We sat down with experts to discuss the interesting components of the cruise line industry and what makes it a unique sector within the hospitality industry.

Cruise lines are a very interesting business because a new ship could cost $1 billion. For instance, the Norwegian cruise line has ordered six new ships called Leonardo class ships. The only thing they said was, it’s going to have a passenger capacity of 3,300 people, but what concept should they be?

They announced this in 2017, and the first ship will sail in 2022, so we have a five-year time difference. You have to predict: how is the market? What are the consumer needs? What are the trends? What is the competition doing? Because when a ship is being built it’s hard to change. You can maneuver a few things in terms of the restaurant concepts and services, but it’s pretty much set.

Cruise lines have to look into the future and predict. But it’s an interesting business, because it is a substitute for staying in a resort, and it has advantages.

In a resort in Florida, you go to Orlando and you stay in Orlando. You could visit some of the attractions there. But with the cruise line, you can visit several countries and several ports and do excursions. Today’s cruise lines are a destination by themselves. It’s similar to Las Vegas. Big casinos are destinations by themselves, but they have advantages.

Their advantages include lower labor costs because most of the employees come from countries like the Philippines, and they get paid competitive rates in terms of what they could earn in the Philippines. Resorts pay higher rates in the United States because of the minimum wage and all these things. They have an advantage in terms of their labor costs.

They can also source cheaper food because they buy in quantity for big cruise lines. Carnival Cruise Line has 103 ships, Royal Caribbean has 60, and the Norwegian cruise line has 25. These three companies control about 75% of the global cruise market. It’s an interesting business in terms of economics and offering their best guests more options.

The Norwegian cruise line is an interesting company because they’re using a concept called Free at Sea. So if you buy a higher level cabin, let’s say with a balcony, you can choose from up to six different Free at Sea. It could be a free bar, free specialty dining, a free excursion, free Wi-Fi, or it could be that two more people can stay free in the cabin. All of this is factored into the pricing, but it adds value and adds loyalty.

Some attractions can become destinations in their own right. In Orlando, Florida, we think about theme parks and resort hotels. Disney World is an attraction in its own right with its accommodation facilities and services. It’s almost detached from the rest of Orlando, existing as a destination within a destination.
Atlantis, for example, is a hotel resort company that includes everything for the visitor, from accommodation to restaurants, water parks, and zoos. Because everything is in one place, guests rarely feel the need to leave the bubble to experience anything in its immediate surroundings.
The inner harbor in Baltimore is another example of a tourist bubble. It’s a beautiful development equipped with a stadium, hotels, entertainment, retail, and restaurants. Still, in many ways, it feels detached from the rest of the city. You can almost draw a physical border between the tourism development and the rest of the city. That’s what we would call a “tourism bubble”.
Other great examples of tourism bubbles focus on families. Here, you’re thinking of theme parks, resorts but also examples like Disney Cruises and Disney Islands. A cruise is more like a floating tourist bubble, but it functions in the same way. Everything is on board, from accommodation to food, beverage, and entertainment. You can even visit places along the way, but if you never leave the ship, you still won’t be bored for a single moment.
So, on one hand, we have tourist bubbles, which often mean there is a physical demarcation between the tourist area and the non-tourist area. In large cities, you’ll often find tourism precincts. They’re a little different since they’re areas where tourism services are concentrated, but that physical demarcation isn’t as clearly defined.
Times Square is perhaps the most famous example. A tourism precinct has softer edges. It flows more naturally into the surrounding area.

It isn’t only Airbnb. Other brands have attempted to enter the sharing space—the sharing economy for lodging.

Oasis Collection is one of them. Oasis has attempted to accomplish something similar to Airbnb by utilizing unused capacity. They’ve attempted to design it in a manner that is distinct from Airbnb. While Airbnb tries to offer any type of rental goods, Oasis has defined the kind of product they want to sell on their platform, which is why they call it the Oasis Collection.

Another intriguing aspect of Oasis is the variety of destinations available. They also strive to build a member club where individuals can go if they rent one of their products in a specific location. So, for example, you might rent a curated apartment in Marbella, Spain. Marbella is well-known as a hotspot for nightlife enthusiasts. So you’d go there, rent the Oasis apartment, and at the same time, you’d be able to go to the Oasis club once a week for an all-night party. And you’re only permitted to visit because you’ve rented an Oasis.

Another notable feature of that concept is those apartment owners who rent on Oasis are also club members. If you’re an owner who puts your property on the Oasis platform and your apartment is in Marbella, Spain, but you’re traveling to Paris, you can enjoy the club in Paris because you’re an Oasis Collection owner. As a result, they’ve attempted to build a community of owners and guests who prefer to utilize curated apartments rather than Airbnb-style services.

What made all of this development happen was—and Amazon and Google were part of it, but other companies are also part of it—is the move towards the cloud. Cloud-based data and transactions enable things today that you couldn’t do when the cloud didn’t exist.
Back then, you had to store data in many locations. Now everyone can store data in the cloud. As a result, companies like Google and others can use artificial intelligence, machine learning, and other sorts of capabilities to mine the data and really get to a granular level of understanding of the entire wheel of travel.
That’s what makes it happen. It’s the cloud, artificial intelligence, and machine learning. You can expect to see several new jobs emerging from that in the future, not only in terms of data mining or engineering but also jobs at the property level.
Marriott launched the internal capability of mining its loyal customer’s social media to understand what is happening in their lives so that when they get to a property, Marriott can personalize the experience.
Think about someone posting a picture and saying, we’ve just had an anniversary. We celebrated our son’s 10-year anniversary, and we’re taking a vacation down to Florida. We stayed at Marriott.
Marriott knows at the property level that your kid had celebrated its 10-year anniversary. They can tailor the amenities they will leave in the room, or they can tailor the welcoming that they give you. Say, “Hey, welcome. By the way, we are glad you’re coming here for your 10-year anniversary.” That’s the level of personalization you can expect at the service delivery level, but also during the entire planning phase in the coming years.

In the hospitality industry, hotels are often described as two distinct businesses. One is the operating business, which involves the renting of the guest rooms and the provision of food and beverage. The other is the real estate business, owning the land and building which house the hotel property and operations. Those two distinct attributes, the fact that hotels are both an operating business and a real estate business, have been the cause of many of the major changes in the hotel industry over the past 30 years.

Going back to the 1990s, Marriott split into two companies, an operating company and a real estate company. The reason it did so was because investors felt that those two businesses were distinct and that the skill sets necessary to maximize both were different. There was inefficiency from having both under the same ownership structure. Due to increased online hospitality education on what works best, the hotel industry has largely moved in that direction of separating asset ownership from day to day operations.

One of the key concerns of hospitality and hotel investors is making sure the relationship with the manager of the property is on an even keel. Hotels often have a tension in that managers are compensated primarily on the basis of top line revenues while owners are compensated on the basis of bottom line profitability. Those two different attributes, as to how they are compensated, can lead to challenging relationships, especially as the business gets weaker during a economic downturn.

There is a whole field, in fact, of advisors and counselors that provide hospitality education and help hotel owners and managers work through these relationship issues. This affects everything from approving annual budgets to capital renovation plans as well as the day to day attributes that go into the hotel business.