Time To For A Reality Check For Mr. Fain

[poncho1973]

There is a lot of fancy talk in this thread, but it seems he's simply saying (and several people hear seem to get it) that he wants to get away from the "let's wait to book until the last minute" and the company is willing to take their lumps for a while until they figure out if they can change the general mood of cruisers.

 

It doesn't seem to matter if that's a big deal or a little deal. That's the direction the company wants to go and is attempting to change the customer climate on the topic. It will either work or it won't.

[American Bear]

There is a lot of fancy talk in this thread, but it seems he's simply saying (and several people hear seem to get it) that he wants to get away from the "let's wait to book until the last minute" and the company is willing to take their lumps for a while until they figure out if they can change the general mood of cruisers.

 

It doesn't seem to matter if that's a big deal or a little deal. That's the direction the company wants to go and is attempting to change the customer climate on the topic. It will either work or it won't.

 

 

The talk from RCL is all Bull !

They will offer cabins to their favorite TA's for 'quiet' bargains to the TA's favorite customers so cruisers who've bought at higher prices won't know!

Its been this way for years, and all the cruise lines do it!

[RocketMan275]

The difference in costs for a cruise between a full cabin and and empty cabin minimal. The crew size is fixed so they still pay the same crew costs with a few empty cabins, electricity is generated on board so you might save a little fuel, but nothing really measurable. As far as food costs more gets thrown away on a normal day then a few empty cabins so no real change there either (even if there was no waste food is only around 5% of the lines expense structure). The only way you would get a change in costs would be if they decided to reduce occupancy so much that they could close off sections of cabins and reduce some staff permanently (for long periods of time they cannot make those kinds of changes cruise to cruise). Bottom line is the cost savings with a few empty cabins would not even be the rounding error compared to the change in revenue.

 

If Fain is trying to send a message his competition is probably laughing. RCL is heavily Caribbean based. CCL uses Carnival to set a bottom level for rates in that area. The Caribbean is very fare competitive and over capacity. Until RCL shifts capacity out of the Caribbean to be more in line with the overall industry (35% vs 49%) they are going to be more impacted by discounts and fare competition than competing lines (CCL primarily).

 

RCL is carrying a far higher debt load when compared to revenue then CCL and that is impacting their overall profit.

 

As far as break even on an individual cabin that number would be pretty small. As far as break even on overall average cabin fare and onboard revenue that is pretty easily calculated, considering that RCLs net income in 2014 was 9.5%.

 

They are similar to airlines in that once a cruise or flight takes place the key is how to maximize revenue. The question is does RCL have pricing power to raise fares to offset lower occupancy numbers.

 

First of all, I appreciate you coming to this discussion with actual numbers. I do have a couple of questions.

 

True, the break even on an individual cabin could be rather small but doesn't that assume that a significant number of other cabins are sold? IOW, the break even point on an individual cabin is a function of the overall occupancy rate of the ship?

 

Another factor. Your using averages across all cabins. I thought the issue here was how those taking cabins late in the process, the true bargain hunters who book after final payment, contribute to the bottom line. I'm fairly confident that Royal can tell you both the expected value (along with a distribution) of on board spending as a function of your zip code, your age, your marital status, when you booked the cruise, whether you booked through a TA or direct, whether your dog is pregnant, and the class of cabin booked. I'm not at all convinced that averages across all passengers for a given year are representative of those who book insides within 30 days of sailing. I would think that you would have to access this very detailed data to determine exactly how much bargain hunters contribute to profit.

 

A lot of this conversation is tainted with wishful thinking. We like getting bargains. I think some on this thread are trying to convince themselves that their bargains will not be going away. Perhaps they are 'grasping at straws'? I really don't know the answer. I'm just raising some points. I'd like to be shown that bargains aren't going away because I like cheaper cabins too.

 

One other point. Whether Carnival has better pricing power is somewhat irrelevant to how Carnival might react to an overture about eliminating discounts. Carnival might also see advantages in reducing discounts even if it helps Royal more than it helps Carnival.

 

Have I shared with you the story of the statistician that drowned while crossing a river with an average depth of six inches?

Edited April 30, 2015 by RocketMan275

[Diver2014]

Geez, I got tired of the CC complainers on the NCL threads griping about what Del Rio is doing to NCL so I came over here since we like RCI and good grief, people are swiping at Fain. Can't win. Maybe I'll go read the HAL boards.

[insidecabin]

Geez, I got tired of the CC complainers on the NCL threads griping about what Del Rio is doing to NCL so I came over here since we like RCI and good grief, people are swiping at Fain. Can't win. Maybe I'll go read the HAL boards.

 

The guys at the top played golf and decided if we all p*** off our customers at the same time they have no where to go.

[John&LaLa]

The talk from RCL is all Bull !

They will offer cabins to their favorite TA's for 'quiet' bargains to the TA's favorite customers so cruisers who've bought at higher prices won't know!

Its been this way for years, and all the cruise lines do it!

 

Do you go to bed with an aluminum foil hat. :what:

[John&LaLa]

There is a lot of fancy talk in this thread, but it seems he's simply saying (and several people hear seem to get it) that he wants to get away from the "let's wait to book until the last minute" and the company is willing to take their lumps for a while until they figure out if they can change the general mood of cruisers.

 

It doesn't seem to matter if that's a big deal or a little deal. That's the direction the company wants to go and is attempting to change the customer climate on the topic. It will either work or it won't.

 

Bingo. :thumbup:

[RocketMan275]

Geez, I got tired of the CC complainers on the NCL threads griping about what Del Rio is doing to NCL so I came over here since we like RCI and good grief, people are swiping at Fain. Can't win. Maybe I'll go read the HAL boards.

 

Didn't you get the memo renaming this website to "Cruise Complainers"?

[GottaKnowWhen]

Didn't you get the memo renaming this website to "Cruise Complainers"?

 

Meanwhile, back to the topic... Let me offer a slightly different take on this.

Assume fewer steep discounts in the last 30 days. Assume that this results in some empty cabins. Remember what your grandmother told you: if life gives you lemons, make lemonade. In this instance, what I would do if I were in charge is to hold the line on the prices. And, starting maybe 15-20 days prior to embarkation, I would start upgrading as many as possible from one level to the next higher class of cabin. [Obviously making the upgrade an option, not a requirement, for those who booked with a specific cabin request.] By about 10-15 days from embarkation I am left with the same number of empty cabins but many if not most if not all will be the lowest price cabins that might attract those last minute super-sale bargain hunters. I get a full ship, plus many passengers who have gotten a nice surprise upgrade.

Edited April 30, 2015 by GottaKnowWhen

[insidecabin]

The upgrade upsells and gty allocations often mean unsold inventory is insides unless there are loads to sell.

[bouhunter]

The upgrade upsells and gty allocations often mean unsold inventory is insides unless there are loads to sell.

 

Wow, that makes a lot of sense...................:D :)

Edited April 30, 2015 by bouhunter

[RDC1]

First of all, I appreciate you coming to this discussion with actual numbers. I do have a couple of questions.

 

True, the break even on an individual cabin could be rather small but doesn't that assume that a significant number of other cabins are sold? IOW, the break even point on an individual cabin is a function of the overall occupancy rate of the ship?

 

Another factor. Your using averages across all cabins. I thought the issue here was how those taking cabins late in the process, the true bargain hunters who book after final payment, contribute to the bottom line. I'm fairly confident that Royal can tell you both the expected value (along with a distribution) of on board spending as a function of your zip code, your age, your marital status, when you booked the cruise, whether you booked through a TA or direct, whether your dog is pregnant, and the class of cabin booked. I'm not at all convinced that averages across all passengers for a given year are representative of those who book insides within 30 days of sailing. I would think that you would have to access this very detailed data to determine exactly how much bargain hunters contribute to profit.

 

A lot of this conversation is tainted with wishful thinking. We like getting bargains. I think some on this thread are trying to convince themselves that their bargains will not be going away. Perhaps they are 'grasping at straws'? I really don't know the answer. I'm just raising some points. I'd like to be shown that bargains aren't going away because I like cheaper cabins too.

 

One other point. Whether Carnival has better pricing power is somewhat irrelevant to how Carnival might react to an overture about eliminating discounts. Carnival might also see advantages in reducing discounts even if it helps Royal more than it helps Carnival.

 

Have I shared with you the story of the statistician that drowned while crossing a river with an average depth of six inches?

 

It comes down to pricing power, same as with the airlines. If they have pricing power then they can raise price, if they don't have pricing power then they cannot. They have not demonstrated any change in pricing power for the last 10 years based upon revenue per passenger per day which has lagged even the low levels of inflation that we have had during that period.

 

It is very clear that cruise lines expenses per cruise are pretty much fixed for given route. The only thing that really changes per passenger is port fees and taxes which the crulse lines passes through and is not part of their revenue numbers.

 

With that fact the focus is how to maximize revenue (raise their average revenue per cabin).

 

If you look at industry demographics on spend you get

 

Per person per week spend. Contemporary cruise line passengers

 

5000+ 2%

2000-4999 20%

1500-2999 19%

1000-1499 25%

500-999 26%

Under 500 8%

 

For the full year 2014 the revenue per passenger per day number average comes in at 1539.51. Now 59% of the cruise passenger demographics are beneath that spending line.

 

 

I would expect that the spending numbers are even lower in a very competitive area such as the Caribbean.

 

So the question comes down to with that level of industry passenger spend, and the relative level of competition can RCL get enough revenue on other cabins to offset a lower occupancy rate. Especially with the rate at which they are increasing capacity. What is the price sensitivity of passengers, especially those that book at last minute? I would expect that the closer you get to departure of a cruise the greater the price sensitivity in general. Those cabins get filled by those that can drive to the port and are perfectly willing to wait for another cruise at the price they want.

 

The goal of reducing discounts is the holy grail of just about every company in the travel and tourism industry (airlines, cruise lines, hotels, etc). Everyone searches for it, but seldom is it found. Airlines have gotten profitable because they have been able to raise fares and fees due to much lower capacity. Cruise lines on the other hand are dramatically increasing capacity.

 

Fain was primarily speaking to business analysts. That is where his message was aimed. It was to send a message about how RCL was going to try and improve margin.

 

Now if you look closely at his statements it sounded good, but did not really say much. In general good CEO speak. He did not say how they were going to do it, only that after some magical date (10, 15, 30 days out) they would not discount further. No line of what that date would be. That is would still vary. So even if he implemented that strategy, with the industry spend demographics, the most logical approach for the pricing model would be to accelerate the fill by date to the cutoff by actually be more agressive in discounting earlier.

 

Will be very interesting to watch occupancy and revenue numbers for the next few quarters. If revenue remains even or increases and occupancy drops then they will have demonstrated pricing power and your hypothesis will have been proven correct.

 

I suspect that you will see not major change, because their behavior will really not change.

 

As far as CCL goes I suspect that their pricing for Carnival is actually intended to apply price pressure on their competition. They make their money on other lines and other regional areas. The more pressure they can keep on RCL in the Caribbean the more they can delay RCL in having the cash to establish a better presence in other parts of the world where CCL has a better presence and more pricing power. The more CCL can keep RCL prices down the greater impact the debt load has on RCL.

Edited April 30, 2015 by RDC1

[poncho1973]

Geez, I got tired of the CC complainers on the NCL threads griping about what Del Rio is doing to NCL so I came over here since we like RCI and good grief, people are swiping at Fain. Can't win. Maybe I'll go read the HAL boards.

 

At least there you only have a fraction of a percent of their customers who are young enough to own/understand how to use a device with internet access.

[RDC1]

The article ( http://www.mckinsey.com/insights/marketing_sales/the_power_of_pricing) also states the following:

This also works in the other direction: as long as volumes do not shrink 18.7%, an average price increase of 5% is still a considerable amount of extra revenue and a considerable % of extra operating profit.

 

They do also state that a wide price band is not necessarily a bad thing. So this does allow some last minute discounting, ie 10 days before sailing to sell at least some of the extra cabins. This is short enough to sail-date to avoid speculation on price drops, but still allows some extra cabins to be sold to people who would otherwise not be on the cruise (people who can afford to go on holiday at the last minute - these are not necessarily people on a budget but also includes people on a larger budget that prefer the flexibility of last-minute travel plans - some people on a larger budget are not bothered with the concept of "work" :rolleyes: ).

 

I am sure they also did some investigation on the concept of value-pricing to understand the key buying factors that drive their customers. This might have shown them that a certain increase in average price (which can be obtained by selling less cabins at a discounted price) might not have a negative effect on sales.

 

I believe this to be the message he is trying to convey. We will not be discounting heavily so do not speculate on that to happen. We will only give discounts very short to sail-date to still sell some extra cabins that may be available.

 

If a company has pricing power, the ability to raise price, without losing market share or volume of business then it is a no brainer to do so. The problem is that RCL has not demonstrated that they have such pricing power overall. There are some markets that have more pricing power then others, but the Caribbean is not one of them. RCL can improve their pricing power by putting more of their capacity into other markets. The problem is that the very very large ships that they have been building, while revenue/cost efficient are not flexible when it comes to being able to shift them easily between markets.

 

Motley Fool has an interesting article comparing CCL with RCL from a stock perspective

 

 

As you'd expect, Carnival's fleet is more than twice the size of Royal Caribbean's. Carnival operates 101 cruise ships and Royal Caribbean operates 41 cruise ships. However, Royal Caribbean managed to serve 119,000 passengers per ship in 2013, while each of Carnival's ships served only 99,600 passengers for the year despite having a higher occupancy rate. This is because Royal Caribbean uses bigger ships than Carnival, so it fits more passengers on each ship.

 

Royal Caribbean's ship size advantage also gives it a revenue advantage. Larger ships allow it to pack on more services and amenities that passengers can purchase. Last year, Royal Caribbean generated $63 per person per cruise day from onboard amenities. Carnival generated just $47 in onboard revenue per person per cruise day – 25% less than Royal Caribbean!

 

Royal Caribbean also averaged a slightly higher ticket price in 2013 -- $161 per passenger per cruise day versus Carnival's $154 daily rate. This means that Royal Caribbean generates more revenue per passenger per cruise day than Carnival – so its ships are more efficient at generating revenue than its larger rival's.

 

Low-cost operator wins the day

 

On the surface, it looks like Royal Caribbean is the better company. In an industry that confers no pricing power to any company, the most efficient operator ends up on top. Carnival generates less revenue per ship than Royal Caribbean, but it earns a higher profit. Carnival averaged a 37.1% EBITDA margin from 2004 through 2013, excluding fuel costs. That was 6.2 points higher than Royal Caribbean's average.

 

Carnival generated $15.4 million in revenue in 2013, or $154 million per ship. At a 37.1% EBITDA margin, Carnival would average $57 million in EBITDA per ship, excluding fuel costs. Royal Caribbean leveraged its larger ships to generate $194 million in revenue per ship. At its 10-year average EBITDA-plus-fuel-costs margin, Royal Caribbean earned $60 million in EBITDA-plus-fuel-costs per ship – barely edging out Carnival.

 

However, reality sets in when you look at profit per ship as a percentage of cost per ship. Carnival's ships are less expensive to build and maintain than Royal Caribbean's ships. As of the end of fiscal 2013, Carnival had spent $42.4 billion to build and maintain its fleet – about $420 million per ship. Royal Caribbean spent $550 million per ship to build and maintain its fleet. Its latest ship, Quantum of the Seas, is an enormous state-of-the-art cruise ship that will increase the company's overall passenger capacity by more than 4% and is expected to cost nearly $1.1 billion.

 

You don't need a calculator to see that Carnival's $57 million EBITDA per ship generates a higher return on investment than Royal Caribbean gets on its ships. Differences in fuel costs between the two companies can narrow or widen the gap in any given year, but Carnival maintains a long-term advantage in ship return on investment.

 

 

I added the bolding to point out their comment about pricing power.

Edited April 30, 2015 by RDC1

[RDC1]

You are obviously not in the hospitality business. You forget that an occupied cabin generates laundry; it requires more maintenance; it requires more service; it requires more cleaning; occupants consume amenities; it consumes a number of people's time in dealing with that cabin. Though each of these items in their own may be small, there are a significant number of small items to manage a cabin to make it a non-trivial cost. Way too many people believe that the difference in costs of an empty vs. occupied room is none to minimal, and you would be wrong.

 

Yes it does, but if you look at those costs it is trivial.

 

In a ship with 1500 cabins what is the real savings. I doubt the number of laundry loaded in the big washers that they use would even be measure able on average. The staff is all already on board and receive the same salary. The labor cost is fixed.

 

Unless you are reducing occupancy in a big enough way that you can permanently reduce staff the costs are in fact trivial when compared to the revenue number.

 

Lets take a look at the items you mentioned:

 

I would expect in a large industrial washer you can probably fit the laundry from a very large number of cabins in one load (according to one manufacturer about 400lbs per load or at 15lb per cabin per day 26.6 cabins per load) as such for each load of laundry on a 1500 cabin ship you would need to keep 1.7% of the cabins empty. Now what is the costs of a load. On land you would need natural gas or electricity to heat water the greatest cost. On a ship you use waste heat (stream) from the engines, which is also used for desalination.

 

Maintenance. The maintenance personnel are on board, so you are looking a cost of materials. Pretty minimal again compared to occupancy.

 

The amenities. If that even ran $1 per day for the discounted cabins I would be amazed, when you look at the items and the volume at which they purchase them and their replacement rate during a multi day cruise.

 

So please give me a list of costs that have such a great impact on cost savings by leaving cabins empty. Especially compared to revenue now average on board spend for 26 cabins is around $1500 per day so is that really offset by cutting laundry by one load or anything else you mentioned.

[RocketMan275]

It comes down to pricing power, same as with the airlines. If they have pricing power then they can raise price, if they don't have pricing power then they cannot. They have not demonstrated any change in pricing power for the last 10 years based upon revenue per passenger per day which has lagged even the low levels of inflation that we have had during that period.

.

.

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As far as CCL goes I suspect that their pricing for Carnival is actually intended to apply price pressure on their competition. They make their money on other lines and other regional areas. The more pressure they can keep on RCL in the Caribbean the more they can delay RCL in having the cash to establish a better presence in other parts of the world where CCL has a better presence and more pricing power. The more CCL can keep RCL prices down the greater impact the debt load has on RCL.

 

All very interesting. But we're talking about two different subjects. I have no doubt that your correct in your analysis. Your analysis only addresses the question of how much does the average passenger contribute to the bottom line. My question is how much do the last minute bargain hunters contribute to profit? If their cruise fare is heavily discounted and they spend little or nothing on board, then abolishing last minute discounts may have little or no impact on RCI bottom line either.

 

It may also indicate that Royal thinks that an improving economy will give them more pricing power allowing them to eliminate discounts.

 

As I said, I only have questions. No answers.

[RocketMan275]

Meanwhile, back to the topic... Let me offer a slightly different take on this.

Assume fewer steep discounts in the last 30 days. Assume that this results in some empty cabins. Remember what your grandmother told you: if life gives you lemons, make lemonade. In this instance, what I would do if I were in charge is to hold the line on the prices. And, starting maybe 15-20 days prior to embarkation, I would start upgrading as many as possible from one level to the next higher class of cabin. [Obviously making the upgrade an option, not a requirement, for those who booked with a specific cabin request.] By about 10-15 days from embarkation I am left with the same number of empty cabins but many if not most if not all will be the lowest price cabins that might attract those last minute super-sale bargain hunters. I get a full ship, plus many passengers who have gotten a nice surprise upgrade.

 

You're describing what you, as a cruise customer, would like to happen. It's not at all clear that a cruise line would share your preferences. I doubt the cruise line places as high a value on 'surprising' customers with free upgrades as you do.

[wolfganghowell]

There is a lot of fancy talk in this thread, but it seems he's simply saying (and several people hear seem to get it) that he wants to get away from the "let's wait to book until the last minute" and the company is willing to take their lumps for a while until they figure out if they can change the general mood of cruisers.

 

It doesn't seem to matter if that's a big deal or a little deal. That's the direction the company wants to go and is attempting to change the customer climate on the topic. It will either work or it won't.

 

I love when people use common sense. I can't believe his comments to INDUSTRY has generated all this chatter. It's as if people have never heard CEO's "corporate speak" before. I bet some of you take everything a politician says literally too. :D

[RDC1]

All very interesting. But we're talking about two different subjects. I have no doubt that your correct in your analysis. Your analysis only addresses the question of how much does the average passenger contribute to the bottom line. My question is how much do the last minute bargain hunters contribute to profit? If their cruise fare is heavily discounted and they spend little or nothing on board, then abolishing last minute discounts may have little or no impact on RCI bottom line either.

 

It may also indicate that Royal thinks that an improving economy will give them more pricing power allowing them to eliminate discounts.

 

As I said, I only have questions. No answers.

 

There is no indication that last minute buyers spend little or nothing on board. Based upon the cruise lines desire to fill the ship I would propose that there data indicates that they do get a good level of on board spend. If they spend nothing and pay nothing for the fare then the answer is simple it would cost the cruise line nothing. Industry practices would indicate that they do spend and the fare is not $0.

 

Well while we don't know the exact numbers for last minute sales one can construct a table based upon some assumptions using different values for number and dollar value just for the purpose of evaluating the potential scope.

 

I would expect a reasonable place to start might be to run a matrix of 1 to 5% of the occupancy and the revenue being from 30% to 70% of standard inside fare. Assuming average on board revenue, using the bottom value and the top value of that matrix would generate a loss of revenue value range of sailing with empty cabins between 266.7 fare X 32 cabins + 59.3 daily onboard spend x 8 days x 32 cabins = $23,715.2 for a 70% discount for 1% to 622.3 X 163 + 59.3 X 8 X 163 =$178,761 for a 30% discount at 5% of a Navigator of the seas for example for an 8 day cruise (pulled the base inside cruise fare from their web site prior to any discount)

 

So if they have to apply a large discount for relatively few cabins, not much impact. A bit more if they fill a higher percentage with a lower discount.

 

IF you even take the 70% discount on inside fare and make it a per day number it would be $33 per day for a last minute cruise fare (note that this does not assume taxes and port fees that are pass through, just as on board spend does not include service payments) that would make total last minute revenue somewhere is the $92 dollars per passenger per day when you add average on board spend. I would doubt that it is any less than this. So a 1% reduction in occupancy for the year would cost RCL an estimated 35 million dollars based upon their total number of passenger days in 2014.

 

Even if the last minute buyers only spent half of average on board the impact 70% discount of inside fare would be $22,944,353 revenue impact for the entire year or about 28% of RCLs profits in 2014. That reduction in the bottom line would take basic per share earnings from 3.45 per share to 2.48 per share with a similar impact on stock price, if the revenue is not replaced. Now that is a simplistic back of a napkin look and not all would drop to the bottom line, but most would unless it was made up for in some way.

Edited April 30, 2015 by RDC1

[RocketMan275]

There is no indication that last minute buyers spend little or nothing on board. Based upon the cruise lines desire to fill the ship I would propose that there data indicates that they do get a good level of on board spend. If they spend nothing and pay nothing for the fare then the answer is simple it would cost the cruise line nothing. Industry practices would indicate that they do spend and the fare is not $0.

 

Well while we don't know the exact numbers for last minute sales one can construct a table based upon some assumptions using different values for number and dollar value just for the purpose of evaluating the potential scope.

 

There is no indication that last minute buyers do spend a significant amount either.

 

I'm reminded of a segment of the show "Cruise Line, Inc". Forget which channel it was on but they did an in depth story on a Norwegian cruise. Lots of corporate interviews. While the line wouldn't give a lot of detail, they were clear that the on board spending made the difference between losing money or making a profit. At the end of the show, the channel questioned a couple debarking the cruise. The couple reported spending nothing on board. No booze. No casino. No art. No soft drinks. Nothing. If you think they are an exception, there are many posters here on CC who report doing the same and they also report booking the cheapest cabins often after final payment. BTW, exceptionally good bar sales on the last sea day did put the cruise into a profit.

 

I understand your table. The problem is your making assumptions and using averages. OTOH, RCI knows whether those who book late and at a discount spend a little or spend none at all. RCI has the records. RCI knows what they spent and when. RCI knows when they booked and at what price. RCI knows what they cost the line. RCI doesn't have to make assumptions. RCI knows.

 

RCI can tell you how much profit/loss they will make based upon how many days prior to sailing given the type of cabin, etc. They can tell you how much profit/loss they will make based upon the percentage of the discount you received.

 

Only someone with the kinds of data available to RCI can tell whether they will make/lose money by discounting cabins. Much of the discussion on this topic is speculation fueled by wishful thinking. Very few of us, me included, want to pay higher costs to cruise. There is a tendency to contrive arguments that 'prove' what we want to believe, that RCI cannot raise prices or do away with discounts.

 

BTW, my compliments. You've done a fantastic job pulling together some interesting data and analysis. I hope your assumptions are correct and not just wishful thinking.

[RDC1]

There is no indication that last minute buyers do spend a significant amount either.

 

I'm reminded of a segment of the show "Cruise Line, Inc". Forget which channel it was on but they did an in depth story on a Norwegian cruise. Lots of corporate interviews. While the line wouldn't give a lot of detail, they were clear that the on board spending made the difference between losing money or making a profit. At the end of the show, the channel questioned a couple debarking the cruise. The couple reported spending nothing on board. No booze. No casino. No art. No soft drinks. Nothing. If you think they are an exception, there are many posters here on CC who report doing the same and they also report booking the cheapest cabins often after final payment. BTW, exceptionally good bar sales on the last sea day did put the cruise into a profit.

 

I understand your table. The problem is your making assumptions and using averages. OTOH, RCI knows whether those who book late and at a discount spend a little or spend none at all. RCI has the records. RCI knows what they spent and when. RCI knows when they booked and at what price. RCI knows what they cost the line. RCI doesn't have to make assumptions. RCI knows.

 

RCI can tell you how much profit/loss they will make based upon how many days prior to sailing given the type of cabin, etc. They can tell you how much profit/loss they will make based upon the percentage of the discount you received.

 

Only someone with the kinds of data available to RCI can tell whether they will make/lose money by discounting cabins. Much of the discussion on this topic is speculation fueled by wishful thinking. Very few of us, me included, want to pay higher costs to cruise. There is a tendency to contrive arguments that 'prove' what we want to believe, that RCI cannot raise prices or do away with discounts.

 

BTW, my compliments. You've done a fantastic job pulling together some interesting data and analysis. I hope your assumptions are correct and not just wishful thinking.

 

Considering that even using very low number of 70% off an inside fare, 50% of normal onboard spend and only impact 1 percent of passengers, it still comes to a substantial percentage of their annual profit.

 

Revenue models are pretty complex items. I had departments dealing with strategic pricing, market research, contracts, and distribution reporting to me before I retired a few years ago. You use a lot of data designing them, but in the end it is still as much of an art as it is a science. Not so much in the day to day execution of them, but in the assumptions that you use to drive the day to day changes. Those assumptions are used to assemble the formulas that you think will maximize revenue. You revise them based upon feedback from the actual data, but still you are dealing with future events when you assemble them.

 

When you have an industry where the CEO of the second largest company (Fain) says repeatedly over the years that they have been unable to raise fares. That the analysts that follow the industry says that the main players do not have pricing power, you can pretty much assume that they do not. If they had it they would have used it.

 

RCL will have more pricing power if they move more capacity outside of the Caribbean. I suspect that is one of the reasons for the Quantum Class. That size, though large, is still more deployable then the Oasis class.

[Maraprince]

You build larger and larger capacity ships which have to be filled. To stay in business you need to bring in higher revenue since many of the ships are still being paid for. Without selling close to 90% of the cabins your on board staff would have to push to the max to exceed the sales quotas they are given otherwise the cruise line is losing on board revenue in addition to having unsold cabins. You may be able to do this for a few sailings, but it will eventually cut into your profit margin. Even if you manage to sell all cabins, not all of them are at max capacity.

 

More people who never sailed before are now sailing but they still only represent a small amount of the population. With an ever changing economy nothing is certain. Just look at the way ships have been moved around lately.

 

People will spend if they perceive a value in something. Going back to basic economics, the market determines the value and what consumers are will to spend -- supply and demand. Too much supply drives prices down.

 

Last minute bookings happen for a number of reasons (and not just to get a reduced price). If you live close to a port (no flights involved) and have the ability to travel at short notice (own your business), just need to take a break after going through a stressful event, etc. You take what hasn't sold and may not be in the most desired location on the ship.

 

MARAPRINCE

[TM38Rob]

There is no indication that last minute buyers do spend a significant amount either.

 

I'm reminded of a segment of the show "Cruise Line, Inc". Forget which channel it was on but they did an in depth story on a Norwegian cruise. Lots of corporate interviews. While the line wouldn't give a lot of detail, they were clear that the on board spending made the difference between losing money or making a profit. At the end of the show, the channel questioned a couple debarking the cruise. The couple reported spending nothing on board. No booze. No casino. No art. No soft drinks. Nothing. If you think they are an exception, there are many posters here on CC who report doing the same and they also report booking the cheapest cabins often after final payment. BTW, exceptionally good bar sales on the last sea day did put the cruise into a profit.

 

I remember that show. It's available on iTunes under CNBC Originals. The show is "Cruise Inc: Big Money On the High Seas". The show, aboard the Norwegian Pearl, aired in 2009.

 

I remembered that couple that replied "Nothing" when asked how much they spent onboard, however, I watched that part of the show again and there's nothing to indicate when that couple booked their cruise.

 

During low season, that Norwegian Pearl cruise sailed a 7 Night cruise from Miami to Roatan, Belize, Cozumel, and Great Stirrup Cay. The ship only sailed at 92% capacity, NCL would have preferred the ship to have been 104% full. In the end it was a break even cruise in regards to overall revenue.

Edited May 1, 2015 by TM38Rob

[baldercash]

Royal Caribbean is causing confusion with their new pricing the $50.00 deposits to hold a cruise not to mention all the WOW sails.

 

I just finished a Serenade Nola to Boston cruise we booked because our friends where sailing it. They booked it when it was 1st released while on board a cruise. We booked about 6 months out.

They paid $700.00pp less and we had to struggle to get a balcony not to mention that E1, 2 and 3 designations seem totally random.

No on line discounts were available until after the final payment, I watched and if we had waited we could have cruised at $800.00 pp less using a discount site.

We were told the ship was full but staff said it was not I think it sailed with about 100 cabins empty?

The same couple booked Serenade, Quebec City to Ft L when 1st available while on a cruise I was able to book a same category cabin through a discount TA 11 months out $800.00pp less then they booked it for. The cruise now shows as full.

They will likely cancel before final payment and try a discount TA.

 

I booked a 2016 TransAtlantic cruise while on the Serenade it was $700.00pp more then what our friends paid booking through Royal on line exactly 30 days earlier and our taxes and port fee's were double what our friends paid. Staff could not explain the price difference in fee's.

 

I have no intention of paying $3800.00 for a 13 day TA with 8 sea days and only 3 Caribbean ports to get back from a vacation in Europe after my friends have bought it a month earlier for much less.

I put $50.00 down on the cruise and will cancel before final payment the ship was basically full with minimal selection.

 

Royals minimal deposit system seems to be filling ships but makes it difficult for those who intend to cruise a specific cruise to select a decent room.

The system allows people to drop the booking or transfer before final sail date with no penalty it is not like the airlines where once bought you are committed.

 

I believe Royal will shortly be faced with massive booking problems as I have spoken to many cruisers who hold deposits on 10 bookings or more with no real intent to sail. They intend to just move them to other cruises before final payment until they find a cruise they want.

 

I believe the way the lines are modifying the pooling of gratuities is to keep staff happy if the ships do start to sail with an increase in empty cabins.

 

I do not foresee smooth seas ahead for Royal in the future.

[John&LaLa]

Maybe it's the passengers that book with every intention to cancel that are the problem. We have 13 booked, and guess what, I fully intend to take them all. Never cancelled one in 50 cruises