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Cruising For Success

Vacationers Choose Cruising In Record Numbers; How Can Puerto Rico Attract More Of Their Business?

Puerto Rico Ports Authority And Tourism Company Seek Ways To Cash In On Colossal Growth In Cruise Ship Passenger Visits

Smooth Sailing For Floating Resorts

by Evelyn Guadalupe-Fajardo

January 27, 2000
Copyright © 2000 CARIBBEAN BUSINESS. All Rights Reserved.

The number of cruise ship passengers visiting the Port of San Juan has jumped 37% in the past 10 years, paralleling the climb in number of people taking cruises. In fact, cruising has been the fastest growing segment of the vacation market for the same period.

Of the 56 cruise ships that called on the Port of San Juan 668 times last year, 21 made San Juan their home port--the destination where a cruise begins and ends its journey. Those ships brought nearly 1.2 million passengers to the port during fiscal 1998-99, resulting in a total economic impact for the island of an estimated $300 million in visitor expenditures.

Ships that designate San Juan as home port ships are profitable for the Ports Authority because the vessels are serviced in the harbor for fuel and other supplies and every passenger aboard must pay a head tax to arrive and depart from the island.

Home port vessels bring passengers who can extend their stay on the island as well as employees who spend money in shops and on food and entertainment.

Today, out of 40 cruise ships (including those visiting Puerto Rico on a maiden voyage) scheduled on the Ports Authority's 1999-2000 roster, 11 have already designated San Juan as home port. The 1999-2000 cruise ship itinerary is still subject to change and more ships will be added in the months to come. Insiders predict the final number will be 19, two ships lower than last year.

Although the number of cruise ship visits to San Juan have been declining steadily for the past 10 years, the number of passengers have grown. In fiscal 1990, cruise ships made 906 visits to San Juan, by 1999 the number dropped to 668. However during that same period, cruise passenger visitation increased from 866,000 to nearly 1.2 million passengers.

The average expenditures per passenger per visit to San Juan in 1995 was estimated at $158, according to a Price Waterhouse passenger expenditure survey conducted then. A new expenditure study, also by Price Waterhouse and sponsored by the Puerto Rico Tourism Co., is scheduled to be completed in April.

So port-of-call or in-transit cruise ships, which make San Juan one of many stops in their itinerary, are profitable for the merchants in Old San Juan.

If you build it, they will come

A new generation of megacruise ships being built today will attract even more passengers to San Juan, but only if a terminal is built to accommodate these vessels.

The Ports Authority is currently negotiating with Royal Caribbean to build a $240 million cruise ship terminal in Old San Juan to accommodate Eagle class vessels and allow for mixed-used development in the harbor.

Hector Rivera, executive director of the Ports Authority, will meet with Jack Williams, president of Royal Caribbean, in Miami to discuss some parameters within which the Ports Authority is willing to contribute to this project.

Ports Authority's three parameters are that it would make a maximum investment of $40 million if Royal Caribbean invests $240 million to construct the mega-cruise ship terminal, Ports Authority is to receive 6% interest revenue on those $40 million, and Royal Caribbean's fee payments to Ports Authority would have to be net of any income generated from other cruise ships docking at the pier.

If the deal falls through, Ports Authority plans to transform three cargo piers into tourism docks to accommodate the Eagle class vessels.

Last year, Royal Caribbean International launched its first Eagle class ship, Voyager of the Seas, to date the biggest cruise ship in the world.

The Voyager is a 142,000-ton, 3,114-passenger capacity ship almost twice the size of the older Vision class ships which are 72,000-ton vessels and carry up to 2,000 passengers.

This year, Royal Caribbean plans to launch Explorer of the Seas, a megaship that lists San Juan as a port-of-call. In 2001, Adventure of the Seas, another Royal Caribbean megaship is scheduled to launch and will likely designate San Juan as home port.

John Tercek, Royal Caribbean Cruises Ltd. vice president of commercial development, is hedging his bets. "It's not clear if Explorer and Adventure of the Seas will call on the Port of San Juan," he said. "It all depends on whether Puerto Rico has a facility that can handle them [megacruise ships] because the whole cruising experience starts when the passengers arrive at the terminal."

The competition

The Port of Miami recently completed the first of three megacruise ship terminals for Royal Caribbean.

"The Port of Miami built and paid for that terminal as well as gave us pricing discounts on port charges, just for us to transport our fleet there," Tercek said. "We (Royal Caribbean) in return made a 15 year commitment with Miami."

As Royal Caribbean's traffic volume grows in the Port of Miami, the company pays less.

"The mutual benefits are apparent," Tercek said. "Now we have the type of terminal we want and need. It can comfortably handle two Eagle class ships at a time."

Smooth sailing

Buoyed by a healthy economy, the world's cruise lines have some 35 new vessels worth $10.5 billion due out by 2002, with an additional 25, worth nearly as much, in the pipeline for delivery over the next five years.

Celebrity Cruise Lines, Royal Caribbean's more sophisticated fleet, is also building larger ships but more spaciously designed to carry the same number of passengers. For example, the Millennium--an 85,000-ton ship carrying 1,950 passengers--is scheduled to make its maiden voyage in June.

Like Royal Caribbean, Carnival Cruise Lines is also launching megacruise ships of its own. In November, Carnival's new 102,000-ton Carnival Triumph carried a record 3,413 passengers on its maiden voyage from New York to eastern Canada.

Carnival has five newbuilds, with a total capacity of 12,000 or so passengers scheduled to come into service between August and summer of 2003.

Given the potential for more passengers visiting San Juan from these megacruise ships scheduled in 2002 and beyond, the local government is devising enticements to keep these visitors on the island for additional days, both pre and postcruise stays--seeking to add more tourist dollars to the economy.

More ships, more dollars

Puerto Rico, undoubtedly the cruise ship capital of the Caribbean, has been working hard to attract cruise lines. The dredging of San Juan Harbor, the construction of new piers in Puerto Nuevo, and the construction of new tourism terminals in Piers 7 to 9 and 11 to 14 are examples of their effort.

More than $2 billion will be invested in infrastructure, hotel, entertainment venues, and parks--as part of the Golden Triangle project.

The government has also implemented a series of initiatives to improve cruise ship passenger's experience when arriving in San Juan--by adding tourism information centers at the piers, in the port areas, and expanding its Bienvenidos (welcome) programs--which gives information about transportation and highlights the island's tourist attractions--in both the ports area in Old San Juan and Luis Muñoz Marin International Airport in Isla Verde.

Other initiatives by the government include new maps and activity brochures provided to cruise ship passengers to highlight Old San Juan's attractions and an enhanced LeLoLai program.

"We used to have a Tourism Co. representative hand out Que Pasa tourist guide magazines at the ports area, but it was impossible to hand out these guides to all those cruise ship passengers," said Marta Torres, director of Special Events at the Tourism Co. "Now what we do is refer them (passengers) to La Casita tourism information center to pick up a copy of ¿Qué Pasa?."

Also, the Tourism Co. updated a film in 1997 about Puerto Rico that is shown aboard many cruise lines.

On board Royal Caribbean ships that visit San Juan, there are tour excursion information provided to passengers in their cabins about the activities that can be done in San Juan, according to Tercek.

"Typically a person (shopping advisor) gives a live presentation to the cruise ship passengers about what shore excursions are available and where they can go shopping when they reach a specific destination," Tercek said. "Also a video of that presentation is shown on TV in the cabins."

The local government is gung-ho to maximize room night production from the cruise industry pre/post stay vacations to increase the number of room nights cruise ship passengers spend on the island and the economic impact left by these visitors.

Why wouldn't the government be anxious to attract more cruise business which is generates $7 billion-a-year worldwide and expects to increase total passenger capacity by 57 percent by 2002.

According to Cruise Lines International Association (CLIA), only 11% of the U.S. population have cruised, while another 56% of American adults are considering it.

One major way the local government plans to attract more cruise ship passengers to San Juan is to begin providing incentives to travel agents and travel wholesalers, rather than to cruise lines, to include an additional stay in the cruise packages they offer to clients.

Since 1986, Ports Authority had given incentives to cruise lines for passenger volume. Today, the agency has handed over that responsibility to the Tourism Co., who in turn will provide $2.5 million in incentives starting in July to help sell land-based service and change the present passenger movement criteria into room nights in the form of pre-and post-cruise stays.

As a result of these new incentives, island hoteliers are preparing attractive hotel packages to try to lure more cruise ship passengers to stay in San Juan longer.

Hoteliers agreed that challenges of attracting cruise ship passengers to stay overnight in local hotels is compounded by the fact that they continue to occupy precious airline seats without staying in the hotels and these new megaships are comparable to floating hotels with plenty of amenities onboard.

On the other hand, airlines make decisions about levels of service partly based on reliable cruise ship passenger projections.

"The laws of supply and demand should force airline carriers to be more responsive by adding more flights to the destination," said Gary Pugatch, marketing director for Wyndham Hotels and Resorts in a previous interview with CARIBBEAN BUSINESS.

Bigger ships means more amenities

Cruising is said to have become more popular than land-based resorts, theme parks and excursions, according to the book Selling the Sea, written by Carnival president Bob Dickinson and industry expert Andy Vladimir.

The newer and bigger ships offer more amenities to keep their passengers busy. For example, the Voyager of the Seas offers amenities such as an indoor ice-skating rink, rock-climbing wall, nine-hole golf course, 1,350-seat theater for broadway-type variety shows, inline rollerblading track, full-length basketball court, 450-foot long entertainment boulevard with shops, and eight restaurants for dining, among other conveniences.

Yet another way that could be an economic benefit to Puerto Rico of the cruise industry is for local distributors to provide provisioning to these cruise lines.

"The door is open for provisioning," Tercek said. "We want to buy more local products, but they have to meet company standards."

Cruise lines do little provisioning at San Juan. It is a fact that cruise ships that call on San Juan do their provisioning in St. Thomas, which has a storing port.

Cruise lines do not buy their supplies from St. Thomas, but they do pay a certain amount of harbor fees and salaries to move the cargo containers.

All of the heavy products that cruise lines buy in bulks from the U.S. mainland are shipped to St. Thomas to load on the vessels.

"The docks in Puerto Rico were not designed for the movement of huge 40 foot containers," said Mike Ronan, director of destination development at Royal Caribbean. "We need docks that can handle the movement of containers, the unloading of passengers as well as the loading of new passengers."

The pier infrastructure in Puerto Rico right now can not handle all those purposes at once. Only the Pan American and Frontier Pier can take on that burden.

Cruise line panelists at the Florida-Caribbean Cruise Association (FCCA) Conference held in October at the Westin Rio Mar Beach Resort & Country Club told several tourism ministers, who were interested in providing products and services to the new megacruise ships, that opportunity does exist for cruise lines to buy more products and services in the Caribbean, but that this process requires creative entrepreneurship on behalf of those interested.

The cruise lines also claimed that some Caribbean islands could not provide quality service nor the amount of products needed in a reliable way to meet company standards.

Royal Caribbean reiterated the importance of its megacruise ship terminal project by saying it would open a window of opportunity as far as the possibility of provisioning is concerned in San Juan.

"The project would provide infrastructure to supply water, fuel and food," Tercek said. "The local distributors have plenty of time (3 years) to get involved in this business."

Furthermore, Royal Caribbean has no current commitment with San Juan, if it builds the megacruise ship terminal it would make a significant commitment.

"If we have our larger ships based in San Juan we would have to entice North Americans to get onboard these vessels," Tercek said. "That would mean free marketing for Puerto Rico."

This Caribbean Business article appears courtesy of Casiano Communications.
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