Carnival has reason to celebrate when passengers spend more, but cruise lines need to be careful not to undermine their value proposition by making travelers feel nickel-and-dimed.
Cruise passengers were big spenders over the last few months, shelling out more cash to buy a ticket compared to the previous year and parting with more money once they set sail.
Carnival Corporation, the world’s largest cruise operator, highlighted the trend recently in its earnings report that covered the three months ending Nov. 30.
Excluding the impact of exchange rate fluctuations, the company said spending on cruise tickets increased almost 4 percent for the quarter. Passengers spent 4.5 percent more on ship-based items including Internet service, drink packages and casino games.
With advance bookings for 2016 ahead of where they were a year ago, Carnival expects to command higher prices for the remaining inventory. And thanks to an extensive study on customer practices, the company is exploring ways to more effectively sell products, experiences and indulgences to passengers.
Skift spoke to Carnival Corp. CEO Arnold Donald about passenger spending, holding firm on price and new initiatives to keep money flowing on board.
Skift: Can you break down how you got people first of all to spend more money to take the cruise and then to part with more money once they got on the ships?
Arnold Donald: Keep in mind we have 10 brands. They’re all over the world; you’re talking a lot of different market segments, and there are lots of different source markets and lots of different destination markets. The common denominator is on the onboard revenue. It’s going to sound overly simplistic, but it’s true: It’s giving people more of what they want. And it’s making sure…that we connect that latent demand with the opportunity.
In the case of the Carnival brand, for example, that had fantastic yield lift on board in casino, food and communications. It was how you communicate the packages to the guests, who does it, when they do it, the people presenting it to the guest. And we saw a nice lift. In the casino case, it’s partnering with gamers and other gaming companies to provide that gamer with a very hosted experience that encourages them to come on board. They have a great time and they want to come back again and then that drives onboard casino revenue. We’ve had great success with that and we’ve begun to expand it…to several of the other brands.
It’s just working what we have and enhancing what we have all from a guest-centric perspective.
Similarly on ticket, it’s creating more demand. It’s just creating excess demand for the supply we have. We do it through PR, the brands do it directly through advertising, through events and promotions.
We also do it through exceeding the guests’ expectations we have on board. They’re all social-connected, they’re all sending photos, they’re talking to their families or colleagues, they’re saying, ‘Oh my gosh, it was unbelievable, you gotta do this.’ And that’s the most powerful marketing tool we have is way excited guests getting off the ships saying: ‘This was the best thing ever.’ And so it’s engineering the services on board, tweaking them, and it’s understanding our guests, doing the market segmentation work, doing the homework to understand the guest, to make sure in each brand we’re giving that brand’s guests what resonates best with them. It’s improving all that and then just sharing best practices across the brands.
Skift: Price integrity has been one of the catch phrases for you and for a lot of the other cruise operators this year. Are this quarter’s results a result of that policy or do you see something else going on?
Donald: Well, we’ve got a lot of things going on, but clearly the will to say ‘We provide a great value already, there’s no reason to preemptively discount that,’ and the will to stand by that definitely helps in our case. And so we’ve seen it work.
Sharing our revenue management practices, which I left off in my dialogue about why things improved, part of it is just managing it better. So getting the brands together, comparing inquiries, what triggers an inquiry about raising a price or lowering a price, sharing learnings from each other and just total communication and dialogue with each other has helped a bunch.
And in that regard, the pricing integrity mentality of you know we’ve got a great value, we provide a great experience, let’s not be too quick to discount that. That certainly has helped.
Skift: Do you feel like consumers are getting out of the habit to wait until the last minute to book so that they can get last-minute discounts? Do you think they’re moving away from that mindset?
Donald: What I would say is I certainly would encourage consumers to not think that way about cruise going forward. Really, they’re going to get a great value no matter what and waiting, they may end up paying a higher price at the end like you do with airlines and other things. And that’s certainly happening more now than it did in the recent past. So I still think there are people [who are] always going to shop. Frankly, I think there are a lot of people, they never expected that they would get a lower price because they were used to airline travel. They may have expected, “I wait until the last minute and now it’s going to cost me more,” and they were pleasantly surprised or they may not have even noticed whether it cost them more or less or not. So I’m not here saying that the consumer behavior has dramatically changed in all that.
What I would say is that as long as we aren’t doing it as much and we aren’t dropping the price at the end, as long as we’re not deep discounting at the very end, I don’t think consumers will expect it.
Skift: What are you planning to do to keep that onboard spending growth going?
Donald: We have so many initiatives underway, so many onboard revenue opportunities. For example, beverage: We’re doing lots of studies with our big data that we have and then additional surveys of guests and stuff to make certain we understand what drinks when, what premium brands when, how to offer somebody what they want. We don’t want to turn into some big push thing because the whole idea here is for guests to have a great time, feel comfortable. We’re not trying to hard sell anybody anything. But if we understand them better, we’ll say, ‘Oh, this person really likes wine, they may want to try a higher-end wine.’…They’re on vacation; you do things differently on vacation. We want to make it comfortable to give them that opportunity to do so.
And so one of the things we’ve done is we now use the aerators, we have really high-end bottles of wine where you can get a glass. It’s a dispenser, a needle in the bottle so it stays fresh, but you can just get a single glass as opposed to having to buy the whole bottle. You could try a really upscale wine that you might not be willing to pay $1,500 a bottle for. But you’re having fun, you’ll pay $50 or 100 bucks for one glass for fun. Stuff like that, whereas otherwise they would have bought a $10 glass of wine or whatever.
And so it’s just simple things, but it’s understanding that guest and then making certain that we provide the opportunity in a way that is fun and pleasurable for them. We’re not trying to do the hard sell and ruin everybody’s experience with hawking stuff, that’s not what a cruise is about.
Similarly with retail, you know it’s just simply providing the brands with stuff that they want and giving them the opportunity to comfortably shop and acquire those things. So there’s opportunity all over the place in that regard, and we have lots of upside remaining there. It takes time and we have learning processes, but it gives us a runway as we look ahead….We’re not promising the level of onboard yield growth that we’ve seen or those kinds of percentages, because our comparisons are getting tougher. But we know there’s room to grow.…Because of our scale, we’ll be at almost 80 million passenger cruise days next year. So if we can lift revenue a dollar a day, that’s $80 million; $10 dollars a day, that’s $800 million. So just a few bucks more a day when people are spending a couple hundred or more — depending on the brand — a day, you know is not a big increase for the guest. It’s a huge increase for us.
Skift: I wanted to ask about that big data that you just mentioned. Can you say what is the most or one of the most surprising things you’ve learned about your guests as a result of that extensive research over the past year?
Donald: Well, I wouldn’t say it’s the most surprising thing I’ve learned about our guests broadly, but what I’m pleased with is the caliber of detail in that data. So across the different brands, we’re able to hone in on what could make a difference for a given brand with a given group of guests.
And so things that have come out of that is how excursions are packaged, is how beverages are packaged, is how the entertainment flows on a ship, is how the food offerings flow on the ship and is how the ship needs to be tweaked in its design and how the communication needs to take place.
So there’s a gazillion things like that that we mine out of that data. But there’s no one big shocker, ‘Oh my gosh I never thought guests thought this,’ there’s nothing like that. But there’s lots of learnings that we can deploy so that in the end that overall guest experience really exceeds their expectations.
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Photo credit: Carnival CEO Arnold Donald outside the New York Stock Exchange Carnival Corp.