Cruise lines leave the doldrums

Expansion and competition are the current focus of the passenger liner industry, writes Richard Phillips 6 decky

ON 30 March, 450 travel agents from Thomas Cook shops around the country will descend on Southampton to be shown the delights of a new luxury liner, the Oriana.

Thomas Cook has insisted that at least one representative from each of its shops attend - a measure of the importance it, and the ship's owners, P&O, attach to the exercise.

P&O is banking on the fact that this and similar programmes will guarantee the success of one of the most widely promoted ship launches since the QEII's in 1967. Its maiden voyage in April is already sold out.

Built in Germany for £200m, the Oriana offers cruisers unrivalled luxury. It was designed specifically for the British market, and the pre-launch publicity boasts some impressive specifications. It is the fastest cruise liner built in 25 years, with an operating speed of 24 knots. That means the 69,000-ton ship can cover the distance to far-flung destinations quickly, ensuring it offers more cruises than older ships. Operating costs are also substantially lower than for older vessels - by up to 40 per cent, according to calculations by Ian Wild, an analyst at the brokers BZW.

With six lounges, nine bars, three restaurants and a plethora of other facilities, the ship should not leave passengers short of things to do. It can carry up to 1,975 of them.

At a stroke, the Oriana increases UK capacity by more than 10 per cent. Analysts estimate it could even add 20 per cent to the market, although many of the passengers will be from overseas.

The UK market is growing at a minimum of 15 per cent a year - and as much as 25 per cent according to some estimates. And David Dingle, head of marketing at P&O Cruises, is sanguine about the challenge ahead. "It requires 10 per cent growth in the market for Oriana to run at capacity. So if we take two-thirds of the current annual growth of 15 per cent, Oriana should pay off."

Although new ships have been ordered by continental and US competitors, overcapacity seems but a small cloud in otherwise sunny skies.

More effort is being focused on continuing to expand the home market. One of the problems P&O and its rival, Cunard, which owns the QEII, are trying to fend off is the stereotype attached to cruise passengers. This is the blue-rinse wife and her retired, billionaire husband, encapsulated in the film Carry on Cruising.

British passengers still tend to be in their early fifties, but the average age is falling. Both companies are now putting special emphasis on holidays designed to appeal to families with young children.

Moreover, any vestigial trace of the old image has been shattered by the arrival of a brash newcomer, Airtours. The company, best known for its mass-market package holidays, has already invested heavily in its attack on the sector. Last year, it paid £16m for the 1,000-berth MS Seawing. That was 94 per cent sold out for the 1995 season by the end of the year, and is now 98 per cent booked. Its success prompted Airtours to follow up with the £35m purchase of MS Carousel last October.

MS Seawing's inaugural voyage under new management kicks off on 25 March - ahead of the Oriana's maiden voyage on 9 April.

Airtours is the first British company to enter the market for decades - if not since the rise of P&O and Cunard during the Twenties.

Richard Carrick, marketing director at Airtours, says the company adopted a two-pronged attack. "We wanted to make it more affordable and more accessible. By that, we mean making it less stuffy and removing some of the stodginess that clings to the business."

Airtours' upmarket competitors may be wary of their arriviste rival, but on balance see it as a plus. Mr Dingle says: "The view of the industry is tending to the notion that Airtours will bring many more people into the market rather than steal business from the top tier, which can only be good for the industry."

Cris Rees, commercial manager at Thomas Cook, echoes his view. "Everybody is fascinated to see what happens with Airtours. We suspect it will appeal to a sector of the market that has never considered cruising before," he says.

"Ideally you will get new customers, of which some trade up and some stay with Airtours. This means that the overall market expands."

Airtours has already firmly signalled its intentions through the price of its cruises. Its cheapest deal is £249, for three nights in the Canary Islands. That includes the price of the flight there and back.

As Andrew Hunter, an analyst at stockbrokers Hoare Govett, comments: "What Airtours has done, is knock a nought off the price of these holidays."

So far, the strategy seems to be paying off. Airtours is claiming phenomenal success with its winter breaks, although some capacity remains on MS Seawing and MS Carousel over the peak period of the Easter and summer holidays.

Indeed, all the signs in the cruise market continue to be bullish. It escaped the recession unscathed. Growth and healthy margins must seem like manna from heaven, especially at Trafalgar House, where other problems have overshadowed its Cunard cruise arm.

Ian Wild at BZW believes P&O has the right strategy. He reckons that within six months the company will announce plans for another ship. It already has a further three ships ordered, the first of which is due for delivery at the end of this year, while another two are due in 1997. All of these are for the US business.

"We are a buyer of the stock, with the good fundamentals in the cruise division very much the basis of our recommendation," he says. Last year P&O sold half a million cruises worldwide.

With the fiasco over the QEII's disastrous refurbishment still fresh in the mind, Cunard might be expected to be under pressure. But in an irony that suggests all publicity is good publicity, the ship's disastrous voyage seems to have actually attracted more customers. Figures from holiday industry sources show bookings for the QEII are up 12 per cent year on year, even after deducting cancellations from its abandoned voyage.

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