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I was talking recently with a colleague who consults for the cruise industry, and it struck me that the cruise industry desperately needs scenario planning. With ships approaching $1billion each, multi-billion-dollar fleets require strong management, including innovation and risk mitigation. Scenario planning can help drive both of those.
The following list includes several high-level external and industry factors that are both critical and uncertain for the cruise industry.
External Uncertainties
The Economy The Great Recession hurt the cruise industry, but overall it proved resilient. With open questions about the future of the global economy, and the shift of wealth to the South and East, traditionally strong markets may pale to opportunities in new ports. Future economic disruptions in the US and Europe may make continuity planning difficult.
Factors on the economy include:
- Disposable income
- Consumption patterns
- Consumer confidence
Natural Disasters With routes in the Caribbean and other natural disaster-prone areas, cruise companies need to plan for disruptions and passenger safety issues.
Geo-political Instability Hot wars in Asia or the Middle East would disrupt the global economy, cause increases in fuel costs, and decrease the sense of safety for passengers. Terrorism could play a big role in the future when it comes to customer perceptions of safety. Cruise ships were commandeered in past conflicts and could be again in the future, perhaps by countries other than the flag they fly.
Cost of Fuel Recovery from the Great Recession, along with general demand growth, will drive up the cost of fuel. Given historical volatility, and forecast for the price of fuel at any particular time remains highly uncertain.
Industry Uncertainties
Reputation With a number of ships experiencing onboard illnesses, equipment malfunctions, groundings, and other at-sea mishaps, (some of them resulting in loss of life), the cruise industry has suffered many well-publicized incidents over the last several years that damaged specific brands as well as the industry as a whole. It remains unclear how well the industry is remedying these issues by applying lessons learned and educating the public on the results of improvements. Ongoing issues without clear remediation will likely continue to erode confidence in the industry, and further tarnish its reputation. How many more incidents consumers will accept before they pull back dramatically from cruise bookings is an uncertainty tightly tied to reputation.
Demand Tourism is fickle. Tourism depends on the economy, but it also depends on fads and whims. The cruise industry is generally at the mercy of declining demand when that occurs. Declining demand from general economic issues needs to spur innovation in order to ensure that the cruise industry receives its share of available tourist spending. Scenarios can help by creating frameworks for driving discussions about innovation and differentiation. Those same discussions are important in an expanding market because the cruise industry must remain relevant to tourists in order to attract their spending.
New Competitors New competitors are one of those generally known “unknowns” that are hard to resolve since it is difficult, if not impossible, to imagine something that doesn’t exist yet. That said, scenarios can help frame emergent leisure activities in a way that will help people imagine how they might compete—and complement—the cruise experience. The Internet could easily be a competitor for people’s leisure time. By bringing it shipboard, it complements the experience rather than competing with it.
Product Differentiation Like new competitors, product differentiation takes place against a blank canvas. It is not easy to foretell the innovations of competitors. But again, with scenarios, a large set of potential differentiators could be generated, and then later assigned probabilities as to which competitor, given mission and vision, would likely be an early adopter. The exercise won’t produce exhaustive results, but it will help executives stretch their conceptual muscles, helping them anticipate change, rather than reacting to it.
New Technology Technology uncertainties exist at multiple levels. Each new ship incorporates new navigation and operations technology, as well as new entertainment technology. It is costly to keep a ship up-to-date on operational technology, but trade-offs must be made between safety and investment. On the entertainment front, the trade-offs are less clear, because the technology is really an investment in differentiation or parity. The same is true of consumer technology, like Wi-Fi—if not available shipboard its glaring omission will reflect negatively on the cruise experience. Scenarios force organizations to actively scan the horizon and engage in strategic dialog about the implications of emerging technology, therefore helping with anticipation and reducing the costs of reaction.
Regulatory Environment Environmental regulations can add significant costs to cruise operators, in terms of fuel cost increases, as well as training and other operational investments to ensure compliance. Although these costs are often passed along to the consumer as price increases, some regulatory regions may be too restrictive for cost-effective operation.
New Generations of Cruisers Why will Millennials cruise? What experiences will they expect? The cruise industry is already seeing different expectations and behaviors from their younger passengers.
Changes in Booking Behavior Customers are starting to book closer to departure dates. The web and mobile devices are eliminating the need for local travel agents, for most of whom, cruising was the last mediated transaction. Scenarios could help build industry models that reflect different types of future booking behaviors that will allow planners, managers, and executives to explore new and different ways to engage with their potential customers.
Strength and Variety of Partnerships Increasingly, cruises are experiences that include sub-experiences provided at the ports. Each port offers its own unique set of experiences. The partners exist within the flux of the local economy and other trends that may not affect the cruise provider, but may well turn a once attractive destination into a less attractive one. Consumer preference plays a role here as well. Understanding the waxing and waning of local economies and consumer preference is important. No single linear model can capture the complexities of these local partnerships on the global level.
Ports Although the land bordering the sea is well known, and the investments in building passenger-ready ports well broadcasted, it remains uncertain over the next decade and beyond, which new cities will emerge as ship-ready tourist destinations. As populations move south, new venues will likely emerge. Trying to anticipate those venues will help strategic planners better recommend business models as well as ship designs, amenities, etc.
Scenarios: From Uncertainty to Action
These are only a few of the issues the cruise industry should consider uncertain. Not all of them are new because some uncertainties are perpetual, which is why good planning includes planning for any future, not just the future you believe or hope will happen. Cruise organizations will need to look at technology, marketing, relationships, strategy, finance, and human resources to navigate these uncertainties effectively. Using scenario planning, the cruise industry can become as adept at navigating the uncertainties of strategy, as they are at navigating the uncertainties of the sea.
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