Industry Profiles: Deep Sea Transportation of Passengers

Overview

The North American passenger cruise industry, as we know it today, was formed around 1970 when approximately 500,000 people took overnight cruises. Since then, the number of passengers has skyrocketed, reaching approximately 7 million people in 2000. According to the International Council of Cruise Lines (ICCL), an industry trade group, passenger counts increased eight percent between 1997 and 1999, and then surged almost 17 percent between 1999 and 2000. Active marketing of package tours by industry participants supported these increases. Estimates from Exton, Pennsylvania-based Business Research & Economic Advisors (BREA) placed North American cruise industry gross revenues at $13.5 billion in 2000. However, the industry also has a significant impact on the overall U.S. economy by generating related business for companies in various industries including airlines, food and beverage, energy, and transportation. BREA estimates placed the industry's overall economic impact at $18 billion in 2000. This figure increased almost 16 percent between 1997 and 1999, and from 1999 to 2000.

The North American cruise industry, which includes the United States and Canada, represents approximately 88 percent of the worldwide cruise industry. More than 50 new ships were built in the 1980s and early 1990s, nearly doubling North American cruise capacity to 106,000 berths. In 1992, cruise ships operated at an average of 77 percent capacity. By 2000, 163 ships served the North American market with an aggregate capacity of 158,434 berths and capacity was on the rise, climbing from levels of 76 percent in 1998 and 75 percent in 1999 to almost 81 percent in 2000.

History of the Industry

Until the early nineteenth century, most oceangoing vessels sailed only when they had a full load of cargo and the weather was favorable. Passengers were secondary. However, in January of 1818, the Black Ball Line in New York began regularly scheduled service between the United States and England. The first ship, the James Monroe, left New York Harbor on time, despite a blizzard, and arrived in Liverpool three weeks later. The Black Ball Line proved so successful that other ships began regular service. "Packet ships," as they were known, were the first ships to concern themselves with the comfort of their passengers.

In the 1830s, steamships began to replace packet ships for carrying mail and passengers. The Pacific Mail Steamship Company, an American line founded in 1848, eventually came to dominate passenger service across the Pacific, but English companies dominated transatlantic service. One of these companies was the Cunard Steamship Company, Ltd., founded in 1840 by Samuel Cunard. Cunard was a Canadian who won the contract to deliver mail between England and Halifax, Nova Scotia. He and English partners formed the British and North American Royal Mail Steam Packet Company, which was renamed the Cunard Line in 1878. The first Cunard ship was the Britannia, which set sail from Liverpool on July 4, 1840.

In 1852 the City of Glasgow, owned by the British Inman Line, became the first ship to provide regular transatlantic passenger service without also having a contract to deliver mail. The Glasgow was also the first ship to be fitted with a spar deck covering part of the main deck. The spar deck provided passengers with a sunny recreation area in good weather and protection on the main deck during bad weather.

In 1879 another Inman ship, the City of Berlin, became the first passenger ship outfitted with electric lights. The Inman Line was also the first to carry immigrants to the United States on a regular basis in the low-cost "steer-age class." Throughout most of the nineteenth century, passengers traveling in steerage slept wherever there was space in the hold and provided their own food or ate out of communal kettles.

An early example of organized recreational activities aboard an oceangoing passenger ship was aboard the Great Eastern in 1858. A commercial failure, the Great Eastern, owned by the Eastern Navigation Company, was the largest ship of its day. It also was the first ship with enough space for passengers to congregate on deck. On its maiden voyage, passengers organized a marathon and played ninepins. Most on-board recreation would be organized by passengers until after World War I, when deck tennis, shuffleboard, quoits, dancing, and bingo became popular ship-sponsored activities.

By the early 1900s, Germany had begun to dominate transatlantic passenger service with luxury liners that rivaled the most posh European hotels. The Amerika, owned by the Hamburg-Amerika Line, was the first ship equipped with an elevator. It also boasted an on-board restaurant operated by the Ritz-Carlton Hotel in London. Even the famed Cunard Line was losing money to the German competition, and American financier J.P. Morgan, who had purchased the White Star Line, was ready to buy the Cunard Line. However, the English government saved Cunard by subsidizing the construction of two new ships, the RMS Mauretania and Lusitania.

The Mauretania and Lusitania, launched in 1907, were the first "superliners," the largest and most luxurious passenger ships yet built. Aboard these English superliners, two cruise traditions arose: dressing for dinner and the shipboard romance. Cunard's advertising promised: "Passengers will remember how romantically the glowing phosphorescent waves curled back in the ship's wake falling forever in flakes of diamond and pearl. They will remember how readily the damsel of their choice could be persuaded to a secluded spot in order to observe this poetic phenomenon."

In 1911, the White Star Line surpassed even Cunard for luxury when it launched the Olympic. In addition to the amenities that had become standard, the Olympic was outfitted with a swimming pool, Turkish baths, and a tennis court. The ill-fated Titanic, which sank on its maiden voyage in 1912, was a sister ship to the Olympic. White Star never fully recovered financially from the sinking of the Titanic. In 1934, the Cunard Line purchased White Star and became Cunard White Star, Ltd.

The Lusitania also earned a place in history when it was sunk by a German U-boat in 1915. Although kept secret by the U.S. and British governments for nearly 50 years after the sinking, the Lusitania was carrying tons of munitions for the English war effort, in violation of U.S. neutrality laws. Considered unsinkable by many, the Lusitania sank in only 21 minutes after being hit by a single torpedo, which detonated the contraband cargo.

The years between 1920 and 1940 were considered the glamour days for transatlantic passenger ships. The rich and famous from Europe and the United States often took long, slow, luxurious, pampered trips at sea, which were captured by the newsreels to be shown to "common folks" in movie theaters. However, the depression of the 1930s almost destroyed the Cunard Line. Again the British government came to the rescue by subsidizing the construction of two more ships, the Queen Mary and Queen Elizabeth. The Queen Mary, launched in 1936, became the new symbol of luxury, surpassing even the Normandie, which was destroyed by fire in New York Harbor in 1942. Only 350 of the Queen Mary's 1,100 crew members were needed to operate the ship. The other 750 catered to the needs of 2,100 passengers. The Queen Elizabeth was launched in 1940 but was soon converted into a troop carrier during World War II.

After World War II, the glamour of cruises faded. Jet planes replaced ships for those who could afford to fly because planes were able to cross the Atlantic in hours instead of the days it took by ship. By the 1960s, most passenger ships had become drab and dingy. In 1952, the American Line had launched the United States, which was the largest passenger ship ever built in the United States and then the fastest oceangoing passenger ship in service. However, low passenger volume forced the ship to be mothballed in 1969. Cunard also sold the Queen Mary in 1967, symbolizing the end of an era. The Queen Elizabeth was sold in 1968, leaving Cunard with only one ship, the Queen Elizabeth II. Cunard repositioned itself as a cruise line in the 1970s.

The modern cruise industry began to take shape in the late 1960s. Faced with declining demand for transatlantic passenger service, especially during the winter when the North Atlantic was stormy and cold, passenger lines began offering vacation cruises to warm-weather locations. Instead of serving as transportation, they were becoming part of the tourist and vacation industry, a trend that would culminate in so-called cruises to nowhere, in which passengers paid fares to simply ride on the ship and participate in its activities without ever docking in a destination port. Princess Cruise Lines, founded in 1965, was one of the pioneers in this emerging industry, leasing a converted ferry from the Canadian Pacific Railway during the winter months to offer cruises from Los Angeles to Mexico. However, many business historians considered Carnival Cruise Lines and its co-founder Ted Arison actually to have invented the modern cruise industry in the mid-1970s.

Significant Events Affecting the Industry

Carnival pioneered the modern notion of a cruise in part by accident. During the energy crisis of the 1970s, Carnival's only ship, the Mardi Gras, was forced to sail slowly to save on fuel. To fill the additional time at sea between ports of call, Arison added a disco, comedians, singers, and other live entertainment. He also encouraged less formality, more casual dress, and a festive atmosphere. The crew began to call the Mardi Gras the "Fun Ship," and Carnival began advertising that time aboard their ships was as fun and exciting for the passengers as the exotic destinations to which they were sailing.

The "Fun Ship" marketing strategy, adopted as a registered trademark of the Carnival Cruise Lines, was an enormous success and helped to quickly boost passenger counts beyond capacity. Carnival added more ships and soon became the largest cruise line in the world, capturing a quarter of the North American market and carrying twice as many passengers as its nearest competitor.

The cruise industry also received an invaluable boost from The Love Boat, a popular TV series that aired on network television for nine seasons beginning in 1977. The Love Boat, which featured a ship owned by Los Angeles-based Princess Cruise Lines, revived the golden era link between ocean liners and romance, and made the point that cruises were not only for the rich.

Key Competitors

Founded in 1972 as Carnival Cruise Lines, Inc. and renamed in 1993, the Carnival Corporation is the world's largest cruise operator. In addition to Carnival Cruise Lines, the company owns and operates the Cunard, Holland America, Windstar, Costa Crociere, and Seabourn cruise lines. In 2001, Carnival generated earnings of $926 million on revenues of $4.5 billion. The company employs approximately 33,200 people across all of its businesses, which include a number of regional hotels. The company's fleet included 43 ships in 2001, which it planned to expand by adding 14 new ships by the end of 2005. Carnival suffered bad publicity in 1998 when one of its ships, the Ecstasy, caught fire during a cruise. Although no serious injuries resulted, the event renewed calls from U.S. regulators for tighter safety controls on cruise ships, which typically skirt U.S. jurisdiction because they are registered as foreign ships.

Carnival triggered more favorable attention in 1998 when it completed a $500 million buyout of the prestigious Cunard Line, one of the oldest passenger ship companies in the world. The purchase gave Carnival a two-thirds stake in Cunard, which in turn gave it full control over Cunard's management, while Norwegian investors held the remaining third. Founded in 1840 by Samuel Cunard to deliver mail between England and Halifax, Nova Scotia, the Cunard Line included such famous ships as the Lusitania, sunk by a German U-boat during World War I, and the Queen Mary. Cunard headquarters were moved to New York in 1977 and to Miami in 1997. In the 1990s, Cunard offered cruises to more than 300 ports of call. Cunard also provided the only scheduled passenger service between the United States and Europe. By purchasing Cunard, Carnival obtained the Queen Elizabeth II and strengthened its presence in the luxury cruise market. The Cunard business eventually was merged with Carnival's other luxury unit, Seabourn Cruise Line, into a Miami-based division called Cunard Line Limited.

With earnings of $255 million on 2001 revenues of more than $3.1 billion, Royal Caribbean Cruises, Ltd. ranked as the world's second-largest cruise service. In 1997, the company acquired a smaller competitor, Celebrity Cruise Lines, Inc., which added four ships to bring Royal Caribbean's managed fleet to 17. By the early 2000s, the company's growing fleet had increased to 22 ships, and it planned to add an additional six ships by the end of 2004. Along with First Choice Holidays, in the early 2000s Royal Caribbean was part owner of Island Cruises, which mainly served customers in Europe.

The Miami-based cruise line was not without controversy in the 1990s. It was discovered that Royal Caribbean had dumped oil-contaminated water illegally off the coasts of Puerto Rico and Florida during the early 1990s and that the company had tried to hide evidence of the crime from the U.S. Coast Guard. In 1998, it pled guilty to obstruction of justice charges and paid a $9 million fine for the incident.

Formerly a subsidiary of the shipping conglomerate Peninsular and Oriental Steam Navigation Company, P & O Princess Cruises, PLC is the world's third-largest cruise operator. Princess achieved notoriety in the 1970s when one of its ships was used in the Love Boat television series, a history that Princess still featured in its marketing two decades later. In 1998, Princess launched what at the time was the world's largest and most expensive cruise ship, the $430 million Grand Princess. Two years later, Peninsular and Oriental Steam Navigation Company spun P & O Princess Cruises off as a separate company. By the early 2000s, both Royal Caribbean and Carnival had offered to merge with Princess, which posted 2000 revenues of $2.4 billion. At that time, the company's brands included Princess Cruises, P & O Cruises, P & O Cruises (Australia), See-tours, A'ROSA, AIDA Cruises, Ocean Village, and Swan Hellenic.

Industry Projections

As ships age and as cruise demand continues to swell, the cruise industry is engaged in an ongoing process of new ship building. New ships are generally built in proportion to the anticipated demand for their services, as it isn't profitable to run ships that aren't booked to capacity. While many new ships are built to replace older models and thus may be considered replacement capacity, over time, much new capacity has been added as well. In the late 1990s, the industry entered a period of rapid expansion, adding eight ships in 1997 and 18 between 1997 and 1999. From 2001 to 2005, the industry was slated to launch approximately 49 new ships on the world's oceans, expanding total cruise passenger capacity by more than 92,000 berths. In addition to growth in the overall number of new ships, an emerging trend is the construction of "mega-ships" that have greater capacity than traditional cruise ships.

Global Presence

While the United States and Canada account for an estimated 88 percent of the world's vacation cruise business, cruise ships call at ports throughout the world. By nature, the cruise business is thoroughly international since many cruise destinations entail cross-border travel. Added to this is the long tradition of national registry of ships, which is often done in countries with financial, legal, or employment practices favorable to the shipping industry. Thus the vast majority of cruise ships serving the U.S. market are registered in nations such as Liberia, Panama, or Caribbean countries. Critics charge that this practice allows cruise companies to evade stricter regulations in the national markets they serve.

Employment in the Industry

The leading cruise lines employ tens of thousands of personnel, most of whom work on board the ships. A diverse range of industrial and service occupations are needed to operate a ship. These include the navigation and operations crew, hospitality workers, activity coordinators, and maintenance and cleaning staff. Cruise lines also employ thousands of workers on shore to manage the marketing, booking, and other administrative concerns of the business.

Sources for Further Study

"cruise industry posts 8.6 percent gain in 1997." cruise lines international association, new york, 25 june 1998. available at http://www.cruising.org.

"cruise industry source book." cruise lines international association, 17 may 2002. available at http://www.cruising.org.

"cruise lines will welcome record number of ships in 2002, taking travelers on itineraries both near and far." cruise lines international association, 17 may 2002. available at http://www.cruising.org.

dupont, dale k. "carnival to buy cunard cruise line, owners of qe2." miami herald, 4 april 1998.

fields, gregg. "cruise ships sail away from u.s. regulation." knight ridder/tribune business news, 26 july 1998.

stieghorst, tom. "two passengers file suit alleging carnival negligence in cruise ship fire." knight ridder/tribune business news, 28 july 1998.

the contribution of the north american cruise industry to the u.s. economy in 2000. exton, pennsylvania: business research & economic advisors, october 2001. prepared for the international council of cruise lines. available at http://www.iccl.org/imi.htm.