Cruise News Cruise Lines Likely to Hike Fees Once Things Calm

Cruise Lines Likely to Hike Fees Once Things Calm

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Cruise Hive Weekly News: December 5, 2020

This week was jam-packed with cruise news and the majority of it was not so good. Major cruise lines have suspended operations even further.

Holland America Shares Latest Construction Photos of Rotterdam

Holland America Line has shared new photos of the third Pinnacle-class cruise ship named Rotterdam under construction.

35-Day Caribbean Cruise Cancelled Due to Travel Restrictions

TUI has been forced to cancel its 35-day Caribbean and Transatlantic voyage onboard Mein Schiff 1 due to decisions from the local government.

New Restrictions Force MSC Cruises to Put Operations on Hold in the Mediterranean

MSC Cruises has temporarily shut down operations in the Mediterranean impacting two cruise ships. This comes after new measures were introduced by the Italian government.

There is no denying that cruises can be had very inexpensively in 2021. Many, if not all, cruise lines have begun offering extreme discounts to fill up vessels once cruising resumes. These offers are made for good reason, however, as guests may be hesitant to return to the ships if protocols will be too strict.

An industry that has burned over a billion USD a month over the last six months will need to make money somewhere. That money will be made from the passengers sailing onboard the ships.

Therefore, it makes sense for the lines to offer these steep discounts now, but do you have to book now? Or can you wait to get a great deal?

An Insight Into Cruise Pricing

During the 1970s, cruise lines priced their voyages as list prices. What you saw in the brochure is what you got. This included everything that you could think of— your cabin, food, drinks, and of course, the cruise details and onboard activities. Everything was included in the list price.

Cruise pricing became a lot more complicated in the 1980s and extremely complicated in the 1990s. Before the pandemic, cruise pricing had become complex arithmetic done solely by computers.

Cruise lines set base rates for a specific voyage, cabin, date, and what is included in the pricing. While the cruise dates get closer, prices are adjusted accordingly and automatically, based on occupancy rates, demographics, ongoing promotions, and much more. Different packages would be priced differently based on what amenities may be included with particular cabins, or whether add-on packages were part of the deal, such as for drinks, spa treatments, or excursions.

While a hotel will typically have a 70-75% profit target, the number of rooms that need to sell to be profitable on any given night, on cruise lines this number needs to be 90-95%. Cruise lines can only achieve this number by having many promotions and discounts that will entice people to book a voyage so ships are not setting sail with empty cabins.

While the cabin price will not necessarily pay for the passengers’ cruise cost, what that passenger spends on average in bars and restaurants, as well as onboard souvenirs, photos, and in the casino, will cover the cabin revenue loss and provide a profit for the cruise line.

Cruise Pricing in the ‘New Normal’

While it’s great for passengers to see that cruise lines are putting out massive discounts, don’t expect these phenomenal offers to last much longer.

Cruise ships will be sailing at no more than 70-80% occupancy for the first few weeks or months as sailings resume, and as we’ve seen, cruise ships need 90-95% occupancy to be profitable. So what will happen? Cruise lines will go back to the pricing strategies that they had in the 1970s. Maybe a bit more sophisticated, but that will be the bottom line.

First of all, cruise lines know that they will sell 70% of the cabins on board, no matter what the protocols are. The last 30% is what is challenging to sell. These are the tiniest inside cabins, the very expensive elite cabins, the outside cabins with blocked views, etc.

Also Read: Cruise Lines Need to Be Strict Once Sailings Resume from the U.S.

But if the cruise line sells only 70% at the old rates, they will be losing profit. For example, MSC Cruises recently made a promotion up to a 100% discount for front liners. It’s a great promotion – if you are one of the few to get it. Promotions like these, however, are only done to entice people back on board.

Once the ball is rolling, and reservations are coming in, the cruise lines will no longer use or need these promos.

They will need money, and they will only make enough money by hiking the prices of cabins and charging full price on each cabin.

Traditional Ways Could Be Out the Window

If cruises could set sail at full capacity right away, cruise lines might have made up for any losses in bars, casinos, and restaurants before the coronavirus pandemic and extended shutdown of sailings. With people having to socially distance, sit apart during dinner, bars being table service only, no mingling, casino capacity limited, and nightclubs closed, as sailing resumes, however, the cruise lines will not expect to make nearly as much profit on food and beverages or other online point-of-sale items.

Not only that, premium onshore excursions have gone because of the “bubble” approach to offering tours, photography sales will likely go down, and shop sales may decrease as well.

All the traditional areas where cruise lines expect to make money are or will be gone or dramatically reduced. That only leaves making money on the cabins, the initial sales when passengers book their vacations. So long as extensive restrictions remain onboard ships and cruise lines are limited as to how they can make profit, it is likely that cabin prices may increase dramatically and the cheapest, most deeply discounted cruise fares will sink into the past.

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