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Giant ship shows how strategy varies at top cruise companies

Written by editor

Carnival Corp. is the world’s largest cruise company, but it won’t lay claim to the world’s biggest ship and says it couldn’t care less about that.

Carnival Corp. is the world’s largest cruise company, but it won’t lay claim to the world’s biggest ship and says it couldn’t care less about that.

The bragging rights belong to chief competitor, Royal Caribbean Cruises Ltd., which will launch the $1.2 billion Oasis of the Seas from Port Everglades in December carrying as many as 5,400 passengers. Its unique “neighborhood” design and menu of onboard activities — from ice skating to zip-lining — are spurring global excitement, enough to intimidate.

But if Carnival is threatened by the 220,000-ton vessel, it isn’t letting on. The company scrapped the idea of building its own 220,000-ton ship a few years ago and has never looked back, said Howard Frank, Carnival’s chief operating officer. Research showed it would be too much of a financial risk, restricted to serving only a few markets and a problem to manage with so many people onboard, he said.

“It’s not about building icons; it’s not about building trophies,” Frank said. “It’s about building assets that give you a good return on investment.”

Experts say Carnival and Royal both are successful in their own way, but their shipbuilding strategies are oceans apart. Carnival is a conservative spender with mix of ship sizes and a bottom-line mentality. Royal’s large ships splurge on frills and thrills in hopes of wowing guests and that allows the company to lead the industry into the future, executives contend.

Rod McLeod of McLeod Applebaum & Partners, a consulting firm in Coral Gables, has worked for both companies. He said a blindfolded passenger could step on ships built for Carnival and Royal Caribbean’s namesake brands and instantly tell them apart.

Recalling a Carnival ship that flashed strobe lights during a baked Alaska dinner, McLeod said Carnival offers guests a “fun, whimsical” environment at a price comfortable for middle-income households. The company’s shipbuilding efforts are anchored in economies of scale, so new ships are designed to be consistent with their predecessors, he said.

Royal, on the other hand, has a track record for unveiling some of the industry’s most anticipated new arrivals. The company fetches premium fares by building huge ships with “a softer, more European” flair and entertainment options consumers can’t find on other cruise lines.

“The last thing you’d find in a Royal Caribbean dining room is strobe lights,” McLeod said.

Royal has wagered big on its new Oasis class, which by 2011 also will include Allure of the Seas.

“We expect the Oasis of the Seas and the Allure of the Seas to be tremendous cash generators,” said Adam Goldstein, CEO of Royal Caribbean International. The company is moving existing Caribbean ships to make room for the duo and to expand at other ports, he added.

Industrywide, the recession has slowed demand and sent cruise fares to lows not seen recently. Consumers are nervous about job security, and are waiting longer to book vacations, cruise companies and travel agents say.

WMPH Vacations, which sells cruises through, has noticed Oasis bookings have slowed since the ship opened for reservations last fall. However, many of the most expensive cabins for 2009 sailings are sold and the ship will fill up closer to sailings, said Uf Tukel, co-president of the Delray Beach-based agency.

So far there’s no sign of eroding prices for the Oasis, Tukel said. A seven-night cruise in late January 2010, costs twice as much as the new 3,600-passenger Carnival Dream, because people are willing to pay more for what’s considered the industry’s latest-and-greatest cruise ship, he said.

“People love getting on the big ships.” For many cruisers bigger is better, because of the seemingly endless number of activities onboard, he said.

Critics say the Oasis may be too big and will disappoint some cruisers. Passengers may feel crowded in dining rooms or may not have enough time to explore ports of call because of delays getting on and off the ship, they say. Others may miss the individual attention that is customary on smaller ships.

“The ship is going to be enormously challenging to operate,” Frank said. “I’m not saying they can’t do it, but I think a lot remains to be seen.”

Goldstein says he’s heard that before: “Whatever the level of their skepticism, it’s matched by my optimism.”

The cruise line faced nearly identical criticisms of its Voyager class of ships, launched in 1999. But Royal passengers have come to expect the company’s new ships to be ahead of their time and offer more and more options, Goldstein said.

“We recognize there are challenges, but we are not daunted and we see great opportunity,” he said.

That sort of vision has helped cruising evolve into an action-packed vacation choice suitable for a mass audience, McLeod said. It’s also what may hurt smaller cruise lines such as NCL Corp. and MSC Cruises, which can’t afford to build comparable ships and don’t have the global reach Carnival does, he said.

When the smaller cruise lines say they will benefit from a ship like the Oasis — as they did at a Miami cruise convention this month — they’re spinning the truth, McLeod said. “They’ve got problems already, forget about the Oasis and the Allure, they’re dealing with the critical mass that Carnival and Royal Caribbean represent and struggling with it,” he said.

Together the two leaders command nearly 130 ships, but Carnival, with 89 ships and earnings of $2.3 billion last year, has a big lead on Royal’s total of 38 ships and $573.7 million in profits.

Carnival’s Frank jokes his only concern about Oasis is that “it will create a tidal wave and our ships will keel over.”

The company has no plans for a marketing blitz to counter the media splash Royal will likely make closer to the ship’s launch. It isn’t devising new pricing strategies with the Oasis in mind.

As far as Carnival is concerned, “It’s just another ship,” he said.