The Other Cruise Industry

Yesterday I received yet another brochure from Viking Cruises about the wonders of river cruising. I get five or six of these a month, featuring everything from a 15-day “Grand European Tour” (Amsterdam to Budapest) to a 13-day “Waterways of the Tsars” sojourn (St. Petersburg to Moscow). And it’s not just Viking. Brochures pour in from my various alma maters and other special interest groups featuring river and “small ship” cruises with university professors as guides and fellow alumni as passengers. Many of these are “theme” cruises, featuring the art of a particular region (Provence) or the wine (Burgundy) or the medieval castles along the route.  

Direct marketing of this sort seems to be the preferred tool of river cruise lines. It’s cheaper than TV and probably far more effective for the audience they’re seeking. And that audience is people like me – inquisitive, well-educated baby boomers who supposedly have lots of time and money on their hands and are ready to see the world “up close and personal.” No more mingling with thousands of passengers onboard mega cruise ships spending endless days at sea, or having to stand in line for dinner or a show, or trying to squeeze into an elevator crowded with 13-year-olds. Riverboats feature no more than 200 or so passengers. They are all in the 55+ age group. You won’t see many families unless they are accompanied by their grandparents. It’s a booming business.  

Mega-Companies & Mega-Ships 

The global cruise industry is a $40 billion business. It’s dominated by two players – Carnival and Royal Caribbean. They have 50 and 25 percent of the market, respectively. Norwegian is a distant third at 11 or 12 percent. Rounding out the top five are fast-growing MSC and family-friendly Disney.  

These are big companies. Carnival has sales of about $16 billion a year. It operates more than 100 ships (the global cruise fleet numbers 310). Its brands include such well-known names as Holland America and Princess, not to mention Cunard and – dare I say it? – Costa. Yet despite a weak fourth quarter and a forecast loss in the first quarter of this year – and the negative publicity emanating from incidents like the Costa Concordia and Carnival Triumph – its stock was up nine percent in 2013. 

Royal Caribbean’s annual sales are about $8 billion – half of Carnival’s. Its fleet numbers over 40, and it boasts the two biggest cruise ships in the world –Oasis of the Seas and Allure of the Seas. These behemoths weigh in at 225,000 gross tons and can accommodate 5,400 guests and more than 2,000 crew. Royal is more profitable than Carnival, and its stock rose 39 percent in 2013, beating the market averages. Norwegian is the most profitable of all with the highest fares and the highest net revenue yield per passenger in the industry. It went public in January 2013, and its stock closed up 87 percent on the year – one of the best performances among all IPOs in 2013. It has revenue of about $3 billion annually and a fleet of 13, including the recently delivered Norwegian Getaway.  

More than 21 million people went on a cruise last year. Most came from the U.S. and Europe, and many are repeat “cruisers.” The industry is growing at four or five percent a year and is focusing its marketing efforts on emerging markets like China and Russia and Australia and Brazil. Why? Because the so-called “penetration rate” in those countries – the percentage of people who take a cruise each year – is so low, and the potential so high. The biggest markets, North America and Europe, have penetration rates of three and two percent, respectively, and account for ninety percent of all cruisers. If China’s growing middle class of 300+ million achieves a penetration rate of just one percent, that’s three million more customers. 

Nonetheless, there remains a lingering perception among the general public that cruising – ocean cruising, that is – is either unsafe or fraught with potential danger. And those fears are grounded in fact. There are too many norovirus outbreaks, too many incidents of passengers being assaulted or going missing, too many engine failures and resultant passenger discomfort – not to mention loss-of-life disasters like the Costa Concordia. In response, the industry – to its credit and under the leadership of the Cruise Lines International Association – is adopting new rules and stricter regulations regarding onboard safety procedures, passenger security, health and hygiene, and crew training.  

Smaller Is Better 

The river cruise industry has no such issues. You’re never very far from shore, and you’re not subject to the dangers of the open ocean. The vessels are essentially self-propelled barges, flat-bottomed and slow moving. They have none of the amenities of the mega-ships: no casinos, no rock-climbing or water slides, no fancy Broadway shows, no upscale shops, and limited dining facilities. River cruising is all about the destination. You are there to visit and explore the cities, towns and regions along the way. Ocean cruising, on the other hand, is all about the ship itself. The goal is to get you to stay onboard as long as possible and spend as much money as possible. 

There are other differences as well. River cruises tend to be “all inclusive” affairs.  There are no add-ons, with the exception of alcohol. Fares include shore excursions as well, and with river cruises you spend more time on shore than you do on the vessel. They’re also more expensive, with prices averaging $3,000 to $5,000 per person and up. Ocean cruise prices are less than half that. 

River cruises also cater more to the single adult – known in the trade as “solos.” On ocean cruises, solos are discouraged. There are no single cabins. You have to bunk up with someone else or pay a much higher rate. With river cruises, the passengers are almost entirely couples and solos of a certain age. Solos don’t get penalized for traveling alone. In fact, they’re encouraged. One operator – Grand Circle Cruise Line of Boston – says 25 percent of its passengers are solos, and eighty percent of the solos are women. It is adding more single berths on its five most popular river cruises to accommodate growing demand. 

European river cruises are now the third most popular itinerary for cruisers – behind the Caribbean and Mediterranean – and by far the fastest growing. In fact, the river cruise industry as a whole is expanding by ten percent a year, twice the rate of ocean cruising. European river cruises are now so popular that you’re pretty much out of luck if you want to book one for this summer. Viking is now offering 2015 cruises at 2014 prices because most of its 2014 cruises are sold out. 

The Big Kahuna 

In an effort to correct the supply/demand imbalance, fifteen new riverboats were delivered in 2013, ten of which were Viking Longships®. Twenty-nine more are scheduled for 2014, fourteen of them Longships. In case you haven’t figured it out by now, Viking is by far the biggest operator. It has almost half the market and is growing at over 20 percent a year. Viking is to river cruising what Carnival is to ocean cruising – the 500-pound gorilla.  

The company boasts a fleet of 37 riverboats. By year-end it will have 51, more than half of which are its patented Longship design. They’re called Longships after the Viking longships of old, which were long, narrow vessels used for trade, commerce and warfare. The purpose-built Longships were introduced in 2012 and can accommodate 190 passengers in 95 staterooms, all with river views and most with private verandas. They’re 440 feet long and 40 feet wide. They feature “green” amenities like hybrid engines for a quiet, vibration-free ride, solar panels for energy conservation, and organic herb gardens. But they have no pool or fitness center or spa. If you want those conveniences, you can visit a Four Seasons along the way.  

The company has a keen sense of history. Founded in 1997 by a “Viking,” Norwegian-born Torstein Hagen, the company – whose logo is a stylized Viking longship – names all its Longships after Norse gods (Odin, Tor, Var). Legend has it that Hagen, a cruise industry veteran, was on a river cruise in Russia when he decided that river cruising was the wave of the future. He started Viking with four converted vessels cruising Russian rivers and went on from there. In a very real way Viking “created” the industry, spending a reported $400 million over the last ten years to raise awareness of river cruising and emphasize its difference from ocean cruising.  

Demonstrating its marketing savvy, Viking is a primary sponsor of the PBS hit series “Downton Abbey,” and Lady Fiona Carnarvon – the current mistress of Highclere Castle, the real “Downton Abbey” – christened one of the Viking Longships last year in Amsterdam. “Downton Abbey’s” viewership is made up almost entirely of baby boomers, the primary demographic for river cruising. 

Competitors have benefited from Viking’s marketing blitz. They do not have Viking’s size or scale, and their marketing efforts are minimal. They include companies like AmaWaterways, whose 15 vessels feature heated pools and multiple dining venues; Avalon Waterways, with 12 Premium Suite-Ships; Tauck River Cruising, and dozens of others. 

In the U.S., river cruising has been slow to catch on, though it is starting to gain in popularity. One company, American Cruise Lines, announced in December that it had ordered four new riverboats for delivery by 2017. Connecticut-based ACL currently operates two “authentic” paddlewheelers on the Mississippi and Columbia/Snake rivers and four coastal “small ships.” The 150-passenger Queen of the Mississippi, introduced in 2012, was the first new Mississippi paddlewheeler in 20 years. Its sister vessel, Queen of the West, offers Lewis and Clark-themed cruises in the Northwest. 

Similarly, the 2012 start-up American Queen Steamboat Company sees a rebirth of American river cruising and brought the historic 436-passenger American Queen out of mothballs to prove its point. The Memphis-based operator offers Mississippi and Ohio River “themed cruises” on everything from Mark Twain to Baseball Legends to Bourbon & Bluegrass. The 223-passenger American Empress will begin sailings in the Pacific Northwest in April.  

Back to the Future? 

Unfortunately, none of the river cruise companies is public – yet. They’re too small, with the possible exception of Viking, which has been making noises lately about tapping into the capital markets. So you’ll just have to content yourself for now with the old standbys – Carnival, Royal, and Norwegian. And despite Carnival’s woes, the prospects for 2014 are good.  

Finally, in an ironic twist, Viking has announced it is entering the ocean cruise market next year with the 930-passenger Viking Star. Officially classified as a “small ship,” she will bridge the gap between riverboats and large cruise ships and visit ports in Scandinavia, the Baltic and Mediterranean that are otherwise inaccessible. Sound familiar? It should. That’s the same premise the river cruise industry was built on.