Expert network-Expedition Cruising: Goldmine or Bubble?

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岂珀专家网络专家 Lagerweij 先生

by Hans Lagerweij, CEO and President of Victory Cruise Lines

Expedition cruising is a fast-developing travel segment. Thirty-two new expedition ships are on order, with an estimated investment of over $4 billion. The big question is if the market growth can absorb such a capacity increase, or if in three years we will be talking about the “expedition cruise bubble”.
THE NEXT BIG THING IN TRAVEL
Expedition cruising is a fascinating industry. From standing on top of the North Pole, swimming with seals in the Galapagos, sailing the Amazon or, discovering the continent of Antarctica, it offers many opportunities to tick off bucket lists.
Expedition cruising is regarded as “the next big thing” in Travel. The trend is in line with observed consumer trends, like millennials spending money on experiences, and general shopping behaviour where people are “choosing experiences over stuff”. Moreover, scientific research even shows that spending money on experiences could be a secret to happiness.

 

So, it doesn’t come as a surprise that the expedition cruising market is in the spotlight. Next to orders for new ships, new companies have also entered the market, like river cruise specialist Scenic, luxury cruise company Celebrity, and even hotel brand Ritz-Carlton.
AN INDUSTRY FACING CHALLENGES
The challenges that the growing expedition cruise industry will face are the high required yield levels, the lower yield of repositioning trips, the entrance of bigger ships, and attracting experienced staff.

 

The roughly 8,000 new yearly berths in expedition cruising do not sound impressive compared to mainstream cruising. However, the new berths need to be sold at dramatically different price points. We learn from Lindblad that their average yield is about $1000 a berth a day. We can expect that, of the new berths coming into the market, the required yield will be significantly higher, as most of them are in the “luxury” segment. Most of the 8,000 additional berths will compete with ticket prices that only start at $12,000 a person.

 

The challenge of ticket prices is especially visible with “repositioning trips”. Unfortunately, life is not as simple as sailing a ship around the globe and getting great occupancy on all trips. Between the main destinations, there are areas that attract less consumer interest. The choice for operators is to either sail these at significantly discounted prices, or even little to no occupancy.

 

Another threat for expedition companies comes from within the current competitive set. Norwegian company Hurtigruten is revolutionising the market with three new ships taking 530 passengers, while most expedition ships only go up to about 200. It will be a challenge to offer an expedition-style experience on such large vessels, but scale means lower costs, so Hurtigruten could escape the high-required yield levels of its competitors.

 

One of the biggest challenges that companies will face is getting the right staff. There is only a limited number of captains with ice experience, for example, and experienced expedition staff that can deliver the unique experiences involved. In 2020-2022 there will be a significant shortage in knowledgeable and skilled staff.
AN INDUSTRY FACING OPPORTUNITIES
With the demand for unique experiences, the market will certainly grow, and some customers originally recruited by mainstream cruising will “upgrade” to experience more unique excitement. Fortunately, expedition cruising has the unique experiences to easily create rich content in order to inspire and attract customers from other travel segments. The opportunities to share this content online are endless.

 

In addition, typical expedition cruise customers havea global mindset, and seem to come from all around the world. A global distribution base is not a luxury but a necessity. One of the global opportunities to consider is the largest and fastest growing outbound travel market in the world; China. Chinese tourists love bucket-list experiences. However, it is not the easiest opportunity. One of the key fears among Chinese customers needs to be taken away, which is
that “Chinese tourists often say they feel treated like second-class people, even when they spend a lot of money”.
With the high required yield levels, a sophisticated yield management system might be an opportunity for some operators. The expedition industry is still relatively conservative, with prices sometimes being published and untouched until ships are filled.

 

In the end, the new capacity itself will expand the market. The capacity is too expensive to sail empty, so if required occupancy levels are not met, companies will start to promote and discount to attract customers. It will not provide the aimed return on investment, but it will help market growth.

 

GOLDMINE OR BUBBLE?
Only time will tell if in 2022 we will look back at these hectic times and conclude if the expedition cruise industry is a goldmine or bubble. But surely, some companies will struggle to hit the required occupancy and/or yield levels in the future.

 

Please note: This article contains the sole views and opinions of Hans Lagerweij and does not reflect the views or opinions of Guidepoint Global, LLC (“Guidepoint”). Guidepoint is not a registered investment adviser and cannot transact business as an investment adviser or give investment advice. The information provided in
 this article is not intended to constitute investment advice, nor is it intended as an offer or solicitation of an offer or a recommendation to buy, hold or sell any security. Any use of this article without the express written consent of Guidepoint and Hans Lagerweij is prohibited.
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