The Cruise Review

THE CRUISE REVIEWPUBLISHED MARCH 2013

CONTENTS

EXECUTIVE SUMMARY 3CRUISE FANS STAY LOYAL 4NORWAY NOW HOTTER THAN CARIBBEAN FOR CRUISING BRITS 6UK PORTS SET FOR MILLION CRUISE PASSENGER EMBARKATIONS 8NO INFLATION FOR CRUISE-BUYERS 10OFFERS DRIVE LATER BOOKING 12NORTH:SOUTH CRUISE DIVIDE WIDENS IN 2012 13NEW SHIPS AND MORE INCLUSIVE PRICES DRIVE RIVER BOOM 14

EXECUTIVE SUMMARY2012 UK CRUISE MARKET

Despite a double dip recession and the Concordia accident, ocean cruise passenger numbers increased

Norwegian fjords trump Caribbean sun, sea and sand to become the hottest destination for cruising Brits

Flight costs, inflated by Air Passenger Duty, prompt a fall in flycruise holidays with cruises departing from the UK now on the verge of catching up with flycruises for first time

The number of overseas and UK passengers embarking at British ports has pushed the total to just short of the million mark

Cruising continues to account for one in every eight of all package holidays taken

More than half of all passengers took more than one cruise during the year - significantly more than in 2011

Sales of summer ultra-luxury cruises increased 30%

A record 52 UK ports were visited by cruise ships

Strong demand for European destinations boosts river cruise market by 14%

2 3

CRUISE FANS STAY LOYAL

More than 1.7m British passengers took an ocean cruise holiday in 2012, a record which represented a major achievement in a year which saw the Concordia tragedy, which impacted bookings in the immediate aftermath, and a UK economy which dipped back into recession.

The percentage of first-time cruisers did fall - from 40% to 36% - but this also reflected the willingness of regular cruisers to show their confidence in the cruise industry’s safety record.

YearPassengers (000s) % change

2001 776 2.9

2002 820 5.7

2003 964 17.4

2004 1,029 6.7

2005 1,071 4.1

2006 1,204 12.4

2007 1,335 10.9

2008 1,477 10.5

2009 1,533 3.8

2010 1,622 5.8

2011 1,700 4.8

2012 1,701 0.06

Source: PSA/IRN Research

1 UK Ocean Cruise Market

They were also canny enough to recognise that the inevitable wave of special offers used by the industry to stimulate the market post-Concordia gave them an opportunity to book multiple cruises.

More than half (54%) of cruise passengers in 2012 took two or more cruises compared with just 42% in 2011.

As this increase was led by the regular cruising fraternity, it had the inevitable effect of pushing up the average age of cruise passengers from just under to just over

“People are getting back to their normal buying patterns. Purchases, like cruises, that went from being a must-have to being an optional luxury are back to being a must-have.

2013 has the potential to be a good year for cruise sales. Many people went without a second holiday or even a first one in 2012 and, having suffered such bad weather last summer, they will not want to miss out this year, too. When I look at the price of cruise holidays compared to the 70s and 80s - the value now is fantastic”

Phil Nuttall, The Cruise Village

56 with the 65+ generation increasing its share by two percentage points to 37% - the highest level for a decade.

The UK’s economic woes affected the entire travel sector. This meant that the upturn in 2011 in all foreign holidays turned out to be a false dawn with preliminary figures for 2012 suggesting a small decline.

Year %

2006 36

2007 38

2008 32

2009 29

2010 33

2011 40

2012 36


2 First Time Cruisers as % of UK Market

Cruises taken in last year (%)

Year 1 2 3 4 5 6+

2008 50 32 11 4 2 2

2009 38 35 15 5 2 4

2010 43 33 12 5 3 6

2011 58 27 9 2 1 1

2012 46 30 14 4 2 2


3 UK Passengers Booking Multiple Cruises Annually

% passengers

Year Up to 26 26-34 35-44 45-54 55-64 65+ Average Age

2002 7 6 10 20 25 33 54.8

2003 8 5 9 18 25 35 54.6

2004 9 5 10 19 26 32 54.1

2005 10 5 9 18 25 33 53.5

2006 8 5 11 21 27 27 54.3

2007 8 4 9 19 27 31 53.2

2008 8 4 8 18 27 33 53.7

2009 7 4 8 18 28 35 55.6

2010 9 4 9 19 27 33 54.3

2011 9 4 9 19 26 35 55.6

2012 8 4 7 18 27 37 56.1


4 UK Cruise Market Age Analysis

“5 Ocean Cruising’s Share of Foreign Holidays Market From The UK

YearForeign Holidays (000s)

Foreign Inclusive Holidays/tours (000s)

Ocean Cruise Holidays**(000s)

Ocean Cruises’ share of inclusive foreign holidays

Ocean cruises’ share of all foreign holidays

2001 38,670 20,631 776 3.8% 2.0%2008 45,531 17,914 1,477 8.3% 3.3%2009 38,492 14,507 1,533 10.6% 4.0%2010 36,442 14,257 1,622 11.2% 4.5%2011 36,819 14,740 1,700 11.5% 4.6%2012 36,279* 14,463* 1,701 11.8% 4.7%* Estimated ** Includes Republic of IrelandSource: IRN Research; International Passenger Survey Crown Copyright 2013

4 5

However, a marginal increase in cruising’s share of the travel market means that it continues to account for one in eight of every foreign package holiday bought and now represents one of 21 foreign holidays compared with 1 in 22 in 2011.

NORWAY NOW HOTTER THAN CARIBBEAN FOR CRUISING BRITS

A sea-change in British cruise passenger tastes is taking place with that aspirational choice of a sunshine-laden Caribbean cruise now losing out to the more traditional appeal of the Norwegian fjords.

In 2012, 197,000 passengers booked a cruise to Norway compared with the 189,000 who chose the Caribbean (including Bermuda itineraries).

As a whole Northern Europe, including the Baltic, enjoyed a 29% increase to 443,000 UK passengers while demand for the Caribbean dropped 21%.

6 Destinations Booked by UK Passengers (000s)

The high air cost within a Caribbean flycruise package, which has been controversially inflated by the Air Passenger Duty element, is clearly deterring some UK holidaymakers.But the Caribbean’s loss has not only been a gain for Northern Europe but also for the Atlantic Islands (Canaries plus Madeira) which are enjoying a renaissance in popularity with a 24% increase last year.

The 9% drop in Mediterranean cruise passengers is more likely to be a one-off for what remains the number one choice for UK cruise fans. A decade of impressive growth saw cruises to the Mediterranean more than double (+130%) to 767,000 in 2011. The 2012 fall-back is mainly due to the impact of the Concordia accident at the beginning of that year.

There has also been a reduction in the number of UK cruises to the Mediterranean in favour of shorter itineraries to the near Continent.

Two other trends also accelerated in 2012.

One was for cruises from UK ports increasingly to outsell flycruises. Just five years earlier there was a 65:35 split in favour of flycruises but in 2012 this had dropped to almost level-pegging at 52:48.

The Caribbean downturn was a major factor as overall flycruise holidays fell 6% while the number of British passengers choosing to begin their cruise in the UK increased 9%.

With the cost of air travel only likely to increase over the next few years, this period should also see cruises leaving UK ports overtake flycruises in popularity - a significant shift given cruising’s history of most winter passengers preferring to fly to the sun to join their cruises. The second accelerating trend is the popularity of world cruises, both the full voyage and also the shorter sectors which are marketed as exotic cruises in their own right. These attracted 29,000 passengers last year - a 14% increase on 2011, a rise which means that numbers have more than trebled in less than a decade.

Destination 2001 2008 2009 2010 2011 2012 % change

Mediterranean 334 606 592 697 767 698 (9)

Northern Europe 98 247 296 303 342 443 29

Caribbean 146 255 275 272 238 189 (21)

Atlantic Islands 77 108 102 98 116 145 24

Other Areas 121 261 268 252 237 226 (5)

Total 776 1,477 1,533 1,622 1,700 1,701 0


7 UK Port Cruises Vs Fly Cruises

YearPassengers(000s)

%growth

UK Port Passengers (000s)

%share

Fly Cruise Passengers (000s)

% share

2007 1,335,000 11.3 467,000 35.0 867,000 65

2008 1,477,000 10.2 557,000 37.7 920,000 62.3

2009 1,533,000 3.8 594,000 38.8 939,000 61.2

2010 1,622,000 5.8 653,000 40.3 969,000 59.7

2011 1,700,000 4.8 729,000 42.9 971,000 57.1

2012 1,701,000 0.06 807,000 47.6 894,000 52.4


6 7

UK PORTS SET FOR MILLION CRUISE PASSENGER EMBARKATIONS

The fourth double digit increase in cruise passenger embarkations in just seven years has put UK ports on course to hit the million mark this year (2013).

The 10% growth to 962,000 in 2012 comprised 78,000 extra UK and 6,000 additional overseas passengers and there was a similar (11%) increase in passengers visiting UK ports during their cruises.

Year 2006 2007 2008 2009 2010 2011 2012

Total Embarkations 576 591 714 733 833 878 962

% Increase 15 3 21 3 14 5 10

UK Passengers 451 460 557 594 653 729 807

Overseas passengers 125 124 157 139 180 149 155

% share of overseas 22 21 22 19 22 17 16


8 Embarkations at UK Ports (000s)

Year 2006 2007 2008 2009 2010 2011 2012

Passengers 382 365 420 448 563 651 723% change 19 (4) 15 7 26 16 11Ports Visited 50 46 38 43 48 50 52


9 Port of Call Passengers at UK Ports (000s)

8 9

This brought the total of passengers visiting British ports during their cruise to 723,000, double the 2007 figure. The number of UK ports receiving cruise calls also increased to a record 52.

“NO INFLATION FOR CRUISE-BUYERS

Everything else on the retail price index may be costing more every year but UK holidaymakers who bought cruises in 2012 were paying less than they did seven years earlier in 2005.

With average durations varying year-on-year, the most accurate price comparison for cruise holidays are the daily rates and these show that cruises cost an average £128 per day in 2012 - £4 lower than in 2005.

The average price paid for a 2012 cruise fell by £46 to £1,388 with nearly half (47%) of all cruises sold costing less than £1,000.The arrival of new, larger ships in the sector is helping ultra-luxury cruises increase their share of the market with their 10% increase in 2012 meaning that the sector has increased sales 54% since 2006 – ahead of an overall industry increase of 42%.

But there is little doubt that it has been the value-pricing of main-market companies that has been the principle reason cruising has been able to maintain its market share.

Value for money remained by far and away the reason passengers chose to book a cruise holiday - nearly three times as important as any other reason for booking, with “special offers” moving into joint second place alongside service and on-board atmosphere.

There was a drop in the influence of all-inclusive pricing and drinks packages on booking decisions but the wave of such offers put in place for 2013 suggests that these might rate much higher in this year’s survey.

Year £

2005 £132

2006 £130

2007 £137

2008 £135

2009 £120

2010 £130

2011 £132

2012 £128


10 UK Market Cruise Per Diems

Year Summer Winter Year

2005 1267 1222 1253

2006 1196 1524 1291

2007 1270 1480 1334

2008 1313 1647 1409

2009 1238 1532 1330

2010 1323 1629 1421

2011 1331 1729 1434

2012 1313 1573 1388


11 Average Revenue (£) per UK Passenger

12 Ultra-Luxury Cruise Passengers

“People will pay for customer service and knowledge. When you’re booking a luxury cruise, I don’t think a discount really comes into the equation very much.

We sell lots of high-end cruises and that part of the market for the Caribbean has not been impacted by the higher airfare. Some of the TV advertising by the cruise lines is brilliant and is increasing the interest from families.”

Julie Gibson, Midcounties Co-operative Travel

Reasons2009%

2010%

2011%

2012%

Price/value for money 68 66 67 62

Special Offer 25 19 17 24

Service on-board -- -- 29 24

On-board atmosphere/service 40 36 26 24

Dining 33 32 26 23

Facilities on board -- -- 25 21

Special Occasion 18 20 20 18

Loyalty membership benefits 17 17 13 18

All-inclusive nature of package -- 24 19 17

Entertainment 17 15 16 15

Cabins and public rooms 30 24 15 13

All-inclusive drinks package n/a 4 11 7

Cruise themes 7 6 5 5

Pre-post land stays 5 5 3 4

Maiden Voyage 2 2 1 1

* Asked to select three principal reasonsSource: UK Cruise Survey 2012 (IRN Research)

14 UK Passengers - Reasons* For Choosing Their Last Cruise

Year%500

%501-1,000

%1,001 - 2,000

%2,001 - 2,500

%2,501 - 5,000

%5,000+

2001 19 22 37 7 9 6

2002 14 29 34 9 10 5

2003 11 30 34 10 12 3

2004 15 25 40 8 9 3

2005 15 27 41 8 6 1

2006 13 21 38 11 12 2

2007 12 26 42 10 8 2

2008 11 24 40 11 11 2

2009 12 24 37 10 13 2

2010 14 26 38 10 12 2

2011 15 27 37 9 11 2

2012 13 34 38 7 6 2


13 Price (£) Trends In UK Cruise Market

Year Summer Winter Total% of all cruises

2006 12860 5655 18515 1.5

2007 13816 7552 21368 1.6

2008 13238 6427 19665 1.3

2009 14710 7960 22670 1.5

2010 16125 7899 24024 1.5

2011 15371 10498 25869 1.5

2012 20057 8393 28450 1.7

Source: PSA/IRN ResearchIncluded Crystal, Compagnie du Ponant, Hapag-Lloyd, Hebridean, Regent, Seabourn, Seadream, Silversea

10 11

OFFERS DRIVE LATER BOOKING

More than one in three passengers are now booking their cruises within three months of departure, reversing a decade-long trend towards earlier bookings.

In 2012, 36% booked late - the same as in 2002 - but that proportion had previously dropped to as low as 17% in the intervening years.

% of bookings (no. of months)

Year 12+ 9 - 12 6 - 9 3 - 6 0 - 3

2012 13 12 17 23 36

2011 15 15 17 20 34

2010 16 16 18 22 28

2009 25 19 17 22 17

2008 18 17 18 22 26

2007 18 17 18 23 24

2006 15 18 18 24 27

2005 17 17 18 22 22

2004 11 15 18 23 33

2003 8 12 14 24 41

2002 7 13 17 22 36


15 UK Cruise Market - Trends in Booking Lead Times

Reasons2009%

2010%

2011%

2012%

Itinerary/Destinations 65 75 69 70

Enjoyed Previous Cruise with line 54 58 64 55

Departure Date 36 39 31 38

Duration 31 27 22 24

Flights from local airport 19 17 22 13

No flight 26 28 21 25

To try another cruise line 21 17 9 17

To try another ship -- -- 10 9

Personal recommendation 11 7 9 6

Travel agent recommendation 6 5 4 5

Recommendation on web review/blog 7 4 4 2

* Asked to select three principal reasons.Source: UK Cruise Survey 2012 (IRN Research)

16 UK Passengers - Reasons* For Choosing To Take A Cruise Holiday

NORTH:SOUTH CRUISE DIVIDE WIDENS IN 2012

12 13

Four in every 10 (39%) ocean cruise passengers were sourced from the south of England - a significant increase on 2006 when it was only just over three in ten (31%).

Over the same six-year period, the number of passengers from the North of England (North East, North West and Yorkshire/Humberside) fell back from three in ten (30%) to 27%.

Although several cruise companies have deployed more ships out of northern and Scottish ports, the most substantial increase in capacity has come in the south coast ports of Southampton, Dover and most recently Portsmouth.

So the growth in popularity of cruises departing from a UK port is built largely on the ease of access to the ships for those living in the south although, ironically, London continues to underperform, contributing only 4% of passengers despite it having 12% of the UK population.

17 Cruise Passengers as % by Region of Residence

Region 2006 2012

South East 14 24

North West 16 14

South West 10 11

Scotland 11 11

Yorkshire & Humberside 8 8

West Midlands 8 7

East Midlands 7 5

London 7 4

Wales 5 6

North East 6 5

East Anglia 5 4

Northern Ireland 3 2


This accelerating trend is the obvious result of the tactical promotional pricing the cruise lines had to employ in the difficult trading year that 2012 turned out to be.

They have responded with a series of incentives including guarantees that early-bookers will benefit from any late reductions but it is too early to say how effective these will be for 2013/14.

“NEW SHIPS AND MORE INCLUSIVE PRICES DRIVE RIVER BOOM

An unprecedented number of new river cruise ships is driving a boom in bookings with 130,000 British passengers taking a river cruise holiday in 2012.

The scale of the increased demand is still being masked by depressed sales of Nile cruises due to the continued unrest which followed the Arab Spring.

Although Nile sales did recover a little in 2012, they are still running at about half their normal levels. As it has always been the most popular individual river destination, this factor is keeping the UK passenger total below the 150,000 mark.

There have, though, been several years of consistent growth in demand for European and, to a lesser extent, Asian river cruises in China and the Mekong.

Just as with their oceangoing counterparts, the new river cruise ships are offering more facilities and flexibility with alternate dining venues and more spa options.

Operators are also increasingly offering more inclusive pricing with drinks, tips and transfers being included in the package and in the current economic climate, this is attracting more first-time river cruise passengers, some of them coming from the ocean cruise market.

“Safety was a big thing for our clients immediately after Concordia so we kept them informed about changes being made but this concern quickly receded and has completely gone now.

Ocean cruise clients have rarely switched to river cruising but there is such a strong demand for rivers now that I think we are seeing a genuine crossover, probably because the many new river boats being built have much more to offer now.”

Andrew Gardner, Cruise.co.uk

European Destinations 2009 2010 2011 2012

Rhine/Moselle/tributaries 21.2 23.6 20.0 26.9

Danube 11.3 12.5 12.9 15.0

Rhine/Danube 1.8 4.1 8.3 4.6

Rhone/Seine 8.6 8.0 10.1 10.2

Russian 3.8 4.4 4.9 5.2

Italian (Po) 3.9 2.0 2.9 3.0

Elbe 2.1 2.5 2.2 2.4

Douro 5.0 8.7 9.4 9.3

Other European 11.3 9.1 9.6 13.4

Total European 69.0 74.9 80.3 90.0

Non European Destinations 2009 2010 2011 2012Nile 57.4 58.0 25.2 28.3

Far East/China 5.5 4.7 5.0 6.9

Other non-European 4.9 4.6 3.3 4.6

Total non-European 67.8 67.3 33.5 39.8Source: PSA/IRN Research

18 UK River Cruise Market (000s)

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