nearly half (47%) of all cruises sold costing less than £1,000. The arrival of new, larger ships in the sector is helping ultra-luxury cruises increase their share of the market with their 10% increase in 2012 meaning that the sector has increased sales 54% since 2006 – ahead of an overall industry increase of 42%.

10 UK Market Cruise Per Diems

Value for money remained by far and away the reason passengers chose to book a cruise holiday - nearly three times as important as any other reason for booking, with “special offers” moving into joint second place alongside service and on-board atmosphere.

12 Ultra-Luxury Cruise Passengers

13 Price (£) Trends In UK Cruise Market

Year

% 500

% 5011,000

% 1,001 2,000

% 2,001 2,500

% 2,501 5,000

% 5,000+

Year

Summer

Winter

Total

% of all cruises

2006

12860

5655

18515

1.5

2001

19

22

37

7

9

6

2007

13816

7552

21368

1.6

2002

14

29

34

9

10

5

2008

13238

6427

19665

1.3

2003

11

30

34

10

12

3

2009

14710

7960

22670

1.5

2004

15

25

40

8

9

3

2010

16125

7899

24024

1.5

2005

15

27

41

8

6

1

2011

15371

10498

25869

1.5

2006

13

21

38

11

12

2

2012

20057

8393

28450

1.7

2007

12

26

42

10

8

2

Source: PSA/IRN Research Included Crystal, Compagnie du Ponant, Hapag-Lloyd, Hebridean, Regent, Seabourn, Seadream, Silversea

2008

11

24

40

11

11

2

2009

12

24

37

10

13

2

2010

14

26

38

10

12

2

2011

15

27

37

9

11

2

2012

13

34

38

7

6

2

There was a drop in the influence of allinclusive pricing and drinks packages on booking decisions but the wave of such offers put in place for 2013 suggests that these might rate much higher in this year’s survey.

Source: PSA/IRN Research

14 UK Passengers - Reasons* For Choosing Their Last Cruise

11 Average Revenue (£) per UK Passenger

Reasons

2009 %

2010 %

2011 %

2012 %

Price/value for money

68

66

67

62

Special Offer

25

19

17

24

Service on-board

--

--

29

24

On-board atmosphere/service

40

36

26

24

Dining

33

32

26

23

Facilities on board

--

--

25

21

Year

£

Year

Summer

Winter

Year

Special Occasion

18

20

20

18

2005

£132

2005

1267

1222

1253

Loyalty membership benefits

17

17

13

18

2006

£130

2006

1196

1524

1291

All-inclusive nature of package

--

24

19

17

2007

£137

2007

1270

1480

1334

Entertainment

17

15

16

15

2008

£135

2008

1313

1647

1409

Cabins and public rooms

30

24

15

13

2009

£120

2009

1238

1532

1330

All-inclusive drinks package

n/a

4

11

7

2010

£130

2010

1323

1629

1421

Cruise themes

7

6

5

5

2011

£132

2011

1331

1729

1434

Pre-post land stays

5

5

3

4

2012

£128

2012

1313

1573

1388

Maiden Voyage

2

2

1

1

Source: PSA/IRN Research

10

But there is little doubt that it has been the value-pricing of main-market companies that has been the principle reason cruising has been able to maintain its market share.

Source: PSA/IRN Research

* Asked to select three principal reasons Source: UK Cruise Survey 2012 (IRN Research)

11


OFFERS DRIVE LATER BOOKING

More than one in three passengers are now booking their cruises within three months of departure, reversing a decade-long trend towards earlier bookings. In 2012, 36% booked late - the same as in 2002 - but that proportion had previously dropped to as low as 17% in the intervening years.

NORTH:SOUTH CRUISE DIVIDE WIDENS IN 2012

This accelerating trend is the obvious result of the tactical promotional pricing the cruise lines had to employ in the difficult trading year that 2012 turned out to be. They have responded with a series of incentives including guarantees that earlybookers will benefit from any late reductions but it is too early to say how effective these will be for 2013/14.

% of bookings (no. of months) 12+

9 - 12

6-9

3-6

0-3

2012

13

12

17

23

36

2011

15

15

17

20

34

2010

16

16

18

22

28

2009

25

19

17

22

17

2008

18

17

18

22

26

2007

18

17

18

23

24

2006

15

18

18

24

27

2005

17

17

18

22

22

2004

11

15

18

23

33

2003

8

12

14

24

41

2002

7

13

17

22

36

Over the same six-year period, the number of passengers from the North of England (North East, North West and Yorkshire/ Humberside) fell back from three in ten (30%) to 27%. Although several cruise companies have deployed more ships out of northern and Scottish ports, the most substantial increase in capacity has come in the south coast ports of Southampton, Dover and most recently Portsmouth.

15 UK Cruise Market - Trends in Booking Lead Times

Year

Four in every 10 (39%) ocean cruise passengers were sourced from the south of England - a significant increase on 2006 when it was only just over three in ten (31%).

So the growth in popularity of cruises departing from a UK port is built largely on the ease of access to the ships for those living in the south although, ironically, London continues to underperform, contributing only 4% of passengers despite it having 12% of the UK population.

Source: PSA/IRN Research

17 Cruise Passengers as % by Region of Residence

16 UK Passengers - Reasons* For Choosing To Take A Cruise Holiday

12

Reasons

2009 %

2010 %

2011 %

2012 %

Region

2006

2012

Itinerary/Destinations

14

24

65

75

69

70

South East

Enjoyed Previous Cruise with line

16

14

54

58

64

55

North West

Departure Date

31

38

11

39

10

36

South West

Duration

22

24

11

27

11

31

Scotland

Flights from local airport

22

13

8

17

8

19

Yorkshire & Humberside

No flight

21

25

7

28

8

26

West Midlands

To try another cruise line

7

5

21

17

9

17

East Midlands

To try another ship

7

4

--

--

10

9

London

Personal recommendation

9

6

6

7

5

11

Wales

Travel agent recommendation

4

5

5

5

6

6

North East

Recommendation on web review/blog

4

2

4

4

5

7

East Anglia Northern Ireland

3

2

* Asked to select three principal reasons. Source: UK Cruise Survey 2012 (IRN Research)

Source: PSA/IRN Research

13


NEW SHIPS AND MORE INCLUSIVE PRICES DRIVE RIVER BOOM

“Safety was a big thing for our clients immediately after Concordia so we kept them informed about changes being made but this concern quickly receded and has completely gone now. Ocean cruise clients have rarely switched to river cruising but there is such a strong demand for rivers now that I think we are seeing a genuine crossover, probably because the many new river boats being built have much more to offer now.”

18 UK River Cruise Market (000s)

An unprecedented number of new river cruise ships is driving a boom in bookings with 130,000 British passengers taking a river cruise holiday in 2012. The scale of the increased demand is still being masked by depressed sales of Nile cruises due to the continued unrest which followed the Arab Spring. Although Nile sales did recover a little in 2012, they are still running at about half their normal levels. As it has always been the most popular individual river destination, this factor is keeping the UK passenger total below the 150,000 mark.

14

There have, though, been several years of consistent growth in demand for European and, to a lesser extent, Asian river cruises in China and the Mekong. Just as with their oceangoing counterparts, the new river cruise ships are offering more facilities and flexibility with alternate dining venues and more spa options. Operators are also increasingly offering more inclusive pricing with drinks, tips and transfers being included in the package and in the current economic climate, this is attracting more first-time river cruise passengers, some of them coming from the ocean cruise market.

European Destinations

2009

2010

2011

2012

Rhine/Moselle/tributaries

21.2

23.6

20.0

26.9

Danube

11.3

12.5

12.9

Rhine/Danube

1.8

4.1

8.3

Rhone/Seine

8.6

8.0

10.1

Russian

3.8

4.4

4.9

Italian (Po)

3.9

2.0

2.9

Elbe

2.1

2.5

2.2

Douro

5.0

8.7

9.4

Other European

11.3

9.1

9.6

Total European

69.0

74.9

80.3

90.0

Non European Destinations

2009

2010

2011

2012

Nile

57.4

58.0

25.2

28.3

Far East/China

5.5

4.7

5.0

6.9

Other non-European

4.9

4.6

3.3

4.6

Total non-European

67.8

67.3

33.5

39.8

Andrew Gardner, Cruise.co.uk

15.0 4.6

10.2 5.2 3.0 2.4 9.3

13.4

Source: PSA/IRN Research

15


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