The undeclared race for supremacy in the
European cruise market reached a fever pitch this month when
Carnival Corp. revealed a plan to form a joint venture with
Iberojet Cruceros, a two-ship cruise outfit based in Mallorca.
into a letter of intent with Orizonia Corp., Spain's largest travel
company and Iberojet's parent, to transfer Iberojet's two vessels
to a newly formed joint venture and to grow that fleet over the
next few years through the acquisition of existing Carnival Corp.
Carnival has not
said what ships it would transfer to the new company.
For anyone keeping
score, Carnival made its move on the heels of the purchase by the
world's second-largest cruise company, Royal Caribbean Cruises, of
Spanish cruise and tour operator Pullmantur last
And in December,
Carnival entered into a letter of intent with TUI AG, Europe's
largest tour operator, to form a joint venture to develop a new
cruise brand for the German-speaking market.
This is in addition
to action in Asia, where Carnival's Costa Cruises became the first
international cruise line
to embark Chinese nationals from ports in China last July. Shortly
thereafter, RCCL announced it would do the same when it begins
operating the Rhapsody of the Seas out of Singapore, Hong Kong and
Shanghai in December.
reason the world's two largest cruise companies are staking their
agendas on burgeoning foreign source markets, particularly Europe,
is growth potential.
The European cruise
market is underpenetrated. As Carnival noted in a recent Securities
and Exchange Commission filing, Europe is the largest single
leisure travel vacation market, but cruising has had a much lower
penetration in Europe than it has in North America.
About 10 million
North Americans cruised last year, or 3% of the total population.
In contrast, only 3.3 million Europeans, or just under 1% of the
population, booked a cruise, according to G.P. Wild, a U.K.-based
business research firm.
Bank of America
analyst Michael Savner pointed out that only 1% of German consumers
and 1.4% of Spanish consumers cruised in 2005, compared with 3.5%
But according to
the European Cruise Council's latest statistics, between 2003 and
2005 the number of European cruisers increased by 13%; in Italy the
number grew by 28%, in Spain 26% and in Germany 10%. The U.S.
market is also growing, but more slowly, at 9%, according to
"The cruise lines
recognize you can't base it forever on the North America market and
the Caribbean," said U.K.-based cruise industry analyst Tony
Peisley. "There is a limit to how many ships you can put in the
Caribbean, and there is also a limit to pricing there. ... If you
can't put [capacity] there, you have to put it somewhere else.
Europe is the next best market, and Asia will follow
The Spanish and
German cruise markets, the targets of the most recent investment,
represent two sides of European cruising.
Germany has a
tradition of cruising, said Peisley, while Spain has almost none.
In Germany, he said, there is a well-established tradition of river
cruising, budget and upmarket cruises. Carnival's venture with TUI
will tap into the middle cruise market.
"TUI is very strong
there and well established," Peisley said. "They were at the bottom
end of it and the top end of it, and they could see that all the
money was in the middle. Rather than set it up themselves, they
wanted someone with the expertise of Carnival to hit that market
Spain, on the other
hand, has almost no tradition of cruising. While the U.K., Germany
and Italy have had indigenous cruise companies for the last
century, Spain has not, despite its 3,000 miles of coastline.
"It's a market that
doesn't understand the product, so it's a hard sell," said Peisley.
However, that also means that the cruise companies can go in and
"really create the market they want," he added.
Germany has double
the population of Spain, with more than 82 million people as of
July 2006. As the fifth-largest economy in the world, its $2.6
trillion gross domestic product is more than twice Spain's. But it
is also one of the slowest-growing economies in the European Union,
according to U.S. government figures.
Spain, on the other
hand, has flourished since joining the EU, and its economy is
rapidly expanding, suggesting a potential that many nations cannot
"It's a growing
economy, and as a result there will be natural growth in tourism
and revenue but also in devoting that tourism share to the cruise
industry," said Jose Campos, secretary general of the Association
of Mediterranean Cruise Ports, based in Barcelona. "Already, that
trend is happening."
Campos said that
until recently the Spanish perception of cruising had been that it
was a product "reserved for the wealthy." That was reinforced by
U.S. cruise lines, which brought foreign passengers into ports like
Barcelona on massive ships. The perception is changing, he said, in
part because of the formation of local cruise lines like Pullmantur
and Iberojet, which opened the market to Spaniards.
"The language of
the ships is important," Campos said. "Spanish people don't speak
much English. If they chose Royal Caribbean and they don't speak
English they may not feel very comfortable. They have their
traditions and their way of eating Mediterranean diets."
This may be a key
reason that Carnival and RCCL decided to forge deals with existing
Spanish cruise lines rather than simply move their own ships into
Spanish coastline also represents an opportunity for cruise lines
to emulate the homeport boom that both Carnival and RCCL's cruise
brands benefited from in the U.S.
"A lot of ports
that ships are going into increase the possibility of getting
Spanish passengers embarked in those ports," Peisley said. "That is
how Italy does so well. They have Venice, Genoa, all these places.
After Italy, [Spain] is the best country from that point of view. A
lot of cruise ports means a lot of potential for people to drive.
You don't have to fly them in."
Campos said many of
the ports around Spain were seeing investment in facilities that
will support this trend. He noted that some ports on the Costa
Brava north of Barcelona had experienced 100% growth in cruise
calls over the last few years. A new cruise passenger terminal
recently opened in the southern Spanish town of Castellon.
are likely to increase as countries see the contribution cruise
tourism makes to their economies. A report recently completed by
G.P. Wild for the European Cruise Council indicated that the cruise
industry generated 1 billion euros in direct spending in Germany
and 683 million euros in Spain.
in Germany and Spain also reflects the ability of people to fly
easily within Europe.
"With the increases
in low-cost air fares, EU travelers can now get to a number of
embarkation points at reasonable prices," according to an
institutional private equity investor with significant
The investor also
noted that Carnival and RCCL "are flush with cash and looking for
incremental growth to complement their existing product lines. Cash
is a dead weight on the balance sheet, and it needs to be deployed
or the stock price will stagnate."
contact reporter Johanna Jainchill, send e-mail to [email protected].