Thoughts about cruise fares

[oma&opa]

Apart from the obvious: your cabin, food, service, upkeep of the ship, laundry, fuel...

have you thought about what else is funded by our fares: the salary of the personnel who are right now preparing 3 individualized welcome packets for us for our land/sea trip next week. And the rent and lights and heat and upkeep of office equipment for that process. And the landscaping and snow removal and parking lot for the office building where that's happening. And the wages of the building's cleaning staff and window washers. Ditto those expenses for the hotel in Fairbanks, the lodge at Denali, the hotel in Anchorage.

Holland America has only one income source -- the fares of the passengers. We see the obvious expenses -- and applaud or complain about the value received. But I suggest that the other expenses for providing us with our vacation experience have value to us too; we just don't see them.

[OlsSalt]

When you break down cruise fares into dollars per day for all that you mention, cruising is one of the cheaper ways to vacation. Including D-I-Y camping - or "glamping" these days.

 

And this comes from someone who used to actually do Europe on $5 a day. Cruising that runs sometimes not much more than $100-$200 a day for room, board, transportation and entertainment remains an all time travel bargain.

[wrmiles]

Not sure I agree about fares being the only income source.

 

I have read and heard that they would lose money without the onboard extras.

[SC_GAY_Cruiser]

Apart from the obvious: your cabin, food, service, upkeep of the ship, laundry, fuel...

have you thought about what else is funded by our fares: the salary of the personnel who are right now preparing 3 individualized welcome packets for us for our land/sea trip next week. And the rent and lights and heat and upkeep of office equipment for that process. And the landscaping and snow removal and parking lot for the office building where that's happening. And the wages of the building's cleaning staff and window washers. Ditto those expenses for the hotel in Fairbanks, the lodge at Denali, the hotel in Anchorage.

Holland America has only one income source -- the fares of the passengers. We see the obvious expenses -- and applaud or complain about the value received. But I suggest that the other expenses for providing us with our vacation experience have value to us too; we just don't see them.

 

also dont forget the income HAL generates from the 3rd party providers renting space i.e.: casino, gift shops, the lovely art auction........

[dockman]

Not sure I agree about fares being the only income source.

 

I have read and heard that they would lose money without the onboard extras.

 

multiple income sources for sure....booze, casino, shore excursions , internet, to name the obvious

[take us away]

You are correct about a cheap, 1st class vacation at a low price, especially when all is considered. Where else can you have adventures in great ports, come back to your hotel room which is serviced twice a day, have at least 3 meals a day (or more), non-alcoholic beverages, entertainment, educational experiences, etc. etc. for one low daily price.

 

Not sure how much revenue is generated by the vendors on board, i.e. spa, casino, shops, art auctions, photographers as a % of income. Then there are the excursions, alcohol and specialty coffees, specialty restaurants, which have to add a fair amount to the bottom line. But this is all discretional spending for a passenger.

[Krazy Kruizers]

And think of all the costs when a ship goes into dry/wet dock.

[wesport]

I am always amazed at how much is involved in operating just one ship. At every port painting and varnishing is going on. The logistics of getting everyone on and off the ship at port. Tendering. Laundry. Meal prep. Cleaning and maintenance of the inside of the ship. Cruising is a great value to see the world.

[sail7seas]

No one has mentioned the costo build these ships. :)

Edited July 7, 2016 by sail7seas

[Tarpeian Rock]

multiple income sources for sure....booze, casino, shore excursions , internet, to name the obvious

 

And the spa, the upcharge dining, soda, water bottles while headed ashore.....

[chengkp75]

As an industry rule of thumb, the cabin fares will generally cover the overhead (salaries, fuel, maintenance, insurance, home office), and the "onboard revenue" (concessions (spa, casino, shops, art), drinks, excursions, internet, etc.) are the profit margin.

 

A typical drydocking of a medium sized cruise ship, that does not include major upgrades or refurbishment will run in at $10-15 million.

[thinfool]

A typical drydocking of a medium sized cruise ship, that does not include major upgrades or refurbishment will run in at $10-15 million.

 

Are these actual drydock/maintenance costs or do the numbers include lost revenue from the ship being out-of-service?

[iancal]

Shipbuilding, especially cruise ships, are heavily subsidized by foreign governments. Especially Italy. These subsidies play a huge part in the decision of where the build will take place. Cruise lines don't pay retail for ships...they don't pay wholesale either!

 

The cruise lines have many sources of income besides the obvious. Two that seldom get mentioned are the revenue from port stop shopping stores. Cruise lines do not recommend/push their customers to shop at approved stores because they are concerned for the well being of their passengers. It is a very healthy revenue stream for them.

 

Cruise lines also have agreements, primarily in the Caribbean, for island states to rebate a high percentage of port fees/taxes back to the cruise line. So we cruisers pay the port tax, some of which it really ends up with the cruise line. The quid pro quo is that that cruise line commit to deliver a certain number of visitors per year.

 

Cruise lines are a business. A good one. I don't feel sorry for them. Just take a look at their stock performance-Carnival/RCI, and their reported revenue, profit, and ROI. I do not think that cruise fares should be increasing. The product is in fact being depreciated. Less service, lower quality food, etc. I do not expect to pay more and get less even though they cruise firms would like this.

Edited July 7, 2016 by iancal

[OlsSalt]

My guess is the rapidly developing economies in South East Asia now increasingly compete for the labor resources that used to flock to the cruise lines. (Indonesia - Philippines for HAL -- same for Eastern Europe opportunities for other cruise lines)

 

So one could assume increasing general labor costs would be taking a far larger percentage of the budget, which is made up by decreasing former services and/or quality of the offerings.

 

Now here is another item that has interested me since it comes up during Q&A sessions with the officers - how often our primarily Dutch officers have chosen to live or retire in the US instead of the Netherlands. What kind of pensions do HAL officers get.

[sherryf]

Apart from the obvious: your cabin, food, service, upkeep of the ship, laundry, fuel...

have you thought about what else is funded by our fares: the salary of the personnel who are right now preparing 3 individualized welcome packets for us for our land/sea trip next week. And the rent and lights and heat and upkeep of office equipment for that process. And the landscaping and snow removal and parking lot for the office building where that's happening.

 

I doubt this is an expense that comes up often for HAL's Seattle office location. I can't remember it snowing enough in the Seattle area to need this even once this year. :p

[chengkp75]

Shipbuilding, especially cruise ships, are heavily subsidized by foreign governments. Especially Italy. These subsidies play a huge part in the decision of where the build will take place. Cruise lines don't pay retail for ships...they don't pay wholesale either!

 

The cruise lines have many sources of income besides the obvious. Two that seldom get mentioned are the revenue from port stop shopping stores. Cruise lines do not recommend/push their customers to shop at approved stores because they are concerned for the well being of their passengers. It is a very healthy revenue stream for them.

 

Cruise lines also have agreements, primarily in the Caribbean, for island states to rebate a high percentage of port fees/taxes back to the cruise line. So we cruisers pay the port tax, some of which it really ends up with the cruise line. The quid pro quo is that that cruise line commit to deliver a certain number of visitors per year.

 

Cruise lines are a business. A good one. I don't feel sorry for them. Just take a look at their stock performance-Carnival/RCI, and their reported revenue, profit, and ROI. I do not think that cruise fares should be increasing. The product is in fact being depreciated. Less service, lower quality food, etc. I do not expect to pay more and get less even though they cruise firms would like this.

 

I'd be interested to see your statistics on subsidized shipbuilding. If you mean the shipyard is subsidized by their own government, then I would agree with you, but how is that an advantage to the cruise line?

 

Would also love to see the data on port fee "kick-backs".

 

And any shipping business, even the cruise industry does not have the return on investment that other investments or businesses have.

[chengkp75]

Are these actual drydock/maintenance costs or do the numbers include lost revenue from the ship being out-of-service?

 

No, that's just the bill to the yard and subcontractors. Loss of revenue is another matter.

[chengkp75]

My guess is the rapidly developing economies in South East Asia now increasingly compete for the labor resources that used to flock to the cruise lines. (Indonesia - Philippines for HAL -- same for Eastern Europe opportunities for other cruise lines)

 

So one could assume increasing general labor costs would be taking a far larger percentage of the budget, which is made up by decreasing former services and/or quality of the offerings.

 

Now here is another item that has interested me since it comes up during Q&A sessions with the officers - how often our primarily Dutch officers have chosen to live or retire in the US instead of the Netherlands. What kind of pensions do HAL officers get.

 

I can't speak for HAL specifically, but most maritime officers belong to a "union" or professional association which takes care of the pension. Pensions in Europe are quite different than the US, with much more governmental involvement, as part of their social security culture. I would be surprised if HAL actually had a pension for the officers; there may be a plan similar to a 401(k) where the officer contributes and the company does as well, but I don't think there is a "defined benefit" type of pension.

[Sailorret]

When I retired from the Navy in 1991, it cost $14 Million USD to put a ship the size of an R class vessel in dry dock. That did not include any work on the ship. Last year on Westerdam Panama Canal cruise, one of the deck officers told us that the fuel cost was $1 Million to go from Ft. Lauderdale to San Diego.

[navybankerteacher]

 

...

 

Cruise lines are a business. A good one. I don't feel sorry for them. Just take a look at their stock performance-Carnival/RCI, and their reported revenue, profit, and ROI. I do not think that cruise fares should be increasing. The product is in fact being depreciated. Less service, lower quality food, etc. I do not expect to pay more and get less even though they cruise firms would like this.

 

One way or the other you most certainly will continue to pay more for cruising as the years go by - probably also getting less service for your cruise dollars.

 

Every business seeks to improve the bottom line - generally by the two-pronged approach of increasing revenues (fares, etc.) while reducing costs (staff and food, etc.).

 

Beyond that, globalization - the unavoidable move towards equalization of standards of living - will mean that well paid Americans will not forever be pampered by low paid citizens of other countries who have little employment options.

 

The "golden age" of cruising is bound to continue changing.

[iancal]

Take a look at the book Cruise Ship Blues by Ross Klein. Interesting look at the industry that included info on port tax kickbacks/financial agreements, subsidies, employees, the lot. It is quite revealing.

[Hlitner]

The issue of government subsidies is fascinating and a popular discussion topic among international economists. How subsidies impact cruise ships is open to interpretation, but it can have an impact. For example, a government may decide to give subsidies and tax breaks to a maritime company that operates at drydock. These subsidies make it possible for that particular drydock to underbid their competition (who do not get subsidies). The cruise line benefits because they essentially gain a discount from the real cost...because of the subsidies. And it is the same with ship building....where government subsidies of ship yards can result in a lower bid for the construction of new ships. This partially explains why there are no USA shipyards constructing major cruise ships....although there are other issues involved such as labor costs, US government interference, health and safety rules, etc.

 

Hank

[TampaMike]

There are two basic components of your cruise per diem / pd (cost per day per person).

 

The first is your cruise fare. This is what it takes to get you onboard the ship. This is the marketed / competitive price for the brand, as related to it's market segment, competition, ratings and itinerary demand. This is the price MOST people use to determine which cruise to buy. Per diems of $100 -$125 day/person has not changed much in 30 years. In fact, more often LOWER per diems are available in today's rich cruise market offerings (those < $599 seven day cruise offers). Once onboard the second component comes into play: Onboard Revenue (OBR).

 

Onboard revenue is really where the cruise lines track profit margin. Most cruise lines have a target OBR expected for each passenger (on average) for each ship, itinerary and season. As well all know, OBR has infiltrated much of the cruise experience. Some view that as an intrusion (being nickel'd and dime'd) while others tune it out and capitalize on the still low per diem rates and remain thrifty onboard. OBR includes, tours, bar, casino, shops, spa and every incidental imaginable they can shoehorn in (poolside teeth whitening....really?).

 

With today's technology, cruise lines can track the ship's daily real time OBR. Those convenient scannable cards (boarding pass / cabin key) are watched real time by shoreside OBR tracking applications (with most major sophisticated cruise lines, Carnival, RCI, NCL). They can determine if the average OBR targets are being made even before the voyage has ended. So say, a day at sea is not tallying up well they can advise the onboard management to offer new, additional or revised promotions to get the $$$ flowing. So remember each time the barman swipes your card, some accountant shoreside smiles (and maybe an angel gets it's wings).

 

What can be shocking is the ACTUAL per diems realized. Take your cruise TOTAL cost (cruise fare + the total of your OBR charged to your cabin folio) and divide by the # of days = your per diem rate....whether solo a couple or a family unit. Mainstream to premium cruise lines per diems run as low as $75 - $200 pdpp (based on double occupancy standard cabin - oceanview). Luxury lines usually track $225+ but may include, gratuities, tours, some or all alcohol, premium accommodations, etc. So if you compare your actual pd to luxury line offerings you may find you are paying more for the mainstream / premium product. But because we shop by cruise fare, most never realize that opportunity.

 

There are overlaps of course, a suite on a mainstream ship is not an apples to apples comparison to a standard outside double on a luxury (however most luxury line offerings are already in the suite level accommodations wise). This also factors in ship density or space per passenger ratio. Further, studies show that clientele who shop by fare price are actually more prone to overspend onboard (with exception to those 'thrify' cruisers...you know who you are). THAT is what the cruise lines are banking on and the ship is designed to achieve that. This is the Carnival model. Start with the average pd you wish to achieve and compete with, build a ship with amenities and programs that will enable you to achieve such. And of course econonmy of scale has be refined and honed to the mega-ships we see today.

 

While HAL has been a value premium product (though fares are rising), the true luxury brand cruisers may, in fact, be the real 'pay one price' cruisers realizing the best per diem.

[kevingastreich]

There are two basic components of your cruise per diem / pd (cost per day per person).

 

The first is your cruise fare. This is what it takes to get you onboard the ship. This is the marketed / competitive price for the brand, as related to it's market segment, competition, ratings and itinerary demand. This is the price MOST people use to determine which cruise to buy. Per diems of $100 -$125 day/person has not changed much in 30 years. In fact, more often LOWER per diems are available in today's rich cruise market offerings (those < $599 seven day cruise offers). Once onboard the second component comes into play: Onboard Revenue (OBR).

 

Onboard revenue is really where the cruise lines track profit margin. Most cruise lines have a target OBR expected for each passenger (on average) for each ship, itinerary and season. As well all know, OBR has infiltrated much of the cruise experience. Some view that as an intrusion (being nickel'd and dime'd) while others tune it out and capitalize on the still low per diem rates and remain thrifty onboard. OBR includes, tours, bar, casino, shops, spa and every incidental imaginable they can shoehorn in (poolside teeth whitening....really?).

 

With today's technology, cruise lines can track the ship's daily real time OBR. Those convenient scannable cards (boarding pass / cabin key) are watched real time by shoreside OBR tracking applications (with most major sophisticated cruise lines, Carnival, RCI, NCL). They can determine if the average OBR targets are being made even before the voyage has ended. So say, a day at sea is not tallying up well they can advise the onboard management to offer new, additional or revised promotions to get the $$$ flowing. So remember each time the barman swipes your card, some accountant shoreside smiles (and maybe an angel gets it's wings).

 

What can be shocking is the ACTUAL per diems realized. Take your cruise TOTAL cost (cruise fare + the total of your OBR charged to your cabin folio) and divide by the # of days = your per diem rate....whether solo a couple or a family unit. Mainstream to premium cruise lines per diems run as low as $75 - $200 pdpp (based on double occupancy standard cabin - oceanview). Luxury lines usually track $225+ but may include, gratuities, tours, some or all alcohol, premium accommodations, etc. So if you compare your actual pd to luxury line offerings you may find you are paying more for the mainstream / premium product. But because we shop by cruise fare, most never realize that opportunity.

 

There are overlaps of course, a suite on a mainstream ship is not an apples to apples comparison to a standard outside double on a luxury (however most luxury line offerings are already in the suite level accommodations wise). This also factors in ship density or space per passenger ratio. Further, studies show that clientele who shop by fare price are actually more prone to overspend onboard (with exception to those 'thrify' cruisers...you know who you are). THAT is what the cruise lines are banking on and the ship is designed to achieve that. This is the Carnival model. Start with the average pd you wish to achieve and compete with, build a ship with amenities and programs that will enable you to achieve such. And of course econonmy of scale has be refined and honed to the mega-ships we see today.

 

While HAL has been a value premium product (though fares are rising), the true luxury brand cruisers may, in fact, be the real 'pay one price' cruisers realizing the best per diem.

 

Quite informative. Thank you.

[Viesczy]

There are two basic components of your cruise per diem / pd (cost per day per person).

 

The first is your cruise fare. This is what it takes to get you onboard the ship. This is the marketed / competitive price for the brand, as related to it's market segment, competition, ratings and itinerary demand. This is the price MOST people use to determine which cruise to buy. Per diems of $100 -$125 day/person has not changed much in 30 years. In fact, more often LOWER per diems are available in today's rich cruise market offerings (those < $599 seven day cruise offers). Once onboard the second component comes into play: Onboard Revenue (OBR).

 

Onboard revenue is really where the cruise lines track profit margin. Most cruise lines have a target OBR expected for each passenger (on average) for each ship, itinerary and season. As well all know, OBR has infiltrated much of the cruise experience. Some view that as an intrusion (being nickel'd and dime'd) while others tune it out and capitalize on the still low per diem rates and remain thrifty onboard. OBR includes, tours, bar, casino, shops, spa and every incidental imaginable they can shoehorn in (poolside teeth whitening....really?).

 

With today's technology, cruise lines can track the ship's daily real time OBR. Those convenient scannable cards (boarding pass / cabin key) are watched real time by shoreside OBR tracking applications (with most major sophisticated cruise lines, Carnival, RCI, NCL). They can determine if the average OBR targets are being made even before the voyage has ended. So say, a day at sea is not tallying up well they can advise the onboard management to offer new, additional or revised promotions to get the $$$ flowing. So remember each time the barman swipes your card, some accountant shoreside smiles (and maybe an angel gets it's wings).

 

What can be shocking is the ACTUAL per diems realized. Take your cruise TOTAL cost (cruise fare + the total of your OBR charged to your cabin folio) and divide by the # of days = your per diem rate....whether solo a couple or a family unit. Mainstream to premium cruise lines per diems run as low as $75 - $200 pdpp (based on double occupancy standard cabin - oceanview). Luxury lines usually track $225+ but may include, gratuities, tours, some or all alcohol, premium accommodations, etc. So if you compare your actual pd to luxury line offerings you may find you are paying more for the mainstream / premium product. But because we shop by cruise fare, most never realize that opportunity.

 

There are overlaps of course, a suite on a mainstream ship is not an apples to apples comparison to a standard outside double on a luxury (however most luxury line offerings are already in the suite level accommodations wise). This also factors in ship density or space per passenger ratio. Further, studies show that clientele who shop by fare price are actually more prone to overspend onboard (with exception to those 'thrifty' cruisers...you know who you are). THAT is what the cruise lines are banking on and the ship is designed to achieve that. This is the Carnival model. Start with the average pd you wish to achieve and compete with, build a ship with amenities and programs that will enable you to achieve such. And of course economy of scale has be refined and honed to the mega-ships we see today.

 

While HAL has been a value premium product (though fares are rising), the true luxury brand cruisers may, in fact, be the real 'pay one price' cruisers realizing the best per diem.

 

Awesome post!

 

Easiest answer to the OP; cruise lines are great at their job--making a profit. They have years of experience to draw upon to ensure that they're going to make the profit they desire.

 

Now the personal question, do they make $ off us?

 

IDK. We don't typically buy much of anything on board, maybe some of "let's get this stuff from 2 years ago out the storage" sale, we might hit 1 specialty restaurant once, and we're not drinkers at all.

 

About the only place we spend add'l funds would be if we book shore excursions via the ship, typically that is only 50% of the time.

 

Maybe that's why my b-days cards from the lines always include "don't want to see you again" notes? :D