Luis Ajamil President and CEO Bermello Ajamil & Partners, Inc.
October 2014
CRUISE SHIPS IN MICRONESIA CHALLENGES AND OPPORTUNITIES LUIS AJAMIL BERMELLO, AJAMIL & PARTNERS OCTOBER 2014
Cruise experience
Cruise line experience
1 THE CRUISE INDUSTRY
Worldwide expansion 1960 1970 1980 1990 2000 2010
Passengers ('000) Cruise passenger growth 25,000 20,000 15,000 10,000 5,000 0 Asia Europe North America
Deployment Alaska 4 5 Mexico West 2 1 Mediterranean Caribbean N. Europe 3
Magic Kingdom Disneyland Global cruiseindustry Tokyo Disneyland EuroDisney Disney Sea EPCOT Disneys Hollywood Studios Disney Animal Kingdom Universal Studios Everland Disney California Adventure Seaworld Universal Studios Ocean Park Nagashima Island Spa Islands of Adventure Hong Kong Disneyland Yokohama Hakkejimma Universal Studios Lotte World Europa Park SeaWorld Busch Gardens De Efteling Tivoli Gardens Vegas Top 25 worldwide attractions 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0
Strategic industry growth factors FACTORS PASSENGERS SHIPS SHIP YARDS CAPITAL / PROFITABILITY MANAGEMENT CAPACITY CURRENCY FLUCTUATIONS FUEL ITINERARIES WARM WEATHER PORTS COMPETITION CONSTRAINT >+40 M (NA only annual) YES 12-14 SHIPS/YR NO NO NO YES (NO) EXPANSION EXPANSION FEW COMPANIES
Cruise industry companies OTH, 14% RCCL, 24% CARN, 48% NCL, 7% [CATEGORY NAME], [VALUE]
Cruise line business model Control supply and demand through new-builds & deployments; develop cruise itineraries that are easy and profitable sell ticket price is only a portion of the overall revenue possibilities Create revenue opportunities on-board & shore-side; and, shore excursions destination-oriented deployments On-board retail options bar and casino revenues On-board services: spa, classes, experiences Control the expense side. balance cost of a destination against the value it produces
Success factors New products that generate sustained interest in cruising; New, exciting vessels, diverse on-board products and services New regions, itineraries and on-shore product offerings Converting land-based resort guests into cruise passengers; High level of passenger satisfaction; leading to repeat clientele and lower conversion costs Adapt quickly to changing market conditions; and, Limited competition, reduced operational costs, and diversified revenues.
Number of ships Cabin berths Capacities 14 35,000 12 30,000 10 25,000 8 20,000 6 15,000 4 10,000 2 5,000 0 0 Vessels Passengers
Average orders over the 10 year cycle 12.0 10.0 8.0 6.0 4.0 2.0 0.0
Passengers Forecast world cruise growth 60,000,000 55,000,000 50,000,000 45,000,000 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 Low Medium High
Forecasts The forecasts are based on current ship building infrastructure Carnival s Corporation announcement of exploring ship building in China could be a game changer of accelerating growth
2 CURRENT SITUATION
Guam cruise passenger throughput 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
Guam vessel capacity 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0
Current situation Attracting vessels on round the world, repositioning or Pacific cruises No major recurring patterns in region No nearby source markets of passengers No regular homeport operations Luxury and premium brands Explorer consumer Japanese, NA and limited European passengers
Asia Pacific past trends (2013) North American and European operators have been concentrating on building markets close to home Voyager of the Seas deployment will mark the beginning of new regional competition. Industry supply over the last two years has tightened Once cruise lines begin to place new orders and expand capacity, markets such as the Asian-Pacific region will have more appeal While there is much interest in consumers in the Asian- Pacific market, few lines understand how to tap into this growing travel and leisure base Huge size of the overall market and diverse consumer groups
WHAT A DIFFERENCE A YEAR MAKES THINGS ARE CHANGING
A start to the local cruise industry GLOBAL Starts with an increase in global capacity Commitment to Asia - Pacific Developing the source market ASIA/ PACIFIC SOURCE MARKET MICRONESIA Visiting Guam Guam as a base for Micronesia GUAM
Today Asia Pacific is the talk of the industry Other markets are already beginning to feel the commitment to this region Royal Caribbean is putting its brand new Quantum of the Seas in Asia Carnival is relocating its COO to Asia and exploring local ship building Australia has been the most successful growth market for the industry More is yet to come
The potential cruise market expansion is tremendous
The Caribbean Galveston UNITED STATES New Orleans North MEXICO Mexico City Acapulco North Pacific Ocean Vera Cruz WESTERN Gulf of Mexico CARIBBEAN Cancun Puerto Morelos Playa del Carmen Belize City Cozumel BELIZE Turneffe Is. Roatan Guanaja Is. Puerto Barrios Puerto Cortes HONDURAS GUATEMALA EL SALVADOR Puerto Caldera COSTA RICA Port Everglades Key West Georgetown NICARAGUA Limó n PANAMA Tampa Miami Havana CUBA GRAND CAYMAN Montego Bay JAMAICA Freeport BAHAMAS Nassau Ocho Rios Kingston LOWER WESTERN CARIBBEAN Caribbean Sea Providencia Is. San Andres BAHAMAS Port Antonio Cap Haitien HAITI TRANSCANAL San Blas Is. Cristobal Balboa Panama Panama Canal Cartagena Medellin Bogotá Atlantic Ocean EASTERN CARIBBEAN Puerto Plata Port-au-Prince DOMINICAN REPUBLIC ARUBA Santo Domingo Willemstad PUERTO RICO San Juan ST. THOMAS (U.S. VIRGIN IS.) ST. CROIX NEVIS ST. CHRISTOPHER BONAIRE LOWER CURACAO SOUTHERN Margarita Is. Port-of-Spain CARIBBEAN TRINIDAD Caracas & TOBAGO VENEZUELA ST. JOHNS (U.S. VIRGIN IS.) ANGUILLA ST. MAARTIN BARBUDA ANTIGUA ST. VINCENT GUADELOUPE DOMINICA MARTINIQUE Fort-de-France ST. LUCIA GRENADA Georgetown BARBADOS GUYANA Bridgetown Cali COLOMBIA BRAZIL
Itineraries are key for recurring patterns Lines are focused on cruise itineraries easy profitable sell to cruise consumers Diversity of destinations Manageable distances to reduce speeds and fuel consumption Creation of cruise itineraries that fit within consumer vacation patterns mini-breaks week long cruises
Micronesia Diversity of history, culture and attractions Market Segmentation and expanded itinerary opportunities Good airline accessibility Available port facilities and services Shore excursions, business opportunities
Interisland cooperation Port of call Port of call Port of call homeport Port of call Ports should offer complimentary experiences Variety Active Passive Cultural Eco-tourism Shopping Multi national Marquee value
Cruise line owned destinations
3 ASIA-PACIFIC MARKET
Passenger Bed Nights Asia cruise bed nights SARS 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Passengers Projected Asia growth 5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 4,306,903 3,768,540 3,085,500 Historical Low (9%) Mid (10.5%) High (12%)
Major Factors Natural potential for development. Timing of cruise line expansion and strategy. Interline competition. Seasonality (by month). Daily fluctuations.
Seasonality S E A S O N A L Y E A R R O U N D S E A S O N A L
Deployment patterns are beginning to emerge Summer in the North Beijing market Japan Korea Winter in the south Singapore base Others are coming
4 CASE STUDY THE ATLANTIC
The Atlantic Corridor
The Islands
The Classics 14 nights UK/UK Mar 2014 12 nights UK/UK Nov 2014
The Classics - extension 24 nights Nov 2014 14 nights Mar 2014 14 nights Mar 2014
Inter Islands and variations 7 night Mar 2014 7 night Nov 2014 7 night Nov 2014 22 night Mar 2014 22 night Mar 2014
Island hoping 15 nights 8 days Nov 2014 12 nights
West Med / Atlantic Islands 16 days June 2014 28 nights Dec 2015 Genoa-La Palma-Genoa
Transatlantic variations 42 nights London/London Feb 2015 27 nights FT. Lauderdale / Barcelona Mar 2014
West African Cruises 32 days Cape Town / Marrakesh Segmented Accra 34 nights Rome / Cape Town October 2015 32 nights Nov 2014
Around Africa 83 days UK / UK Sep 2014
5 SHIPS
Average passengers per ship by year of construction 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000
Average Length (feet) Average ship length by year of construction 1200 1000 800 600 400 200 0 1980 1985 1990 1995 2000 2005 2010 2015
RCI fleet
Past ship drivers physical The width of the panama Canal The air-draft of the Verrazano Narrows and Golden Gate bridges The draft of smaller harbors (for nontransatlantic)
Future drivers market and economies More passenger amenities Better sales yields Outside cabins larger perimeter Balconies Grander atriums Logistics Distribution of passengers Boarding and disembarking Better economics Crew to passenger ratios Power / fuel consumption
6 MANAGING GROWTH
Managing the Destination This is the area where planning is essential Now is the time It is not just about a pier or dock or terminal. It is about the destination as a whole Meeting the needs and expectations of the visitor. Competing for economic and social impacts. Providing value for money. Managing resources today and for the future. Not just stores, shops and restaurants Historic and natural resources, roadways, ports, parking areas, environment, etc.
Passenger experience Providing an outstanding guest experience Cruise lines are challenged to keep the cruise experience exceptional Must deliver a variety of products & services Must deliver a destination within a short period no second chance! A negative experience can tarnish a passenger s entire cruise vacation
The Paradox the more charming and attractive the destination the more desirable
The Life Cycle of the Urban/Port Waterfront Settlement A Port is established City detaches Declines Rediscovery
Ships are growing faster than waterfronts can be transformed
Cruise ships enter the mix Bringing an urban use to a older waterfront The perfect blend between people and shipping But ----- cruise ships are also bringing certain issues that need to be planned Congestion Security Access
San Francisco
San Francisco
The San Francisco Embarcadero The new San Francisco Terminal
San Francisco s newest terminal first Totally integrated into the waterfront Multiple uses Public park as a waiting area Public access to the wharf Green design Recycled water system
San Francisco
San Francisco Pier 27
San Francisco Pier 27
Disappearing fence
Recycles its own water
Dublin
Fully integrating the port into the City Will work with and without the ships Integrating the riverfront Facilitating traffic
New Dublin Times Square
An active riverfront open to the public when ships are out
7 ECONOMICS
Economics Economic impact is the key Plan to maximize return Port investment is difficult Passenger spending and logistics
North American port revenues (US$/pax) $25.00 $20.00 $15.00 $10.00 $5.00 $0.00
Ketchikan AK Average US Virgin Islands Juneau Skagway St Maarten Prince Rupert Cozumel Puerto Rico Nanaimo St Kitts and Nevis Cartagena BC Average Jamaica Vancouver Cayman Islands Belize Acapulco Aruba Victoria Bahamas Curacao Cabo San Lucas Antigua / Barbuda Honduras Barbados St Lucia Costa Rica Turks and Caicos Total expenditure per passenger $300.00 $250.00 $200.00 $150.00 $100.00 $50.00 $0.00
Newest terminals in the newest markets Singapore Singapore +US$400 m Hong Kong Hong Kong +US$350 m
Newest terminals in the newest markets Singapore Hong Kong
8 POLICY
Assembling the issues and meeting the challenges Transportation Marketing Venues Funding Access Cruise Operations Product Development
Framework Policy Ship Supply Product Demand Product Innovation Marketing Partner Cruise Industry Building The Future Support Infrastructure Transportation Community Planning Economic Impact Environment Private Sector Experience Development Job Creation Image Projection
Comprehensive policy framework Physical strategy Cruise facilities evaluation and capacity plan Site strategies Public and private uses, ISPS security Tourism development Building for land based and cruise tourism Regulatory framework simplicity covering berthing policy, environmental, etc. Financial strategy Setting tariffs Identifying issues requiring funding Lead by public or private sector Hard port infrastructure, operations, upland development
Comprehensive policy framework Marketing strategy Cover consumer and cruise line outreach Make cruise easy to sell Use existing tourism lines of communication to expand message Regional cooperation name brand recognition Community strategy Focus on cooperation address low hanging fruit (traffic patterns, GTA use, separation of facilities and community, education Vessel management - Caps on pax, hours, etc.
Destination strategies for regions and ports Organize at a regional level; Combine resources to effect consumer demand Educate and motivate the travel industry to sell the region Increase cruise line business acumen; and, Communicate on how the region can increase profitability Control expense side issues taxes, fees & regulatory costs Increase flexibility. Change as market opportunities and / or challenges warrant Know your client today and who they will be tomorrow
9 CLOSING
Conclusions The future is bright it will take a little time Use that time wisely to plan 2005 till today marks a major expansion in Australia / South Pacific region 2015 will mark a major milestone for cruise line deployment and beginning of focus on the Pacific RCCL deployment of the Quantum of the Seas Carnival Corporate commitment and ship building Strategies are broad to reach local source markets China Japan Korea This will open the entire Pacific region for growth
Conclusions Growth 1 Guam will grow for traffic growth in the region Growth 2 As the industry develops a Micronesia visitation product will evolve Growth 3 A Guam based market will evolve Guam As a port-of call As a homeport
October 2014