They Once Said Small Luxury Ships Wouldn’t Be Profitable. Now They’re Building More

David G. Molyneaux
The Miami Herald – July 26, 2018

 

In a scene that plays out each evening on cruise ships all over the world, during a recent voyage I popped into a bar for a pre-dinner cocktail. My request was a Jack Daniels on the rocks.

How the next scene plays out depends on your choice of ships.

If your ship is operated by a budget cruise line or most premium lines, the price of that drink would range from about $8, as measured by a small shot glass (the kind my dad used to call a “swallow”), to $12-15 for a good pour. Alcohol is a big money-maker in the cruise business, a major portion of the onboard revenue that determines cruise line profitability. On ships that charge for alcohol, drinkers may drop a bundle at the bars, on deck, and in the dining rooms.

At the other end of the cruise line economic scale float the top luxury ships where such onboard expenses as the consumption of alcohol almost always are complimentary. Not that the Jack Daniels is free, but you pay up front for most indulgences on luxury ships that charge fares as much as $1,000 per person, per day.

Luxury lines, a growing segment in the cruise industry, like to brag that guests won’t feel nickel-and-dimed during vacation; when passengers meet for a drink or dine with new friends, they never have to be concerned about who pays.

On the evening in question, I was cruising on the 600-passenger Seabourn Encore, one of five ships owned and operated by Seabourn Cruises, which calls itself ultra-luxury and has granted itself a sixth star in the typical range of one-to-five.

On Seabourn, the personal bar in each cabin (called a suite) is stocked with your favorite drinks, alcoholic or not. Caviar is free (you just pick up the phone and request it). So is the highly attentive service by the crew. Seabourn folks call their service intuitive, which is what I found when I bellied up to the bar in search of my old friend Jack.

Making eye contact was my first bartender who recommended a higher class of whiskey without expecting extra money, or a tip (also included in the cruise rate).

“Of course, sir,” said the bartender at the Thomas Keller restaurant on Seabourn Encore, “and if you like Jack Daniels may I offer you another suggestion, which I like better myself.” He continued, “If you prefer the taste of Maker’s Mark, I have some choices there, too.”

Of course, luxury is not measured in alcohol, though my moment in the bar does fit an image of intuitive service. Many travelers say that their views of luxury are changing, that luxury is more about their experiences and choices, rather than a vessel’s material opulence (not that there’s anything wrong with that).

Service and fine dining, matched with special exclusive excursions and entertainment, are all significant elements as luxury cruise lines try to entice affluent vacationers away from high-end land resorts to the top ships at sea.

The number of luxury cruisers is rising to meet the number of cabins and suites on new vessels coming out of the shipyards. All the big luxury lines own new ships, either already on the seas or under construction, typically carrying 450-800 passengers.

Silversea Cruises, which recently sold a majority stake to Royal Caribbean Cruises Ltd., launched the 596-passenger Silver Muse last year, to be followed by sisters Silver Moon in 2020, and Silver Dawn in 2021. Regent is building the 738-passenger Seven Seas Splendor (2020), sister of the Seven Seas Explorer of 2016. Crystal Cruises’ first new major ocean ship since 2003, an as yet unnamed 800-passenger vessel, will be out in 2022. Seabourn has debuted five new ships since 2009, the most recent, Seabourn Ovation, this past spring. Ritz-Carlton Hotel Co. is launching a small ship luxury cruise line starting in 2020, and Crystal and Seabourn are also both building their own smaller luxury expedition ships (something that Silversea already has).

Little more than a decade ago, industry observers questioned the future of luxury cruising. Fleets were aging. Asked about the potential for new builds of small luxury ships, most cruise line leaders responded that such ships would not be profitable. At Seabourn, for instance, rumors abounded that the line’s three aging 208-passenger ships were for sale, meaning to most observers that Carnival Corp. was getting out of the luxury ship business, at a time when new big ships were proving to be highly profitable.

What happened? For Seabourn, the corporate decision to build new ships was led in 2006 by the late Deborah L. Natansohn, then president of Seabourn. Micky Arison, chairman of Carnival Corp., who was aboard Seabourn Ovation in May, said the company acted on Natansohn’s presentation, which showed significant and consistent revenue growth and a robust future potential with the highly affluent and active baby boomer generation heading toward the more leisurely years of their lives.

The key was to build new ships of a size that would meet the sweet spot — small enough to appeal to luxury passengers, yet large enough to carry dining, public spaces, and additional cabins for revenue to make the ships profitable. Starting in 2009, Seabourn debuted three 450-passenger ships, designed as spacious, relaxed, oversized yachts. To meet the demand for more dining choices, the cruise line then built two more ships of 600 passengers each.

In 10 years, Seabourn has moved from owning three aging ships carrying a total of about 600 passengers to carrying about 2,550 passengers on five ships that make up one of the ocean’s youngest fleets.

The three original Seabourn ships were sold to Windstar Cruises, which says they are profitable because it renovated and updated the ships, which no longer are in the luxury category. Windstar is a top premium cruise line, but says it is not competing with the top luxury lines, nor is it charging luxury prices.

The world’s luxury fleets are growing, but Seabourn president Rick Meadows says he does not see the other top luxury cruise lines as competitors. They are more like colleagues, he said, each choosing its take on what luxury cruising is and going its own way. His competition, he says, is land-based luxury resorts, while his ships move around the world, giving guests great luxurious choices. On Seabourn Encore, the man at the bar offered me bourbon choices that I didn’t even know I wanted. Being a good sport, I tasted several.