Norfolk Is Latest U.S. City to Build Big Cruise Terminal, Then Lose Cruise Lines
Cities should think of cruise lines as much more mobile professional sports teams: You can build them a very nice home, but they’ll leave town in a second if market conditions change. Charleston, S.C. looks as if it’s making the smarter move.
In two months, Carnival Cruise Lines will pull up stakes in Norfolk, leaving a pressing question hanging over the city’s 6-year-old, $37.4 million Half Moone Cruise and Celebration Center:
Since 2001, Carnival has had a ship seasonally “homeported” in Norfolk, meaning that cruises started and ended here, generating more bang for the buck for the city because passengers essentially visit twice.
That relationship ends October when the Carnival Glory — after three excursions to the Bahamas and a two-night “cruise to nowhere” — sails for Miami, where it will be based year-round starting late this year.
The Carnival move is the last in a series of cruise-line exits from Norfolk in recent years.
And it looks like it won’t be easy to woo the ships back any time soon.
The challenges have less to do with salesmanship and marketing than with geographical and socioeconomic realities, cruise industry experts say.
Carnival “really pioneered the concept of driving to the cruise port rather than flying,” said Tom Stieghorst, a Miami-based editor with Travel Weekly, a trade publication. “That makes the cruise more affordable.”
Like a lot of other coastal cities, Norfolk saw a sharp rise in cruise traffic after the terror attacks of Sept. 11, 2001, according to Cruise Critic, a New Jersey-based online publication.
Passengers weren’t comfortable flying to ports such as Miami and Port Canaveral, Stephen Kirkland, assistant executive director of Nauticus, wrote in an email. “The cruise lines began deploying vessels within driving distance of the Mid-Atlantic.”
Since the Half Moone center opened in 2007, it has generated more than $8.5 million in direct revenue, which reflects facility rentals, cruise-passenger parking and cruise-ship-related costs such as dockage and line-handling fees, according to city officials.
During that period, the center generated nearly $49 million in indirect revenue from sources such as hotel stays, shopping and other spending by passengers and cruise-ship employees.
The so-called “drive-to” market has become the key to the success of secondary cruise destinations such as Norfolk. It’s all about luring passengers who live within a day’s drive and who have the financial means to go on a cruise.
But Norfolk finds itself situated between two very competitive cruise markets: To the south, Charleston, S.C. And to the north, Baltimore, where about 90 percent of passengers reach the city’s $13 million cruise terminal by road.
“What Baltimore has that you guys don’t have is a stronger drive-to market,” said Carolyn Spencer Brown, editor-in-chief of Cruise Critic. “It’s got people from Pennsylvania — Pittsburgh, Philly, West Virginia, Washington, D.C., Virginia, you know, the northern part, which is very populated, and Maryland.”
She also cited the role that Baltimore’s airport plays.
“There’s just more people that can easily get there from a broader range.”
Baltimore is within a six-hour drive of 40 million people and is the closest East Coast drive-to port from Pittsburgh, Cleveland, Indianapolis and Chicago, Richard Scher, a spokesman for the Maryland Port Administration, wrote in an email.
Economics also favor Baltimore.
Maryland’s median household income of $68,845 is the highest in the nation and Baltimore is within a four-hour drive of eight of the 10 wealthiest counties in the country, according to Scher.
Norfolk is not without its fans and has generally earned positive reviews from consumers.
“Our readers who have gone through Norfolk loved it,” Brown said. “The failure is not that Norfolk didn’t do a great job; there were built-in challenges.”
Another of them is Charleston.
Though it’s still using a terminal that opened in the early 1970s, Charleston manages to lure business from markets such as Atlanta.
“It doesn’t have a great terminal,” Brown said, “but… it’s able to draw in a way that I think has been challenging for Norfolk.”
Mike Driscoll, editor of Cruise Week, a Chicago-based industry newsletter, agreed that Norfolk was caught between two stronger drive markets.
“Norfolk’s a ‘tweener’ port,” he said.
Because the city relied on a drive-to market that turned out to be based on rosy estimates, the cruise lines “were not getting very high rates out of Norfolk,” Driscoll said.
“There wasn’t enough fly market to complement the drive market,” he said, adding that most successful homeports are a mix of drive-in and fly-in passengers.
In March, a “cruise survey” commissioned by the Virginia Tourism Corp. of more than 1,600 adults living within a five-hour drive of Norfolk — a study region with a population of 30.9 million — concluded that 8.1 million adults within that radius “are likely to take a cruise over the next three years.”
Driscoll, however, said he thought that estimate seemed overly optimistic.
The competition Norfolk has faced in its drive market was compounded by other factors, according to Driscoll, such as the recession that kicked in a year after Half Moone opened next door to Nauticus, and the cruise industry’s financial pressures as the North American market softened.
Cruise lines also must deal with new environmental regulations that will require big ocean-going vessels to burn costlier, lower-sulfur fuel.
“Itinerary operating costs including fuel costs are a factor in our deployment decisions,” Vance Gulliksen, a Carnival spokesman, wrote in an email. The regulations, he added, “would significantly impact our fuel costs for operating cruises from Norfolk and many other ports around North America.”
Carnival will pull a ship out of Baltimore next year as well. It has no scheduled cruises out of Boston after this year.
Carnival’s itineraries from Norfolk, Baltimore and Boston involve spending a lot of time in the coastal zone where the higher-cost fuel requirements will take effect in 2015, according to Cruise Critic. By moving those ships to Florida, Carnival can save on fuel because of the shorter distance to the Caribbean and because the zone where the regulations are pending narrows around the bottom of the state.
The cruise lines say they’re working on technologies to enable them to meet the new standards while bringing costs down, making it financially feasible to base ships again in markets such as Norfolk.
After the Carnival Glory leaves town, Half Moone’s only scheduled cruise business through the end of the year consists of two “stopover” visits — short tie-ups by cruise ships — in November.
Norfolk now has “nearly twenty stopover cruise calls scheduled through 2015, and that number will definitely increase,” Kirkland wrote in an email.
Though it may look like Carnival left Norfolk holding the bag, the city is not alone.
San Diego broke ground on a $28 million cruise terminal in 2009, helped by a $12 million loan from Carnival. The terminal opened in December 2010.
A month later, Carnival announced that it planned to pull its Carnival Spirit out of San Diego in 2012, sending it to Australia.
“We were disappointed to lose Carnival Cruise Line’s business, but it’s the nature of the industry that cruise ships can leave a port based on market conditions and demand,” said Tanya Castaneda, spokeswoman for the Port of San Diego.
In 2004, Mobile, Ala., built a $20 million cruise terminal after Carnival committed to homeporting a ship there, said Sheila Gurganus, general manager of Mobile’s Alabama Cruise Terminal.
Two years ago, Carnival announced it was moving the Carnival Elation from Mobile to New Orleans, effectively ending the city’s cruise program.
“It was a shock,” Gurganus said.
Mobile’s cruise-line occupancy rate was about 118 percent — there were waiting lists for every cruise. In the end, what it came down to was “yield” — the money the cruise line made from ticket sales as well as all onboard spending.
“They couldn’t sell the tickets at the higher rate,” Gurganus said. “They just couldn’t get the higher end price in this area.”
The experiences in cities such as San Diego and Mobile apparently did not go unnoticed in Savannah, Ga.
On June 27 — the day Carnival announced its new ship deployments, including yanking the Carnival Glory out of Norfolk — Savannah’s City Council pulled the plug on the next stage of a cruise-terminal study, “effectively ending debate on the issue,” the Savannah Morning News reported.
“I am extremely concerned about the experience of other cities making such a large investment in something that as far as I’m concerned is speculative,” a council member stated. “And the other thing, I’m not sure a real business case has been made.”
As with officials in San Diego and Mobile, nobody in Norfolk is throwing in the towel.
“We are working awful hard on this thing,” Kirkland said early last week in a phone interview.
He elaborated a little bit more in an Aug. 14 email, saying that the Half Moone terminal’s rental business is “robust” and that he’s looking at ways to use the first floor to draw crowds in the summertime.
“We remain very confident in the long-term success of our cruise program,” he said, “and are aggressively working to grow the business.”
(c)2013 The Virginian-Pilot (Norfolk, Va.). Distributed by MCT Information Services. or