In a new report titled “Focus on Slowing U.S. Cruise Demand,” financial services company Morgan Stanley suggests that the North American cruise industry “may be more mature than believed.”
The company charted the annual growth rate in North American cruise pax and how this has changed as a percentage of the population. “Last year, 12.1 million North Americans took a cruise, down 0.7% on 2014, taking the 5 year compound annual growth rate in passenger growth to just 1.9%, broadly in line with population growth.”
When compared to the total population, Morgan Stanley reports that 3.4% of North Americans took a cruise last year, a figure that has not really increased for the last 5 years, which leads to the question: “Given the strong structural growth drivers associated with cruising (aging demographics, rising living standards, a change in vacation habits, etc.) why hasn’t passenger growth been stronger?”
Morgan Stanley doesn’t believe the answer has anything to do with the weak economic recovery, as this slowdown began 10 years ago, before the financial crisis.
“One reason might be because cruise penetration is higher than it appears: Although only 3% of Americans cruise, this is equivalent to 16% of the outbound travel market, and given cruise’s average vacation cost of $1,400, we think its share of the premium outbound vacation market is considerably higher.”
Struggles with attracting new-to-cruise pax could also be a factor. “Another reason might be because the industry has struggled to attract younger pax, such as millennial, for whom connectivity and authentic experiences are critical, and while satisfaction rates and repeat usage are high, maybe it is becoming more difficult to attract new first-timers given the shift towards the sharing economy and local experiences.”
It’s not just an intellectual exercise. “Whatever the reason,” concludes Morgan Stanley in their report, “If U.S. cruise demand has gone ‘ex growth,’ then given this market constitutes over 1/2 of global cruise passengers, the 44% global supply growth we see coming given the record industry order book is even more worrying.”