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Chapter 1
The Economics of Cruising
The cruise industry is an $8 billion industry now, with a 1,400 percent growth rate since 1970. In 1970 approximately 500,000 people took cruises, in 2000, almost 7 million people took cruises, and in 2001, 9.8 million people took cruises. Cruising probably will continue to grow at a very high rate as a large number of new cruise liners have recently been (or will soon be) placed in service. These figures were obtained from The International Council of Cruise Lines, which estimates that by 2010 almost 21 million people will take cruises (see <http://www.iccl.org>). Cruise ships go to 1,800 ports around the world, but the Caribbean and Bahamas are the most popular cruise destinations. In 2000, for example, approximately 46 percent of cruise takers visited the Caribbean.
So cruising is a big business, employing several hundred thousand people in the United States and many others, mostly from third world countries. In this chapter I deal with economic aspects of the cruise industry—what cruises cost, who takes cruises, the incomes of cruise takers, and the problems caused by globalization, among other topics. Some rather surprising statistics are related to the cruising industry, given the image people have (or had, to be more accurate) that cruising is an “elite” form of vacation that only very wealthy people can afford.
CRUISING TO ALASKA: A CASE STUDY
I took a ten-night cruise on the Regal Princess to Alaska in June 2002. This cruise started from San Francisco and most of the people on the cruise were people who drove to San Francisco and thus avoided the hassle, and expense, of having to take a plane trip. I asked just about everyone I talked to on the cruise why they took the cruise and almost everybody said they couldn’t resist being able to drive to the port and take the cruise and thus avoid the bother of air travel. The cruise line industry is aware of the desire potential passengers have to avoid airports and now are operating cruises from many cities that previously had little or no cruise ship activity.
The Regal Princess was scheduled to cruise in the Mediterranean in the summer of 2002 but after the tragedy of September 11, 2001, the ship was repositioned to sail from San Francisco to Alaska. The only other cruise line that sails regularly to Alaska from San Francisco is the Crystal line, which offers twelve-day cruises. Crystal cruises start at around $2,200 per person in inside cabins—that is, more than twice as much as the least expensive cabins on Princess cruises. In 2003, the Princess line will repeat the San Francisco to Alaska and back schedule, with a cruise ship it purchased from the Renaissance Cruise line, a ship that holds only one third as many passengers as the Regal Princess does.
On the sailing we took, the least expensive inside cabin on the Regal Princess (or stateroom as some cruise lines put it) was $929 per person double occupancy. To that one must add a couple of hundred dollars for port fees and a hundred dollars for tips per person, which means the cruise cost approximately $1,200 or $120 a day per person or a total of $2,400 for two people in the least expensive cabins. An ocean view cabin cost a few hundred dollars more per person and suites cost considerably more, up to thousands of dollars for the cruise. Princess cruises also offered passengers $100 per person shipboard credit—which could be spent for anything except tips—drinks, beauty treatments, tours, or whatever. Drinks cost around $4, so a cruiser who doesn’t take tours and likes to drink can drink approximately three drinks a day for “free.” This $100 shipboard credit was unusually generous; probably Princess did this because it was anxious about getting people to take the cruise to Alaska. It turns out that every sailing to Alaska was sold out.
Thus, for $1,200, or $1,100 (if you wish to subtract the shipboard credit) per person, you could sail to Alaska, visit ports in Victoria, Juneau, Sitka, and Ketchikan, eat three gourmet meals a day (or more if you wanted), enjoy afternoon tea, see three elaborate stage shows (and other shows with a harmonica player, comedian, magician, and singer—there was a show every night in the theater), go dancing every night, drink free champagne at a party the captain threw—all of this for around the price of an airline ticket from San Francisco to Europe during the high season. If you booked the tours that Princess offered, it could cost you a good deal more, but many people contented themselves with sightseeing in the various stops the ship made rather than booking tours.
Cruises can offer a disciplined person (and maybe those who aren’t so disciplined) considerable value for money and are generally regarded as worth what they cost by people who take cruises. A friend of mine once explained to me one of the benefits of cruising: “If you went to a restaurant and ordered the kind of meals you have on a cruise, it would cost you a small fortune. And on a cruise ship, these meals are free.” He was right. The kind of breakfast you can have on a cruise could easily cost $20 in a hotel. The four- or five-course lunches and six- or seven-course dinners could cost $50 or $75, or more, in a decent restaurant.
One reason cruise lines can offer such elaborate dining is because of economies of scale and because little waste occurs. Cruise lines can serve passengers steaks, roast beef, lobsters, shrimp, escargot, Alaskan crab legs, caviar, and fancy desserts for relatively little money—as little as $8 a day on budget lines, around $15 a day on premium lines, and around $25 a day on luxury lines. I obtained these figures from Selling the Sea (Dickinson and Vladimir, 1997); they are quite incredible and no doubt much lower than many people would imagine. Since Selling the Sea was written in 1997, the figures may be a bit low.
Carnivores and Omnivores on Carnival
To give an idea of the scale of these purchases, a Carnival Cruise Line (n.d.) press release detailed the weekly food and beverage consumption on all Carnival ships during a typical week, as presented in the following list.
37,000 | pounds of tenderloin |
78,000 | pounds of chicken |
12,440 | Cornish game hens |
7,570 | whole ducks |
368,000 | shrimp |
12,300 | pounds of veal |
65,000 | hot dogs |
87,100 | hamburgers |
9,900 | pounds of ham |
7,500 | pounds of salmon |
4,190 | pounds of nova (smoked salmon) |
15,500 | pounds of lobster |
17,370 | pounds of coffee |
12,230 | gallons of milk |
19,690 | bagels |
1,450 | pounds of grits |
69,070 | individual boxes of breakfast cereals |
137,180 | tomatoes |
210,400 | potatoes |
329,560 | cans of soft drinks |
5,780 | gallons of soda from the bar fountains |
426,980 | domestic and imported beers |
23,470 | bottles of champagne and sparkling wines |
52,297 | bottles of wine |
12,640 | bottles of Scotch |
Obviously, an enormous amount of food and drink is consumed by the passengers on seventeen Carnival ships in a typical week. How Carnival knows that it used exactly 19,690 bagels and 137,180 tomatoes is beyond me, but I will give their cooks and accountants the benefit of the doubt and assume that they keep very detailed records of everything they serve. Not only do they keep detailed records of what they serve, cruise lines can anticipate very accurately what passengers are going to order at every meal and thus can avoid waste.
Dickinson and Vladimir (1997) explain why cruise lines can spend so little on food. In the restaurant business food costs should run between 25 and 30 percent of the selling price, while a mass market cruise line has costs of around $10 a day. A restaurant or hotel competing with a cruise line would have to charge between $33 to $40 per person for the same food array, which is impossible for them to do. In addition, cruise lines have another advantage—they serve identical meals on all ships in their fleets.
CRUISES COMPARED TO LAND-BASED VACATIONS
In Selling the Sea (1997), authors Bob Dickinson, president of Carnival, and Andy Vladimir, a market researcher, compare a budget cruise and a land vacation for a couple on a per diem basis in the chart (which I have slightly modified) that follows:
| Cruise ($) | Land ($) |
Transportation | Presumed comparable for both |
Room | 160 | 85 |
Port charges/taxes | 28 | 11 |
Breakfast | Included | 10 |
Lunch | Included | 16 |
Dinner | Included | 32 |
Drinks | 6 | 10 |
Tips | 10 | 5 |
Snacks | Included | 6 |
Activities | Included | 17 |
Entertainment | Included | 12 |
TOTAL | 204 | 204 |
Dickinson and Vladimir did a bit of fudging in this chart to make the cruise end up costing as much as a land-based vacation, but the figures are reasonably accurate. Many motels cost less than $85 a day but the average couple probably spends more than $58 for food and snacks. The chart assumes that a couple on a cruise has one drink per day, doesn’t gamble, and doesn’t “splurge” and take any tours at the ports the ship visits, among other things.
But even with these caveats, the fact is that a couple on a cruise will eat much better than a couple on land, will have the experience of being on a ship (which many people value highly), will most likely have better entertainment, and won’t have to do any driving! In addition, cruises provide more opportunities for social interaction; the couple on the land-based vacation will probably spend most of their time by themselves, unlike cruises, where passengers dine with others and have many other opportunities to socialize.
The purpose of the chart is to counter t...
