On The Deck: Nathan Philpot
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So, after introducing two of our four industry contributors, we are ready to unveil number three. We have already bought you articles by Jo Rzymowska, associate vice president & general manager of Royal Caribbean for the UK & Ireland and James Cole managing director & co-founder of World Travel Holdings UK. Both offer a different perspective on the industry from a level of real seniority. Jo, in her current role as CLIA UK & Ireland chairman is one of the most senior executives in the business and James, after founding Cruise 118, is one of the most successful cruise sellers in the country. Our third contributor, Nathan Philpot, the sales & marketing director of Fred. Olsen Cruise Lines, is one of the most authoritative voices working within the small ship, British cruise market.
The company, despite being Norwegian, has become synonymous with the UK market. Fred. Olsen has arguably one of the strongest brand identities within the industry today. However, how is the market performing under the current economic conditions? Let’s hand it over to Nathan to find out…
Will late sales lead to a new financial model in cruise?
As you are reading this, I fully expect our 2013 sales to be ahead of 2012; this is absolutely fantastic news, and we thank all our partners for their support in making this happen – but we have moved into the black a lot later than in previous years.
We have entered a new world, with a different consumer mentality and booking model. For me, probably like quite a few cruise industry execs, it is never comfortable to see your forward position down on last year.
However, we have been very aware of the late booking trend and confident that cruising continues to be a fantastic product and that people will still want to discover more of the world by sea. June, for example, is +50% versus last year!
There is no doubt that it takes nerves of steel to hold prices, knowing that demand is in the market and customers will book. This ‘new world’ means that cruise lines are looking at more capacity than ever and, with economies of scale and benefits of 100% occupancy, it is easy to see why prices are dropped to stimulate demand. This is, of course, a short-term solution – it’s easy to sell a Pound for 90p! – which brings with it a number of negatives:
a) The consumer is educated to book later and later
b) Late booking drives lower and lower prices
c) Cruise agents earn less and promote less, which reduces demand further
d) Cruise becomes a less attractive commodity product, bought purely on price
e) Cruise lines earn less and have to pay less commission
You can see how this negative spiral continues. There could be fewer cruise lines, with less choice for the consumer and less earning potential for the travel agent.
So how do we reverse this pattern? There are a number of potential corrective actions. Probably the most difficult is matching supply and demand or, more accurately, ‘late’ demand, as I personally do not believe that there is any less demand to match supply in the cruise industry this year than in any other…it’s just late.
Pricing will be key. There has been talk of a low-cost airline pricing model being introduced, which starts low and increases nearer departure, reversing the current trend, but even if this could work, it will take time to change the current consumer mindset.
I am a marketing man at heart. I believe in strong brands and creating attractive customer propositions. By doing so, demand is created without the use of price. Destination continues to be the number one driver behind someone’s decision to cruise, and we as an industry take people to some of the world’s most attractive places. We must create attractive itineraries that are unique or unusual, and are in tune with the travel market.
Fred. Olsen Cruise Lines has taken some bold decisions of late, such as offering West Africa fly-cruising, because research told us that the new generation of over 55s want more exotic destinations. Our first Solar Eclipse cruise sold out in three days, and the second in five hours, more than 18 months in advance. We have not launched our 2014 brochure yet, and we’ve sold more than a third of our ‘Canada & New York’ cruise. So people will commit and pay for cruises early, if the itinerary is right.
We also need to ensure that we have accessibility and distribution. I believe that Coca-Cola once said that the key to their success was distribution – that anywhere in the world you should be able to stretch out an arm and reach a bottle. We believe in that model, and we want a strong network of travel agents throughout the UK, who support all our regional departures. That’s one reason why we made our recent decision to increase commission on late sales. There is no point working with agents in a market that is booking later than ever, if they cannot afford to promote your product.
We feel very confident about some very exciting 2014 and 2015 itineraries, which will sell very well early. However, we are also seeing a boom in late sales right now – I hope that this is the first and last time that we see it.
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