Since the Great Recession, the cruise industry has seen steady growth in both capacity and demand. And while there is often a focus on ocean cruising, river cruises are also a part of this growing segment. However, despite technological advances, many companies continue to manage voyages using the same old outdated tools, leaving behind huge amounts of potential revenue.
To keep pace and remain ahead of the competition, cruise companies will need to examine current practices in the following three areas, and consider what they can do to maximize their offerings and increase their capabilities.
1) Grow Strategically. Cruise companies have/are seeing huge growth in both industry and passenger capacity, and need to better leverage this growth to increase revenue.
Industry Capacity. Reviewing data from Cruise Market Watch, it is clear that cruise companies continue to invest in new ships. These new ships bring additional cabins into the market which need to be filled many times during the year, creating ~1-2 M additional booking opportunities annually. This ongoing escalation of capacity creates fiercer competition, and the need for companies to continually re-evaluate their capacity strategies in order to maximize the revenue generation of their cruises. For global cruise companies, the decision to place a ship in Europe for the summer vs Caribbean vs placing another ship in Alaska can create or destroy millions in annual revenue through repositioning, yields, onboard revenue, foreign exchange rates, along with fuel and other costs. Detailed itinerary planning is also important to determine itineraries and the time to spend in each port. Additionally, measuring the impact of capacity on total revenue optimization and profits to inform strategic deployment is critical to growth and avoiding earnings missteps.
Passenger Capacity. Cruise companies are having to manage the growing numbers of cruise days, as passenger numbers increase, both in the frequency of existing customers and new cruisers entering the market. In fact, research from Cruise Market Watch shows that the number of passengers worldwide increased by over 19 percent from 2010 to 2016. To effectively handle the growing bookings volume, companies must ensure that their analytical tools are keeping up with this demand. In addition, it’s essential to establish sourcing optimization by country and city to ensure you have the right ship available at the right time, so that cruisers can join when they want to and there’s capacity available on the ship. Additionally, leveraging promotion optimization, 3rd and 4th pricing, as well as inventory management can be a huge analytical competitive advantage, and a driver of organic revenue growth.
2) Explore Areas of Revenue Opportunity. Currently, some cruise companies still use quarterly/seasonal pricing strategies, or they rely on weekly pricing of itineraries with different days of departure. For them, there are opportunities for more tactical and frequent prices changes, and these granular changes in price, would ultimately result in higher overall profitability (this strategy has proven to be a big revenue generator both within the travel industry and outside it by companies like Amazon).
By leveraging battle-tested technology and advanced analytics, cruise companies can refine their strategies and provide their teams the ability to capture higher yielding demand within their legs, segments, and markets. Additionally, all cruise companies should not underestimate the potential of ancillary revenues. Opportunities exist to increase areas such as onboard spending by using key predictors to target passengers with specialized offers that enhance their onboard experience while refocusing their purchases to the cruise line. And a final opportunity exists with customer center merchandising, that once customers have booked offer them upsell offers, and pre-booking of shore-excursions.
3) Empower Users to Engage with the Organization. Systems cannot operate within a process vacuum. It behooves cruise companies to offer their decision-makers more tools in one place to access their data, creating one version of the truth. This promotes a streamlined organization that is aligned throughout and prepared for any potential changes. Plus, users become aware of what the systems are designed for, and use them in the correct manner. However, companies must also ensure that Revenue Management becomes part of their culture by focusing on these four key aspects of change management: a vision for change, pressure for change, capacity for change, and anchoring the change. Following these steps solve for the human equation.
Everyone agrees the cruise industry is experiencing explosive growth. It’s a great problem to have, but companies need to ensure that appropriate tools and processes are in place to eliminate the unknowns and maximize revenue growth.
Contact us to learn more about how to solve today’s challenges in the cruise industry.