Markets & Finance

Bigger Cruise Ships for Younger Passengers


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The heart-quickening Iggy Pop drum beats that thump under Royal Caribbean's TV ads these days go a long way toward dispelling stuffy stereotypes of aged cruise-goers withering on placid deck chairs. The fast-paced spots feature families and 20-somethings frolicking in settings that look more like theme parks and sports complexes than slow-moving, lumbering boats.

The reality of today's cruise population may be a little less youthful than the ads suggest. The average cruise traveler is 47, married, and makes more than $70,000 a year. But analysts say Royal Caribbean is at the forefront of a positive trend, building enormous ships and targeting passengers -- especially families -- looking for entertainment.

Thanks to such marketing -- and heavy investment in new ships -- the cruise industry grew by 9% last year, up slightly from the annual 8.2% average. Now, Royal Caribbean is banking on the launch of a new sports- and activity-laden megaship to further boost demand this year. The $800 million Freedom of the Seas, built in Turku, Finland, launches on its maiden voyage this month, from Miami harbor bound for Cozumel, Mexico.

FUEL SWELLS. With capacity for 3,634 guests, it is the largest cruise ship ever built. And the Freedom is just a blueprint for even larger Royal boats in the future. Once its two sibling ships are finished in 2009, work will begin on Royal Caribbean's Genesis models, which will increase capacity another 50% and will cost upwards of $1.2 billion each to build.

The big capital outlays come at a tricky moment for the cruise business. Rising fuel costs have already had a significant impact on Royal Caribbean's first-quarter 2006 earnings, which were down to $119.5 million from $189.6 million one year ago. Pump prices for ship fuel are now $418 per metric ton, compared to $284 per metric ton during the first quarter of 2005.

Further complicating matters, nearly half of all cruises worldwide ply the waters of the Caribbean and Eastern Mexico. But public perceptions of the Gulf of Mexico have been badly hurt by two years of severe hurricanes, especially Katrina.

SEA MALL. Oivind Mathisen, editor of the trade journal Cruise Industry News and a 20-year industry veteran, says Royal Caribbean's move to megaboats is a smart way to address the problems. "They're broadening their market; it's an extremely positive development," he says. "Building bigger is win-win both in terms of economies of scale but it also helps generate more onboard revenues because passengers pay extra for those activities."

In that vein, the Freedom of the Seas features a shopping mall, gigantic rooftop pools, 10 restaurants, 16 bars, a sports complex, a rock-climbing wall, and a casino. To some seagoers, that might sound like hell on water. But thousands of others can't wait to climb aboard. Take a peek at the world's largest cruise ship in our slide show


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