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Old December 18th, 2010, 12:24 AM
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Default Regent carves out a profitable cruise niche

From Sun-Sentinal.com

2010 was a tough year for many businesses, but not for Regent Seven Seas Cruises.

The Fort Lauderdale-based luxury cruise line is posting its best year ever in revenues and profits. What's more, the three-ship company expects 2011 to stay strong, as customers seek value in its all-inclusive packages that include suites with balconies, gourmet food, bar drinks and even shore excursions, a perk not included in the ticket price of most other cruise lines.

Regent's President Mark Conroy spoke with the SunSentinel about the company, trends in cruising and other topics aboard the 700-passenger Seven Seas Voyager at Port Everglades. What follows is an edited version of the interview.


Q. How can you compete with companies much larger than yours, when they have much more bargaining power with suppliers?

A. We gained some economies, when we joined with [three-ship] Oceania Cruises in 2008 and merged some back-of-the-house operations, such as accounting. But we don't need millions of customers to compete. I need about 70,000 customers a year and Oceania needs a similar number now [to stay full.] That allows us is be a little more nimble in finding those customers.

Regent also relies on repeat customers. On a typical cruise, past customers consume 62 percent of our capacity, because they travel more often and take longer cruises. The travel agents are our secret weapon too, because they tend to recommend us to their friends and their clients in our market.

I see the large lines introducing cruising to probably millions of passengers a year, and they are creating a pool of experienced cruisers, and all I have to do is fish in that pool. I just have to convince them that there's a different way to go cruising on a smaller, luxury ship, with no line at the port.

We really try to listen to our customers. For our Alaska cruises, we include a one-night pre-cruise hotel package in the price, and if you don't use it, you get a credit for non-use. I'll tell you 70 percent of our cruisers that are booking are taking the package.


Q. What consumer trends do you see in 2011 in food, technology, pricing or other areas?

A. People are looking for healthy food. We added Canyon Ranch spa and their menu selections in 2009. And guests want choice. We have open-seating [for meals,] so you typically dine when you want where you want. Guests also want value. I think the inclusiveness of our product is what really distinguishes us.


Q. What's included in your price, and why did you switch to an all-inclusive format?

When the recession began, we were looking for what to do to get people traveling again and to get them to book early. We didn't want to discount our product, because you end up getting a different mix of customers. Plus, you train customers not to pay $600 a day but to pay $300 a day, and we as a company can't live on $300 a day. So, we looked at what people spend money on and where we could offer value.

We realized that the largest spend anyone had on board was shore excursions. So, we decided to give them away. Any tour we used to sell for $200 or less, we give away, and those that retail for more than $200, with limited capacity, we sell but without a big margin. About 80 percent of the tours that are taken now are the free ones.
This allows us to maintain the rates we have: about
$600 per day per person. Our ticket price is probably more expensive than others, but the vacation in the end doesn't cost much more because so much is included.


Q. How did Regent finish up 2010, and what is the outlook for 2011?

A. The best year in our history had been 2008. The first time we felt the recession was late September 2008 after the stock market made that big adjustment downward. Our customers tend to be high net worth people, so they basically stopped spending because nobody knew where the bottom was. But as the stock market bottomed out, and we did some pretty aggressive promotions, business climbed back.

2010 will be the best year in our history, and 2011 is tracking well. We look at forward bookings. Our average bookings are 240 days before departure, so we can see when things slow down and react to it. What we're seeing now, compared to last year, is that our occupancy is about the same and our rate is up substantially. We're very profitable.


Q. When this tough economy ends, will you go back to a more traditional model, not all-inclusive?

A. The inclusiveness is going to stay, because it really is a differentiator.
Customers are all about value. And price is not the leading-edge. People want to make sure they have a great experience, don't waste their time and don't get nickel and dimed.

Doreen Hemlock can be reached at dhemlock@sunsentinel.com or 305-810-5009.
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Old December 18th, 2010, 10:40 AM
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Paul, thanks for posting the article; I guess the cancellations and the thousands they paid out to each of us impacted isn't having too big an impact on the bottom line. I wish the interviewer had asked him why the 2011 World Cruise wasn't selling too well and why they aren't even sailing a 2012 World Cruise. Sounds like Regent has given up on a lot of their "old timers" and going after new blood.

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Old December 18th, 2010, 11:20 AM
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It does appear that they are getting new blood even though he says it is a 62% return rate.

I am guessing the all-inclusiveness of the tours is a big selling factor since other lines do charge for them. Tours in Europe on a 14-day cruise can easily add up to $2000 - $3000 per couple (or even per person). If they give away everything priced at $200 or less that is a pretty significant savings.

I have not sailed on Regent since the 1990s so I cannot comment on the product, but as I recall I enjoyed the trip at the time, and they still have the same ships.
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Old December 18th, 2010, 01:43 PM
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I have really taken advantage of the free tours. It is amazing what a difference it is for three days in St Petersburg with eight tours over three days and only paying for one that included a private reception at Catherine's Palace and then a wonderful dinner.

We took the twelve person Ephesus with an Expert for free (now they charge a little extra for this tour). When all day tours include a meal you are saving at least $100 per day per person.

For our cruise next month, parasailing in Key West is free as well as all of my tours to see ruins (if I wanted the ones with flights or helos I would have had to pay more) and Arlene's snorkeling excursions.
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Old December 20th, 2010, 09:53 AM
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I am curious what folks think about three things:

1. Why would a privately held cruise company publicize it has higher profits? I am trying to balance the justification for the admitted $600+ per person per day cost and the announcement that Regent is allegedly making more money than it ever did. It would seem to me that talking about value and not that each cruise sold generates more profits for Regent than if it sold them more in line with other cruise lines would make more marketing sense. To me customers and potential customers do not want to be told they are paying more only to line the pockets of the cruise line.

2. Does all the talk about profits and comments like, "We are very profitable" sound like Regent is looking for a buyer or setting itself up (again?) for an IPO? I know there are folks that really enjoy the Regent experience and, like Marc, take full advantage of tours (multiple tours per day), enjoy the food and service levels and find great value in it. Others believe that the tours are something they would never or rarely take, that Regent is inclusive but not luxury and/or that paying for drinks they will never have makes it an overly expensive alternative. Other than for purposes of finding a buyer, the message seems to me like Regent is scaring off the educated consumer.

3. Why do you think Regent is focusing on "fishing" for mass market cruisers rather than those that have experience cruising on other luxury lines?

So are you happy for Regent, think it doesn't make any difference to your cruise decision or, possibly, do you find it a turnoff?
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Old December 20th, 2010, 10:08 AM
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I think the implied message in all such announcements is that the company is making money because customers find their products appealing, and that they are seeking them out and buying them.

Now, as I said, I have not been on Regent in a long time, so I have no idea if what you are saying, Eric, about customers saying they don't find the "free tours" to be worthwhile, is true, or any othjer perceptions by customers about Regent.

I know that on the average cruise ship any tours where I would pay $200 would come with fairly high expectations from me. $200 is a moderately expensive tour IMO. I would expect horseback riding, zip-lining, snorkeling from a yacht with lunch, or something along those lines. Of course they could be over-charging, I wouldn't know.

Marc, I am looking forward to your answers, since you are a Regent regular.
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Old December 20th, 2010, 10:26 AM
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I have a hard time understanding why a cruise line wouldn't say, "Our guests find great value in our cruises and especially like the all inclusiveness of things like tours and drinks so they know what their total cost will be before they set foot on our ships. The proof is that we are sailing full and X% are repeaters."

Possibly the line would want to drop the "X% are repeaters" if the number is declining, but otherwise my questions really go to why would you say, "Heck, we are making more off of each guest than we ever have".

As for the quality of the tours, I can tell you that some tours are raved about, other are not. Some of that is a function of the business...as the cruise lines are very much dependent on the tour operators and what is actually available in any port. However, there are also an increasing number of complaints that (a) the tours are disorganized and crowded; (b) people are being frustrated by not getting the "free" tours they want due to others taking multiple tours; and (c) the "good" tours (and ones which would have been $200 or less) are now extra cost. I can't tell you how much of that is just sour grapes versus legitimate versus luxury cruisers finding a less than luxury experience.
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Old December 20th, 2010, 11:00 AM
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It does make sense that offering free tours would be a cost factor for the cruise line, so they would have to raise prices - but in fact several river cruise lines and the new line "Voyages to Antiquity" offer fare-included tours, flights & hotels and they manage it. They just need to get more busses and guides. I would hope Regent has their increased tour load factor under control.

So, I suspect the point of the press release is to say "our new plan of charging extra but offering a more inclusive cruise (pre-cruise hotels, tours included in the cruise fare) is working.

I agree it is a bit unusual for non-publicly traded companies to announce record earnings, but when traded companies do it I don't think most of their customers look upon that as a sign that they are getting ripped off - cost has nothing to do with the value proposition. They look at it as a sign that customers appear to like what the company is selling.
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Old December 20th, 2010, 12:09 PM
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Paul, it has been assumed for quite a while that PCH was "fattening up" Regent and Oceania to be spun off by Apollo; they try not to keep their investments long term.

I agree that it is poor marketing to put out in public press the fact that their margins have increased even with all the costs associated with the Voyager cancellations.

I stay with Regent for the overall experience. So far, my cruises since excursions have been included are to new ports; thus easy for me to find a worthwhile excursion to my liking. In the long run; I would just prefer cheaper fares. This is also true with respect to all the shipboard credit that is now given (by AMEX, TAs, CLIA, etc). We have $1100 shipboard credit on a one week Caribbean cruise where all excursions are free. Besides a trip to the spa, some high end champagne and scotch, Arlene will again hit the gift shop for some nice jewelry. At least they haven't raised gift shop prices.

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Old December 20th, 2010, 12:19 PM
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Marc...

I agree with you about prices. In my opinion the current pricing practices of all of the luxury cruise lines is just a mess.

First they publish the "brochure prices in the brochire, and then also put the discount prices in the brochure. Excuse my French, but "foutaise"

Then you have to figure out the value of the cruise credits, which varies by cruise line, and what you are able to use them for (spas, yes or no? tours, yes or no...)

And furthermore, I did a thorough comparison of the cost of a suite on Solstice vs a bottom of the line "suite" on Regent and found out the cost on Regent is similar to if you took Solstice and drank four drinks a night, ate in alternative restaurants almost nightly and took tours in every port. - and paid your gratuities of course.

Bottom line, when you go on an all inclusive cruise you are PAYING for it all those drinks. It is not as if they are giving them to you for free.

But let's be honest here - luxury cruise lines are NOT for penny pinchers - they are for people who want a luxury cruise experience. They will pay more for a btter experience because they can afford it.

So - when it comes to comparing luxury cruise lines I don't really think "value" is as much a factor a "quality."

And quality is a matter of taste. Some people find more value in a nice stateroom, while others find it in an interesting itinerary, or the selections at a buffet.
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Old December 20th, 2010, 01:54 PM
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Paul, with your Solstice comparison, did you compare "quality" or just quantity? I still think Regent has higher quality, greater flexibility (special orders and requests), and a more relaxed environment than would a suite customer on Solstice.

As for drinks, I guess I come from a part of the population that likes to drink on cruises. When you add in wine price to pre dinner cocktails and after dinner drinks you easily get to four drinks in your comparison without even counting cold drinks by the pool or wine with lunch. Arlene doesn't drink much but she probably goes through a half dozen cans of diet coke per day; that adds up too.

Marc
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Old December 20th, 2010, 02:47 PM
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Here is what I wrote below:

Basically, you are correct, that it is easily possible to spend more on alcohol on a cruise (and there is nothing wrong with that). That is one variable.

In fact - i dont think I even included shore excursions in the comparison.

I had identical staterooms, premium restaurants, gratuities, etc. You can read it below. If you add in extra liquor and shore torus, it makes lux a better deal.

Comparing Luxury to Mainstream Cruise Costs

By Paul Motter

With all of the obfuscation in luxury cruise pricing it is very hard to compare luxury cruise prices to mainstream lines where all of the ancillary costs are charged separately from the cruise fare. Most luxury cruise lines now include airfare, shore excursions, all beverages and gratuities in the cost of the cruise. If they do not specifically include these things, they generally offer thousands of dollars in onboard credit to cover those costs.


To provide a working comparison, we looked for nearly identical staterooms on nearly identical cruise itineraries on a luxury and a mainstream cruise ship. Then we estimayed how much a cruiser could spend on a mainstream cruise if he was given an unlimited spending account, similar to what people get on all-inclusive luxury cruises.

Here is what we found; it is possible to spend the same amount of money on a mainstream cruise as it is to spend on a luxury cruise - and you will get identical accommodations on a nearly identical cruise itinerary. But here is the difference - you will be getting the top of the line accommodations on the mainstream line, but the entry-level stateroom on the luxury ship.

We looked at Regent Seven Seas Voyager sailing November 23 on a seven-day cruise to the Western Caribbean from Fort Lauderdale. You can get the entry-level suite for $3365 per person. This suite is 300 sq. ft. with a 50 sq. ft. balcony. The cruise fare includes all gratuities, air fare (roundtrip), transfers, shore excursions and all beverages including a mini-bar in your stateroom stocked with beer, soda and bottled water.

Then we looked at Celebrity Solstice, one of the more attractive, upscale but still mainstream cruise lines as far as price is concerned. The Celebrity Solstice sails a seven-day Western Caribbean cruise on November 7, 2010. One can book a sky suite for $1895 per person. The Sky Suite is 300 square feet with a 79 sq. ft. balcony.

Since most ancillary costs are not included in the cruise fares on Celebrity, we have to assume that the person cruising would be willing to use as many of these services as they would if they were included in the cruise fare. This means they would have a pre-dinner cocktail and possibly two glasses of wine with dinner and an after dinner brandy. We also have to assume they would go on a shore tour in every port, as if they were included in the cruise.

So here is what a person on an unlimited budget might spend on Celebrity Solstice; Celebrity Solstice Sky Suite cruise fare $1,895, air fare $500, shore tours $500, transfers $20, beverages (seven days, water, soda & liquor) $235 ($35/day), $75 gratuities and $140 for four special meals: total: $3,365.

That's right, in the end both cruises have identical prices; so let's look at the differences:

On Regent Voyager one would be sailing on a smaller, luxury ship which means faster and more personalized service with more crew members per passenger. The restaurants are open seating with gourmet food provided by chefs from Le Cordon Bleu. For this reason we calculated four dinners on Celebrity Solstice in the upscale alternative dining rooms which generally cost $35 per person per meal.

Regent ships are extremely comfortable and accommodating, but they are definitely quiet by comparison to a mainstream or premium cruise ship that carries close to 3000 passengers. Celebrity Solstice offers far better stage shows, a bigger casino, more sports options, a bigger spa and fitness center and more onboard shopping. The nightclubs will be more active and there are more food options onboard.

In the end; for the same price you can get the entry level suite on a luxury ship; Regent Seven Seas Voyager, or you could spend a lot more and get much nicer accommodations. Or you can get the second highest category of suite on Celebrity Solstice (the Sky Suite) and you can pay separately for all of the options not included in the cruise fare.

Some people say they do not like all-inclusive pricing because they don't want all of the optional costs included in the cruise fare. The usual line is "I don't want to supplement someone else's drinking." This comparison shows that you have to really splurge on Celebrity Solstice - drinking and touring at almost every opportunity - just to match what you are paying for on the luxury cruise ship.

But by the same token, on a luxury ship you will get things you would never get on Celebrity Solstice such as complimentary caviar service in your stateroom, or small shore tours with top notch guides for just a handful of people.

On the end we can draw two conclusions; (1) it is possible to have the same accommodations on a mainstream cruise ship as you can get on a luxury cruise, but the mainstream cruise line offers the option to economize and sail the same cruise for much less; and (2) that luxury cruise lines generally start where mainstream cruise lines leave off, meaning that the top mainstream accommodations are the bottom tier on a luxury cruise ship.
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