Some basic observations about Canada and Québec

In 2007, Business Research and Economic Advisors (BREA) calculated that 2 million cruise passengers visited Canada during nearly 1,000 calls. In total, the industry generated some $2.3 billion and created 16,600 jobs. BREA estimates that 6% of this money was spent in Québec while 21% was spent in the Maritimes. In 2009, Québec welcomed some 166,000 passengers and 63,000 crew members. According to estimates from the Québec Ministère du Tourisme, cruise passenger spending will rise from $73 million to $275 million by 2014, an annual growth rate of 17%.

Table 1: St. Lawrence River ports in 2009:
Number of calls and number of passengers

Source: Visitor statistics from 2006 to 2010, compiled by the Québec Ministère du Tourisme

The Maritimes

A well-established cruise destination, the Maritimes have engaged in promotional and representational efforts for many years. They can be considered both competitors and business partners, because Maritime calls can enhance the itineraries of cruises headed to Québec.

The primary ports of call are Charlottetown, Gros-Morne, Halifax, Saint John and Sydney. Though history is the main attraction (museums, heritage sites, historic villages), outdoor recreational activities are also a big draw (hiking, beaches, kayaking, golf, whale-watching and other excursions). Table 2 illustrates the cruise visitor numbers recorded for the year 2009 in the major Maritime ports of call; Québec City was added by way of comparison.

Table 2: Cruise statistics for the Maritimes – 2009

* 2008 data

According to a 2008 study by the PEI Tourism Research Centre, 80% of the cruise passengers visiting Charlottetown came from the United States, 69% were 55 years or older and 85% were on their first visit to the Maritimes.

Source: Vacationstogo.com

New England

Let us take a closer look at our neighbours to the south. New England benefits enormously from its proximity to the major client bases of New York and Boston, which are the departure points for numerous cruises heading to Canada, as well as those for Bermuda and the Caribbean. The table below provides a brief overview of the cruise industry spin-offs generated in New England.

Table 3: Overview of the cruise statistics for New England – 2008

Source: CLIA, 2008 State Economic Fact Sheets

According to these findings, the state of New Jersey attracts fewer passengers than the province of Québec. However, according to figures from BREA, Québec attracted far fewer cruise-related spin-offs, generating only $138 million in 2007, compared to $387 million for New Jersey in 2008. In terms of employment, all of Eastern Canada (including the Maritimes) generated only 2,000 cruise-related jobs, compared to the 6,814 for New Jersey recorded by the CLIA.

Cruise Maine presents the change over time in the number of cruise ship calls since 2003.

Table 4: Number of stopovers in Maine ports, 2003 to 2009

*Projected figures
Source: Cruise Maine

According to a 2008 study by Todd Gabe and Jim McConnon, two economists from the University of Maine, cruise passenger spending injects approximately $5.8 million to $8 million into the Portland regional economy each year. On average, a single passenger spends about $81 per day, the major part of it spent as follows:

• food – $28
• clothing – $21
• arts and jewellery – $6
• household items – $5
• transportation – $5

In 2008, Portland welcomed a total of 48,000 passengers, during 35 calls. In 2009, the numbers rose to 69,852 passengers during 45 calls. Reservations for 2010 are predicting 76,867 passengers during 70 calls.

The Baltic Sea

The Baltic Sea region is booming. Europeans are increasingly attracted to the area and North Americans are also showing greater interest in these destinations. The biggest consumers of cruises, North Americans are already well-acquainted with destinations like the Caribbean, the American West Coast and Alaska. The search for new destinations has led them to look at Mediterranean and Northern European cruises. The Baltic Region’s position on the cruise market is, in many ways, similar to that of the St. Lawrence: a destination offering culture, history, Northern landscapes, outdoor activities, coastal villages, etc.

Source: Vacationtogo.com

Baltic Sea destinations vary widely in terms of economic spin-offs and port facilities.

Table 5: Most popular Baltic Sea ports: wharf length and cruise statistics – 2008-2009

Source: Cruise Europe.com

Port facilities in the Baltic Region are undergoing numerous improvements. The city of St. Petersburg has built a new terminal for cruise passengers that should be completed sometime in 2010. Hamburg inaugurated its new cruise terminal in August 2009. The CLIA also reports that Stockholm, which has been operating one new terminal since 2008, will be opening another in 2010. It will house a museum of photography, among other things.

The Baltic Region has also decided to take steps to reduce the environmental impact of cruises by pushing the Clean Baltic Shipping Program. This plan has five main objectives:

• encourage ships with low sulphur and nitrogen emissions
• reward the initiatives that best reduce the environmental impact
• introduce a certification process
• equip all boats with wastewater treatment systems
• install a wharf-based power supply system for every port in the region by 2015

All signs indicate that St. Lawrence ports are competing in an increasingly well-organized and diverse market. This means it is vital to continue developing port facilities and, more importantly, work to create a high-quality product that stands out from the competition.

Article written for the Ministère du Tourisme intelligence gathering project

Sources:
- Business Research & Economic Advisors (BREA). “The Economic Contribution of the International Cruise Industry in Canada 2007,” NorthWest CruiseShip Association, Cruise Newfoundland and Labrador, Cruise the Saint Lawrence, Atlantic Canada Cruise Association, Cruise BC, p. 4.
- Cruise Europe, Cruiseeurope.com.
- Cruise Line International Association (CLIA). “2008 State Economic Fact Sheets”, Cruiseindustryfacts.com, consulted January 2010.
- Cruise Line International Association. “Fantastic Cruise Record for Stockholm, Fast Facts”, November 2009, p. 3.
- Cruise Maine, Cruisemaineusa.com.
- “Cruise ships brought $3M to P.E.I. in 2008”, Telegraph Journal, May 2nd, 2009.
- Department of Tourism, Culture and Recreation. Backgrounder Year-End: “Provincial Tourism Performance 2009 and Early Tourism Outlook 2010”, New Foundland and Labrador, Tcr.gov.nl.ca, consulted June 23, 2010.
- Malhère, Manon. “Baltic Region: OPS for Sustainable Port Development”, Europolitics Regional, Europolitics.info October 12, 2009.
- Ministère du Tourisme.  “Les statistiques d’achalandage de 2006 à 2010”, 2010, special compilation.
- Peter, Tom. “Cruising right along; Ports officials pleased with tourist season”, The Chronicles Herald, Halifaxemployers.com, January 4, 2010.
- UK and EIRE, “Seatrade Cruise Review”, Seatrade Communications, September 2008, p. 45.
- Sondage effectué auprès des passagers et membres d’équipage au cours de la saison 2009, ministère du Tourisme, 2009.

Outlook for 2010

At a presentation given January 20, 2010, by Cruise Lines International Association (CLIA), Terry L. Dale and Richard E. Sasso, CLIA’s President & CEO, and Chairman, Marketing Committee, respectively, shared some forecasts for the year 2010. The number of passengers should reach 14.3 million, while there were 13.4 million in 2009. Fares will rise, but will remain lower than they were in 2008. The major deals offered during the winter of 2009 will not be repeated this year, but consumers will still be able to benefit from special promotions like shipboard credits, free plane ticket, 2 for 1 cruises, etc.

Cruise companies will launch 12 new ships in 2010, including the much anticipated Epic, Allure of the Seas and Disney Dream. A survey of CLIA member travel agents showed that they are extremely optimistic and expect to see the number of reservations rise in the next three years. In addition, according to another CLIA survey, 34 million Americans are planning to take a cruise some time between 2008 and 2011.

In other news, Alaska is experiencing tremendous difficulty because a majority of cruise lines have announced they will redeploy ships from Alaska to other locations in the next two years. If this trend continues, the Alaska Travel Industry Association expects the number of passengers to fall by 140,000 in 2010, dropping to a total of 860,000 travellers.

Web 2.0 influence growing

Most cruise lines now use social media on a daily basis in their marketing campaigns. One such example is Royal Caribbean’s launch of Oasis of the Seas in the fall of 2009.  The company started by setting up an entire Website devoted to the new ship where visitors could follow the progress of the construction in real time. Numerous videos were posted to the site, showing everything from the ship’s maiden voyage to a presentation of onboard activities. Furthermore, its risky passage underneath the Storebaelt Bridge in Denmark engendered enormous interest on the Web. The “Reporter at Sea” online contest was also organized to find citizen journalists to cover the launch. In total, the site received some 4.8 million unique visitors.

Source: http://www.oasisoftheseas.com/

Another extremely popular site is the blog written by John Heald, Senior Cruise Director, Carnival Cruise Lines. It is so successful that he was able to organize two thematic cruises in 2009, solely for his readers. Most cruise lines, as well as many ports of call, now maintain Twitter and Facebook profiles.

The trend towards sustainable cruising

Sustainable development is also becoming a major concern of consumers as well as cruise lines and destinations. Eco-cruising is increasingly popular and can significantly improve a destination’s market position. The Ecoventura, for example, is a ship that uses solar panels and wind turbines on its cruises in the Galapagos, and the ports of Los Angeles, Seattle and Vancouver now offer dockside power.

The phenomenon has also influenced the shore excursions developed. Costa Cruises created 240 eco-excursions to reduce its environmental impact. Furthermore, the Baltic Sea region has implemented a major environmental program. Among other things, it plans to equip all ports with an onshore power supply (OPS).

Finally, a major legislative change will force cruise lines to use low-sulphur diesel fuels when travelling within 200 nautical miles of the coasts of Canada and the United States (see Nouvelle réglementation sur la pollution de l’air par les compagnies de croisières: un désastre financier?). The industry is obviously concerned about the passage of this legislation, primarily for economic reasons such as the profitability of routes through the protected area, but also because of the limited availability of such fuels.

Changing products

Several indicators have changed somewhat in the last few years, due to the economic crisis. For example, consumers are now more price-sensitive when shopping for cruise packages so cruise lines are trying to outdo each other to create the most interesting packages. The phenomenon has also led destinations to offer economic incentives. Ukrainian ports are offering a 50% discount on port fees for every stopover during the winter of 2010. Price sensitivity is also the reason that there are now more ports of embarkation, since travellers increasingly want to be within driving distance of their departure location. In addition, the cruise booking window between the date of purchase and the date of departure has shortened, dropping from 5.6 months in 2008 to 4.6 in 2009.

Cruise passengers are increasingly experienced. They have sailed the Caribbean, visited Alaska and travelled along the West Coast of the United States. They are seeking new destinations, which is why the industry is currently witnessing the emergence of destinations in the Middle East, Southeast Asia and Australia. The increased popularity of European cruises is also an offshoot of this situation, with river cruising a booming market. Member agents of the CLIA report that 34% of clients are very interested in river cruising. In 2008, the number of beds available in Europe was 71,300, an increase of 15% compared to 2007 and 62% more compared to 2005.

Other trends observed are the popularity of theme cruises, primarily those focussed on food and wine, as well as the success of private and cultural shore excursions. A new type of excursion that is becoming popular is the extended “mid-cruise” excursion, which enables visitors to spend several days in a single location. Silversea Cruises has announced they will offer 40 such excursions in 2010.

An increasingly international clientele

The clientele for cruises is gradually becoming more diverse. Although the vast majority of cruise passengers are American, the proportion of those from other countries is rapidly rising. In fact, out of 13.4 million cruise passengers in 2009, 23.5% came from outside North America, compared to only 10% in 2000. Furthermore, more Canadians are going to sea; some 775,000 took a cruise in 2009, a 9% increase over 2008. Canadians now account for one-quarter of non-American cruise passengers.

Now that the worst of the economic crisis is over, forecasts for the coming years are very optimistic. The trends affecting the cruise industry are much the same as those affecting other tourism sectors: sustainable development, social media, increasingly informed and experienced consumers, etc. The industry has already proved it is resilient and can quickly adapt to change. Will the rest of us be able to go with the flow?

Article written for the Ministère du Tourisme intelligence gathering project.

Sources:

CLIA, Media Cruise Update, January 20, 2010, presentation.
CLIA, As a source of passengers and appealing cruise itineraries, Canada’s importance to cruise industry continues to grow.
CLIA, 2008 Cruise Market Profile Study.
European politics, Baltic Region: OPS for Sustainable Port Development, October 12, 2009.
http://www.travelweekly.com/article3_ektid206492.aspx
http://www.ecoventura.com/aboutus/ourgalapagoscommitment.aspx
http://www.expertcruiser.com/blog/mr-popular-carnival-announces-additional-bloggers-cruises-with-john-heald/
http://www.cruiseindustrynews.com/cruise-news/3530-1410-odessa-reducing-port-dues-in-2010.html

The global economy has fallen off a cliff and no one is sure when it will hit bottom. According to the International Monetary Fund (IMF), the world’s advanced economies experienced an unprecedented 7.5% decline in real Gross Domestic Product (GDP) during the fourth quarter of 2008. The IMF projects a similar drop for the first quarter of 2009 and says Euro zone GDP will fall more than 4% for the year. In 2009, the world economy will contract for the first time since the Great Depression.

The world’s largest economies are particularly challenged. GDP in the United States has contracted at an annual rate exceeding 6% for the last two quarters. The IMF forecasts that Russia and Japan will see GDP shrink by a similar amount through 2009. Japan’s export-driven economy will experience its first-ever trade deficit and the country will likely experience a dangerous deflationary spiral.

Fragile Tourism

Travel and tourism are particularly sensitive to macroeconomic developments.  The United Nations World Tourism Organization (UNWTO) reported a year-on-year drop in international tourist arrivals for the second half of 2008.  Asia and Europe experienced particularly steep declines of 3%.

The current year got off to a frightening start with international travel agents and tour operators reporting substantial declines in reservations for the coming summer season.  The US hotel industry is suffering massive losses as both occupancy and room rates dive precipitously.  In New York, March revenue per available room (RevPAR) dropped 35.5% on a year-on-year basis.  RevPAR in Orlando and Miami declined by 28% and 29%, respectively.

Two Canadian provinces, New Brunswick and Prince Edward Island, finished 2008 with average hotel occupancy at a paltry 45%. Both provinces are forecasting further demand deterioration this year. Some Canadian urban markets are faring even worse. Annual hotel occupancy for Niagara Falls’ 10,000 hotel rooms was just 38% with no improvement foreseen this year.

Asian powerhouse markets have also been devastated.  Chinese and Indian hotels reported March year-on-year RevPAR declines of 35% and 40%, respectively.  The Thai market, complicated by political unrest, witnessed a RevPAR drop of 37%.  While globalization ignited the twentieth century international tourism boom, it also eliminated firewalls that could have contained the economic contagion ravaging the travel and hospitality industries.

The Upside of a Downturn

With so much gloom on the economic horizon, many business executives are suffering from managerial catatonia. Conventional wisdom dictates that opportunities abound in surging markets, while recessions oblige businesses to hunker down and weather the storm. In contrast, Professor Don Sull, my colleague at London Business School, has become a guru of sanguinity by suggesting that the most lucrative business opportunities are present during economic downturns.  Professor Sull’s research argues that it is significantly easier to implement organizational change and instil better practice in stressful recessionary markets than in boom times. He explains how managers can harness a downturn to identify lucrative investment opportunities, renew a sense of urgency, justify unpopular decisions and overcome complacency (www.donsull.com).

Applying Sull’s hypothesis to the tourism industry during the gravest financial crises of the last century can be an insightful exercise.  Entrepreneurs, investors and managers have frequently identified silver linings in dark economic clouds.  The following three examples illustrate how travel and hospitality professionals have seized opportunities during economic recessions of the past.

Case 1: The Waldorf-Astoria

Hotelier Lucius Boomer opened New York’s Waldorf-Astoria on October 1, 1931, in the midst of the Great Depression.  Towering 42 stories above Park Avenue with almost 2000 rooms, it was the largest and most expensive hotel ever built.  With equity markets in shambles and a quarter of the US population unemployed, few were the fools who expected the hotel to remain open for long. Stock markets had been declining for two years and there was no end to the economic turmoil in sight.

In spite of the gloomy discourse, the opening of the Waldorf-Astoria manifested how the Great Depression had radically altered a fundamental business paradigm. Boomer focussed on depressed costs to attain a competitive advantage. He capitalized on the idle construction sector to negotiate favourable building contracts.  The cost of previously expensive finishing materials had plummeted, permitting use of the finest marble, granite, hardwood and brass.  Unemployed artisans and craftsmen were brought from Europe to work on the hotel interiors at a fraction of their pre-Depression wages.  In the end, a palace was built on a pauper’s budget.

President Herbert Hoover inaugurated the Waldorf in a radio address on the eve of its grand opening. “Our hotels have become community institutions,” said Hoover.  “They are the central points of civic hospitality … The erection of this great structure has been a contribution to the maintenance of employment and an exhibition of courage and confidence to the whole nation.”

The Waldorf-Astoria was also an extremely lucrative investment.  By the mid-1930s the hotel was filling its suites with presidents, royalty and captains of industry.  While the value of the Waldorf’s real estate, management contract and goodwill are debatable, it is probably the most valuable hotel in the world today.  In the end, it was the economic conditions of the Great Depression that permitted the Waldorf to have been built in all its glamour and glory.

Case 2: Carnival Cruise Lines

Most tourism professionals would hesitate to consider the economic turmoil of 1974 the ideal business climate in which to found a capital-intensive enterprise in an industry sector heavily dependent on discretionary spending by retired senior citizens.  Following the breakdown of the Bretton Woods system, US GDP was contracting and inflation exceeded 12%.

In the face of this economic ataxia, Ted Arison purchased a distressed cruise ship for one US dollar and the assumption of $5 million in debt.  In November 1974, with the Dow Jones Industrial Average down 45% from its previous year high, Arison registered the Carnival Company as owner and manager of Carnival Cruise Lines.

At the time, it was difficult to understand why Arison, a savvy businessman, would purchase a near-bankrupt cruise company on the heels of the Arab oil embargo. Petroleum prices had recently quadrupled and a cruise ship could burn up to 200 litres of fuel per minute.  On the surface, the deal made no economic sense.  Arison had different ideas, however. He was about to revolutionize the cruise industry.

Arison targeted a younger market segment (25-40 year olds) that had considered ocean cruises a leisurely pastime for the geriatric set.  Carnival’s ship was redecorated in a flashy neon-esque style. An onboard casino and discotheque were added. Marketing imagery turned away from elegance and genteelness in favour of youthfulness and frivolity. Micky Arison, Ted’s son, made sales calls on dozens of travel agents, employing a casual youthful style to convince them that cruises would be the next big holiday trend for young adults.

Within a year, Carnival was operating at 100% capacity.  It went on to become the world’s largest cruise line. By identifying opportunities in a downturn, Arison’s one dollar investment made him a multibillionaire.

Case 3: Emirates Airlines

Following the September 11, 2001, terror attacks in the United States, the global travel industry came to a screeching halt.  Airlines and hotels were besieged with reservation cancellations. Looking longer term, air carriers began to cancel aircraft orders.  Share prices for Boeing and EADS (Airbus’ parent company) plummeted.

Ahmed Bin Saeed Al-Maktoum, Chairman of the Emirates Group, sensed an opportunity where his competitors saw a threat. No one knew how long the downturn would last but Sheikh Ahmed knew that Emirates was well positioned for growth in the long term.  At the lightly attended Dubai International Air Show in October 2001, the Emirates Chairman negotiated with Boeing and Airbus for an enormous aircraft order.  In an attempt to defend market share as order cancellations poured in, the two manufacturers offered deep discounts.

Emirates ended up splitting the order between the two companies, buying US$15 billion worth of airplanes. While the purchase was more than originally anticipated, Sheikh Ahmed later explained that fire-sale prices resulting from the economic downturn were too attractive to forego.

While delivery of the aircraft would take place over several years, client and investor confidence was immediately apparent.  In the airline industry’s worst ever year, the Emirates Group finished the 2001-02 fiscal exercise with net income representing 8% of revenue. The airline paid a substantial shareholder dividend and a bonus payment of 3 weeks salary to all employees. While competitors laid off large numbers of staff, Emirates did not make a single employee redundant and paid salary increments in full. Among numerous awards, Emirates was voted “Airline of the Year 2002” by 4,000,000 Internet users in the second annual Skytrax Research Study and Best Cargo Airline to the Middle East by Air Cargo News. By considering long-term strategic opportunities, Emirates seized the upside of a downturn.

So where are the opportunities?

Some hospitality businesses are less affected by broad economic strife than others. In comparison to many restaurant companies, McDonald’s Corporation has held up well over the last year. It is ranked as the fourth best performer on the Dow Jones Industrial Average. Its share price is down just 9% compared to the DJIA average of -38%. The company had sufficient confidence in its short-term performance to increase its 2008 fourth quarter dividend by 32%.

McDonald’s is capitalizing on Starbuck’s misfortunes to launch McCafe, a quick service restaurant concept offering cappuccinos, lattes and mochas. With Starbuck’s closing nearly 1000 units, McDonald’s is betting it can attract consumers specifically to purchase specialty beverages rather than just as a support for its food offerings.

Lucrative long-term investment opportunities also exist in the lodging sector. While the number of portfolio and single asset hotel transactions has dropped significantly over the last year, investors with access to capital have been purchasing properties at deep discounts.  The United Kingdom, in particular, has witnessed the liquidation of premium hotel assets at prices that would have been shocking two years ago.  Distressed companies like Royal Bank of Scotland and hospitality giant Mitchells & Butlers have been obliged to sell hotels to generate desperately needed cash.

In a market frozen by the credit crisis, Britain’s Travelodge has been on a buying spree, picking up six properties (650 rooms) from Menzies for £85 million, seven Swallow Hotels (669 rooms) for £70 million and five independent hotels (500 rooms) for £35 million.  Travelodge is opportunistically fleshing out its geographic coverage with aspirations of dominating the British budget sector when the country emerges from its current downturn.

New Eyes

In challenging economic times it is difficult for business leaders to see the light at the end of the tunnel. Indeed, it is even harder to identify opportunities at hand. As such, failure can be a self-fulfilling prophecy.  A Chinese proverb advises that “If we don’t change our direction, we’re likely to end up where we’re headed.”

In challenging times, it is critical that managers in the travel and tourism industry recognize existing business opportunities. There is a silver lining in most black clouds.  As illustrated in the three cases presented herewith, the challenge is not seeking new opportunities but having new eyes to identify them.

The popularity of theme cruises

Companies offering short cruises continue to proliferate at a steady pace, offering a wide variety of products. Among the classic products are sunset cruises, dinner and fireworks, guided tours, boat dances and romantic suppers.

However, cruises are increasingly providing a forum for innovative activities involving role-playing, where passengers are invited to indulge other aspects of their personality and temporarily leave everyday life behind on the dock while they enjoy their time on the water. Theme cruises figure prominently in the array of nautical products offered in major North American and European cities. In addition to providing an original boating experience enabling participants to see the city from a different perspective, these tours offer access to a playful world where passengers become not just actors, but participants in the show. Among the more popular themes are casino cruises, treasure hunts and murder mysteries.

Other popular options are cruises featuring stories and history, whether local, national or international. Instead of passively observing an urban landscape, passengers participate and learn.

Enriching experiences

Professionals working in the short cruise market have recognized that their clientele has a need to escape the everyday, and seek adventure in the form of a relatively original tour. This has resulted in the use of ships that evoke the past or recreate an exotic locale. Steamboats, sailing ships and schooners are part of the heterogeneous fleet, rich in symbols, operated by this sector. There are even pirate ships, like Captain Memo’s Pirate Cruise in Florida.

Cruises give travellers a chance to familiarize themselves with local and ancestral cultures. For example, a growing number of cruise passengers are visiting Icy Strait Point, site of Hoonah, Alaska’s largest Tinglit village. This stop offers visitors contact with a culture in its natural environment.

Gourmet dining is also a key element in cruise products. As part of its river cruises in China, Viking River Cruises offers menus designed by internationally renowned chef Martin Yan.

Red Balloon Days, an Australian company specialized in original gifts, organizes the Massage & Beauty Cruise on Sydney Harbour. This three-hour cruise includes a full-body massage, a facial massage and other services devoted to relaxation and pampering.

Another Australian outfit, Captain Cook Cruises, offers dinner cruises on Sydney Harbour, featuring a recital of opera singers performing famous arias.

Something for everyone

Cruise companies are now trying to attract clienteles that they had previously tended to ignore. This has given rise to cruises targeting specific segments (gays/lesbians, families, singles, nudists, and others).

Businesspeople are one of the market segments targeted by short river cruises. Brunches, meetings, business meals, employee incentives and company parties are just some of the occasions when companies call in specialists to design activities and services especially for their needs. Organized according to various themes, these cruises rely on the cramped nature of boats to facilitate team-building.

A large number of companies offering short cruises also target the family market. No longer content to attract couples with the lure of romanticism, they would also like to position their products as true family activities: educational and fun for the kids, organized yet relaxing for the parents.

Building on the fun and festive aspect, companies are combining the nautical with the musical (live bands, DJs, karaoke, etc.), dancing (balls, salsa nights, etc.) or special events (Halloween, Oktoberfest, Mardi Gras, proms, etc.) as they aim for a younger, dynamic clientele.

Enhanced by experts

Boat tour/cruise companies try to differentiate their products by calling on renowned experts or hiring staff specialized in the natural and social environments visited. This creates products enhanced with a note of professionalism, like the following examples:

• Companies who belong to the Niche Cruise Marketing Alliance hire experts (historians, geographers, zoologists, anthropologists, etc.) for their cruises so they can share their knowledge with passengers.
• Quark Expeditions has invited author Jennifer Niven to participate in one of its cruises. The company organizes the Russia’s Far East & Wrangel Island cruise, which visits the places described by the writer in two of her novels. The cruise is an opportunity for passengers to learn about the history brought to life in her novels.
• Clipper Cruise Line, a US company, offers cruises which tour sites of major 20th-century battles involving American soldiers. Whether in the Mediterranean, on Europe’s Atlantic coast, in the Pacific or in Vietnam, passengers are invited to relive these battles with the guidance of historians and experts in these periods of history.

Development of port areas

Around the world, some long-abandoned port areas are starting to attract the attention of developers. Since the downtown areas of major North American and European cities naturally tend to have limited open space, former industrial areas, and ports in particular, offer a lot of potential for new developments and neighbourhoods. Sometimes very large in size, they can accommodate ambitious, multi-functional development plans. In addition, areas located near the water are naturally attractive, meaning that development plans can be designed to accommodate both residential areas and recreational activities.

This is the approach adopted by cities like Boston and Toronto, who are merely following the successful projects initiated by many cities, particularly those in Europe. When Barcelona redeveloped its seafront in preparation for the 1992 Olympic Games, it was a pioneer in this field. Deciding to fully embrace its position on the ocean, the city completely reinvented its urban landscape and created a space where culture, city life, and commercial and marine activities could live in harmony.

Some recent practices may lead to a new perception of what constitutes a cruise ship’s home port. In Moscow, for example, when the Volga River freezes in the winter and is closed to navigation, the Volga Flot company engages in a form of “seasonal recycling” and uses one of its ships trapped at the dock as a hotel.

Source:
Chair in Tourism, UQAM School of Business Administration. “Étude de l’offre récréotouristique nautique et portuaire dans les centres urbains,” March 2006.

With the arrival of the austral summer in November, tourists – more specifically, cruise passengers – are once again heading to Antarctica.

The majority of Antarctic cruises take place in the Peninsula area, which is blessed with a less severe climate and a greater diversity of attractions (i.e. fauna, flora and a large number of scientific bases and historic sites). In contrast, the other tourism area, the more remote Ross Sea region, features almost exclusively historic sites.

In addition to the more traditional cruise programs combining observation and hikes ashore, a variety of new activities have started to appear in recent years, including scuba diving, sea kayaking, rock climbing, skiing, snowboarding and camping. It is impossible to say, at this point, if these new activities are the result of the arrival of younger and more active visitors, or if the new tourism profile is emerging in response to the products offered by tour operators. What is certain, however, is that Antarctic tourism is growing.

Figures

Compared to the last austral summer (2005-2006), the number of cruise tourists has risen by 12%⁽⁴⁾ . This year, the International Association of Antarctic Tour Operators (IAATO), which represents 95% of the organizers involved in Antarctic tourism, expects nearly 38,000 visitors to Antarctica from mid-November to early March⁽⁴⁾:

• 27,575 tourists will participate in an Antarctic cruise with shore excursions (mainly in the Peninsula area)
• 7,500 tourists will take part in a cruise only (no shore excursion)
• 1,050 tourists will purchase a land tour (skiing, alpinism, etc., in the Antarctic’s interior)
• 1,600 tourists will participate in a sightseeing flight (these flights, generally based in Australia, do not land on the continent and involve large planes like the Boeing 737-200 and 747-400, flying at about 2000 feet (610 m) above the Antarctic coast)

More than any other, polar cruises continue to dominate the Antarctic tourism market, with the number of passengers increasing year after year (Figure 1).

Figure 1

Source: IAATO (2006b)

While polar cruise tourism will continue to increase in the Antarctic Peninsula during the 2006-2007 season, the number of visitors to the Ross Sea region is expected to decline slightly⁽⁴⁾. Compared to the 42 million visitors who entered the United States in 2004⁽⁷⁾, the data regarding tourism in Antarctica – a continent 30% larger than the surface of the USA, may appear insignificant. To understand the importance of the figures presented above, it is necessary to put them into the proper polar tourism context.

A sensitive continent

Antarctica is a continent like no other. This continent, the only one without an indigenous human population, also has extremely limited surface flora and fauna (in species diversity). In summer, when the seas surrounding the polar continent are free of ice, Antarctica and its Sub-Antarctic islands cover an area of 13.6 km². More than 98% of the continent’s surface is permanently hidden under a cover of ice⁽¹⁾⁽³⁾. This ice sheet – the biggest on Earth – may reach a thickness of up to 4.7 km in certain areas and contains no less than 90% of the plant’s fresh water reserves⁽³⁾.

Tourism, like most other human activities, takes place during the very brief polar summer. This is also the reproduction season for most of the continent’s animal species, which are very abundant at this time of year. As a result, the less than 2% of Antarctic and Sub-Antarctic island lands free of ice and snow become very precious for both fauna and visitors (scientists and tourists alike). In such a context, there is a very good chance that fauna (and, to a lesser degree, flora) could be negatively impacted. The scientific community, however, remains divided over the extent of this impact.

Negative Impact

In addition to the pollutants released when tourism vehicles (ships, inflatable boats, helicopters, large and small airplanes) burn fossil fuel, the main disruptions directly attributed to tourism activities include soil disturbances (more limited in the Antarctic than in the Arctic) and fauna harassment (mainly birds). It is important to stress, however, that atmospheric pollution remains the biggest threat to polar ecosystems. Apart from the pollution caused by burning fuel to transport tourists, most of the air pollutants affecting Antarctica are produced outside area and can therefore not be attributed directly to tourism.

Trying to protect the very resources the industry depends upon, the IAATO has created a visitor’s code of conduct entitled “Guidance for Visitors to the Antarctic.” This recommends, among other things, the distances one should respect when observing the various fauna species. In the past, some observers⁽²⁾⁽⁶⁾ have stressed that the guidelines are not applied consistently. The problem is that the code is enforced by guides, who must also see to their customers’ satisfaction. Many of these customers have a hard time containing their enthusiasm once ashore. Other visitors, who have invested considerable sums of money to reach these natural areas, sometimes feel they have earned the right to approach wildlife beyond the distances allowed. According to IAATO⁽⁴⁾, however, the activities of its members have “no more than a minor or transitory impact on the Antarctic environment.”⁽⁴⁾

The organization worries, however, about the 5% of Antarctic operators who have not joined IAATO and therefore do not apply the visitors’ code of conduct. During the 2005 2006 austral summer, 4,639 visitors and an unknown number of small boat passengers set foot on Antarctica with no public record of their visit ⁽⁴⁾. In its annual report, IAATO⁽⁴⁾ expressed concern over two non-member vessels, each carrying 500 passengers, who made shore excursions in spite of the IAATO regulation limiting site access to ships carrying more than 200 passengers.

The tourism forecasts made by IAATO for the 2006-2007 austral summer indicate that the travelling public’s desire for Antarctic adventures knows no limits other than those imposed by the number of ships and places available for such journeys. Negative impacts, as well as incidents involving tourism activities such as the sinking of the Bahia Paraiso in 1989, remind us, however, that tourism growth in such a remote and isolated place as Antarctica requires safe, sustainable management approaches.

Sources:
⁽¹⁾ – Cessford, Gordon (1997) “Antarctic Tourism – A Frontier for Wilderness Management,” International Journal of Wilderness, Vol. 3, No. 3, USA, pp. 7-11.
⁽²⁾ – GRENIER, Alain A. (1998) “Ship-Based Polar Tourism in the Northeast Passage: A Case Study, ” Publication in the social sciences, University of Lapland, Rovanieni, Finland.
⁽³⁾ – HANSOM, James D. and GORDON, John E. (1998) “Antarctic Environments and Resources – A Geographical Perspective,” Longman: UK.
⁽⁴⁾ – IAATO (2006a) “IP 86 IAATO Overview of Antarctic Tourism 2005-2006 Rev 1,” International Association of Antarctic Tour Operators (Website), 21 p.[http://image.zenn.net/REPLACE/CLIENT/
1000037/1000116/application/msword/Trends1992-2007.doc]
⁽⁶⁾ – VUILLEUMIER, François (1996) “Negative Impact of Tourism on Antarctic Animals and Plants,” Southern Connection Newsletter, July, No. 10.
⁽⁷⁾ – WTO (2005) “Tourism Market Trends, 2005 Edition, Annex,” World Tourism Organisation. [http://www.unwto.org/facts/menu.html]

Leisure travel

In 2006, leisure travel will continue to drive tourism growth. According to some US experts, rest and relaxation motivate more than half of all leisure travellers. Destinations like spa resorts and those offering a stress-free atmosphere look the most promising. A recent Tripadvisor.com survey showed that 50% of the 3000 respondents planned to take a spa vacation in the next year. With short stays still in vogue, the challenge facing the industry is to offer the most relaxation within the shortest amount of time.

Visits to national parks will rise, while attendance at amusement parks will drop. The cruise industry should continue its upward climb and enjoy an excellent year, notably due to the launch of new boats and the growing popularity of this product among families. Timeshares on cruise ships have been identified as a promising new trend in the coming years.

Cities that emphasize fun and a wide variety of activities within a small area – ideally within walking distance – are likely to attract more travellers. And, finally, the increased demand for leisure travel has led experts to encourage consumers to reserve early to ensure that what they want is available at the desired time.

Business travel

North American business travel will enjoy a good year with projected growth of 5% in 2006, compared to the 4% recorded in 2005. This increase will be driven primarily by the meetings and conventions sector. However, for their daily corporate needs, business people continue to seek alternatives to having to travel for business.

Recent forecasts from Meeting Professionals International (MPI) confirm a 7% increase in meeting expenditures and the number of events for next year. This forecast is based primarily on national markets, because American and European organizers do not expect more events to be held at international destinations. In Canada, the number of visitors attending American conventions should remain stable.

Good news for suppliers: MPI anticipates that convention lead times will begin to increase. In 2006, it is estimated that lead times will grow by nearly 40%, translating into an additional two or three months between the invitation to tender and the event date.

Hotels

In North America, increased demand and slow growth in supply means average room rates should continue to rise in 2006. The upscale and luxury sectors in particular should benefit from this situation. Furthermore, in 2006, the hotel industry, like all travel and tourism sectors, will face the dual challenge of staff shortages and human resource management. According to a recent US study, 25% of hotel industry employees are dissatisfied with their jobs and 32% of these people would like to find a new job in the next year. The year 2006 is also likely to be challenging for hotel owners in major US cities because many collective agreements are up for renewal.

Transportation

Pressures on the North American airline industry will persist as discount carriers continue to invade the traditional routes of the major airlines. In this competitive environment, ticket prices will remain low, but an expected increase in fuel prices (combined with fewer available seats) should nudge average prices higher among regular carriers. There will also be an increase in the number of pay-per-use in-flight services (pillows, blankets, meals, snacks, etc.).

As for airports, we should see an increase in the services offered to travellers. The addition of shops, restaurants, gyms, beauty salons and professional services are some of the tactics being adopted by airport managers to diversify revenue sources and improve the customer experience.

In 2006, the Airbus A-380 will begin commercial flights. The world?s largest passenger jet, the two-storey airplane will be the first to offer on-board areas for socializing.

In the United States, train travel will grow in 2006. Improved services and schedules, and especially the opportunity to transform travel from a utilitarian role into an experience unto itself, have piqued consumer interest in this service, especially among Generation X travellers.

Technology

Travellers, both business and leisure, are increasingly demanding the opportunity to “plug in” anywhere and any time. Hotels, resorts, convention centres, airports and various types of public transit will intensify their efforts to provide high-speed internet access (for free, if possible!). Sometime in the year 2006, US airlines will begin offering wireless in-flight internet access.

Increased internet use by consumers continues to revolutionize the marketing and distribution of travel products and services. In 2006, the number of online transactions will continue its strong growth. The firm PhoCusWright predicts that by the year 2007, 40% of all travel-related purchases in the United States will take place online.

Furthermore, tourism now constitutes a growing presence on major search engines (Google and Yahoo) and general online shopping sites (Pricegrabber). With more comparison tools now available, the resulting price transparency is forcing suppliers to work even harder on their brands, since the consumer?s perception of value is a combination of price and supplier image.

Tourism marketing should attach greater importance to the internet. It is expected that the concepts of “best price guaranteed”, dynamic packaging and search engine positioning (pay-per-inclusion) will grow in popularity. Experts are also pointing to the growing popularity of internet-related media like blogs and instant messaging. Individuals will have a fast and growing influence on the commercial success of products and services.

Destinations

At this point in the year, China is still the destination that excites the most interest and curiosity. According to guidebook publisher Lonely Planet, this country heads the list of hot destinations, followed by Mali, Brazil, Iceland and Serbia & Montenegro. As for destinations offering exceptional value, the publisher puts Argentina at the top, followed by New Zealand, Morocco, India and Mexico.

In Europe, according to American Express, Great Britain, France and Italy remain the most popular destinations for Americans. However, Eastern Europe continues to attract a lot of interest, particularly the countries on the Adriatic Riviera (Croatia, Slovenia, Montenegro), which are a less expensive alternative.

Sources:
- Armstrong, David. “Travel, Tourism Bouncing Back – Conventions and Visitors Returning, but Room Rates and Airfares Are Going Up,” San Francisco Chronicle, January 8, 2006, p. J1.
- Cruise Lines International Association. “Cruise Industry Trends for 2006,” [Traveldailynews.com], January 16, 2006.
- Grossman, David. “What’s in Store for Business Travelers in 2006?” USA Today, January 9, 2006.
- Harpaz, Beth J. “2006 Hot Spots Include Colorado, China & Croatia,” Associated Press, [CNN.com], December 29, 2005.
- Jones, Steve. “Steady Growth Forecast for Business Travel,” [Travelmole.com], January 3, 2006.
- Meeting Professionals International. “Meetings Industry to Grow in 2006,” [4hoteliers.com], January 11, 2006.
- Randall, Judy. “Top Travel Trends for 2006,” The Charlotte Observer, December 25, 2005.
- Sloan, Gene. “China, the New Croatia?” USA Today, January 5, 2006.
- Westenberg, Kerri. “Travel Trends: Where it’s at in 2006,” [StarTribune.com], January 2, 2006.
- Yesawich, Pepperdine, Brown & Russell. “Ten Trends to Watch in the Year Ahead,” [ehotelier.com], December 30, 2005.
 

Gen Y hybrid consumers will use price transparency provided by the Internet and the euro to combine five-star hotel accommodations with low-cost flights, both reserved at discount travel sites. Although practitioners of conspicuous consumption, the Millennial Group sees no contradiction in following a 5-minute lunch at McDonald’s with a 5-hour dinner chez Ducasse. New concepts of value for money will result in consumers mixing and matching products to satisfy their desire of the moment.

Merger and acquisition activity in the hotel sector will continue at a torrid pace. Starwood’s recent purchases of Meridien and Société du Louvre, the Fairmont-Raffles merger and the reunification of Hilton are precursors of the rapid consolidation ahead.

Multi-brand lodging companies will further capitalize on the reputations of their flagship properties to create upscale product groups using brands such as St. Regis, Waldorf-Astoria and Crillon. These super-luxury properties will justify stratospheric rates by offering enhanced amenities and employing database technology to introduce new standards of service excellence.

As budget airlines emerge in new geographic regions, they will expose the long-ignored fact that air transport is a commodity where low-cost leaders are most profitable. Investors who shied away from traditional carriers will find confidence in these new airlines as manifested by Ryanair’s ranking of maintaining the second highest market capitalization of European airlines (behind Air France-KLM).

While travelers become increasingly accustomed to living in an unsafe world, security will play a significant role in selecting leisure destinations. Disease, crime, air safety and terrorism will become important criteria for holidaymakers planning trips abroad.

While Mr. Chevrier provides a broad optimistic forecast for North America, other destinations will manifest greater variations in demand. In Europe, the United Kingdom, Austria and the Netherlands will see increasing growth in their business and leisure markets while Poland, Germany and Sweden will struggle to fill hotel rooms and tourist facilities. François Chevrier cites the growing attraction of China and India but Asian tourism markets such as Indonesia, Sri Lanka and Nepal will suffer from political instability.

In 2006, analysts, scholars and industry leaders will discover the meaning of Albert Einstein’s observation that “The only constant in the universe is change”.

A thousand and one reasons to cut prices

It is only normal that customers want to get the most for the least amount of money. There are many reasons to cut prices:

• promotions to publicize a new product;
• deals to attract new customers;
• lower prices to beat the competition ;
• special group rates;
• “early-bird” specials;
• last-minute prices to liquidate stock;
• off-season prices;
• guaranteed best rates to lure reservations away from middlemen.

And yet, at the end of the day, such measures cut into the profit margin.

The low-cost concept is in no way synonymous with cheap

Working from the idea that people are looking for low prices, a number of businesses have successfully questioned their traditional ways of doing things and found ways to cut costs and still offer a quality product. In fact, the term low cost (which is often poorly translated into French as “bas prix” or low price) simply means that – since operating costs are lower – one can ultimately offer lower prices. Of course, the calculations are very different for Air Canada from what they are for WestJet when it comes to a $99 Montreal-Toronto flight. Since these two companies do not have the same cost structure, one operates such a flight at a loss, while the other can make a profit. For WestJet, the price is in line with its operating costs, while for Air Canada, it is simply a strategy to boost sales or keep up with the competition.

An increasingly popular business model

The avant-garde, low-cost concept was first adopted by Southwest Airlines in the United States back in 1978. Although it has taken time to catch on, the low-cost concept and the carriers using it are causing a lot of turbulence in the airline industry. WestJet was the first to adopt the concept in Canada and it has been followed by JetsGo, Canjet and Air Canada’s Zip and Tango services.

Even airports are investing in the market. Marseille, Beauvais, Geneva and, most recently, Singapore have all announced plans to open low-cost terminals expressly for these carriers. Could Montréal’s suburban Saint-Hubert Airport be far behind?

To counter stiff competition from low-cost carriers, France’s national rail company (SNCF) has also decided to explore the concept. It has launched a low-cost version of its TGV high-speed rail service, combined with an innovative array of special services. Basically, the rail company is offering exclusive online-booking and “early-bird” rates, considering partnerships to enable customers to design their own products, and is testing a process whereby all tickets are checked upon boarding, rather than on the train.

In France, the Formule 1 hotel chain has revolutionized the economy hotel industry. The concept was developed in the 1980s after a study showed many travellers found hotel rooms too expensive. The entire hotel “production line” was closely scrutinized to reduce capital and operating costs. This type of hotel meets customers’ primary expectations: cleanliness, comfort and low-cost.

Low-cost cruises are now on the horizon. Already the owner of easyJet (a low-cost carrier), easyGroup will soon launch easyCruise. Some are criticizing the idea, saying that easyCruise is more about ocean transport and ferry service than an actual cruise. As opposed to the usual cruise concept based on luxury and attentive service, easyCruise will follow the example of the airlines with a reduced crew, simplified pay-per-use services and, above all, low prices.

Even destinations (Cuba, Tunisia and Turkey) are targeting the low-cost market. At the opposite end of the spectrum, destinations like Monaco, Île Maurice and Deauville wish to maintain their image as playgrounds of the elite.

To each his own, but make sure you are clear

Many successful businesses have proven the merit of the low-cost business model. When a company’s prime objective is to offer a low-priced product, it is important to communicate this clearly and ensure the customer understands what this implies in terms of quality, service and price.

The strength of those who develop new concepts lies in their ability to discern opportunities and take advantage of what the environment offers. Although this is easy enough to say, one must truly have a visionary streak to venture off the beaten path.

Source: Les Cahiers Espaces. “Stratégies de petits prix,” Vol. 79, November 2003.