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This podcast is brought to you by
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Knowledge at Wharton. Please visit
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knowledge.warton.upen.edu
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for more information.
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Richard Feain is chairman and CEO of
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Royal Caribbean Cruises, the Miami based
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global cruise company that operates 36
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ships under the Celebrity Cruises and
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Royal Caribbean International Brands,
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among others. He joined the company in
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1981 as an outside director and became
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chairman and CEO in 1988.
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He spent 13 years before that at GOTAS
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Larsson shipping, a Londonbased owner
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operator of cargo ships. Knowledge at
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Wharton asked him to update us on the
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cruise business. Richard, thanks for
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joining us. Bobby, thank you for having
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me. As an employee of Wharton, I'm very
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curious about the fact that companies
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and hopefully educational institutions
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are now using cruises to hold business
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meetings, seminars, new product
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introductions, even conventions. What
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What's your take on that part of the
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business? Is it growing? And what kind
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of feedback do you get from companies
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that do this? Actually, it's interesting
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because that's one of the fastest
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growing parts of our business. And um
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for us, it has two particular
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attractions. One is it's the highest
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revenue earner in our business which I
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find fascinating and two also
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interestingly it has the highest
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satisfaction. So from the organizers
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point of view they have a captive
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audience. The audience enjoys themselves
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and they really can keep them all
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together and from the participants point
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of view they seem to have the
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opportunity to do the meetings that they
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need to do but they also um have it in
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such a wonderful atmosphere. So for us,
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it's um it's a business that we're
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really working to expand. It's actually
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uh close to 15% of our business today.
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Interesting. Uh I know that the the old
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image of cruise passengers has changed.
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It used to be they were older people.
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They stuffed themselves as much as they
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could and played shuffle board all day,
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etc. Uh now I know you have things like
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rock climbing and and inline skating and
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and water parks and even surfing on the
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ocean. What are some of the new newest
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things that are available to cruise
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passengers? Well, you know, there was
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this this old image of cruising um which
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was it really appealed. Well, I would
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never say this, but there were people
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who used to say that cruising was only
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for the newly wed and the nearly dead
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and uh that never was a fair
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representation. Uh in fact, our average
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passenger last year was 42 years old and
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our income level is very much middle
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America. We're looking for family income
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of 50 to $75,000.
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So, we're really not looking for little
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old ladies in tennis shoes. We're really
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looking at the average American. And one
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of the reasons that we offer so many of
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these exotic type activities is not only
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because it's fun to do and the people
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who do it love it, but also because you
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can't very well have this stereotype
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that this is for an old sedentary
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vacation and still see people surfing on
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board or people rock climbing or uh ice
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skating or the professional shows that
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we do. Um, so it not only helps because
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people enjoy it, but it helps breaks
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those old old stereotypes. What are some
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of the other demographics? You said 42
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is the average age. What about men
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versus women, singles versus married,
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uh, business travelers versus vacation
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people? I know you said 15% of your
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business is now uh is now actually
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companies. But um, what are some of the
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other demographics? Uh, very much a
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cross-section. If you if you took a
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snapshot of the United States and you
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took a snapshot of our passenger base,
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you'd be remarkably similar. Um 51%
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female, 49% male. Um we have um um we
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married is a large percentage of the
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population, children, family groups and
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growing multigenerational groups. So uh
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children, their parents, their
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grandparents, etc. all in one group. Uh
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historically actually we haven't done as
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well in attracting minority groups. Um
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and so that's something that's been
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growing very quickly. Uh Latinos has
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been one of the fastest growing minority
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segment that we've been going after.
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African-Americans has been an ethnic
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group that traditionally we haven't been
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as successful in appealing to and that's
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growing fairly quickly. It's also a
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large growing group of people uh with
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disabilities who are finding um that the
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ships offer unique unique access. Uh in
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fact, we were very pleased that we just
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took a group of um over 3,000 deaf
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people on one cruise and everybody said
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you can't do that and it was wildly
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successful. So we we do a lot in
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appealing to different demographics, but
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basically we they're across the board
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almost any interest group um any um age
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demographic group you can think of uh
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will be there. Have you been able to
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capitalize on the fact that people are
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so fed up with flying? I think one
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columnist recently said that taking
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going on an airplane is like being held
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hostage. Uh have you been able to kind
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of get some of those travelers over to
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to the cruise ships? And also, what
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about land-based vacations? Are you
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competing more with them? Well, we've
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always competed with other types of
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vacations. Um, but we compete very
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successfully, I'm happy to say. And
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people find, in fact, if um if you take
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a cruise, and if you survey people who
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have taken a cruise and a land-based
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vacation, 94% say the cruise is as good
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or better than the landbased. So,
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satisfaction levels are terrific. One of
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the advantages of cruising is it it does
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eliminate a lot of the hassles of
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traveling. You don't pack and unpack.
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You you pack once and that's it. Um most
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of our people still fly to our
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destinations, but they don't have to.
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One of the interesting things is that
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60% of the American population now lives
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within driving distance of one of our
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ports of call. So if you want, you can
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drive. Um but if you fly, it's only one
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flight and you're there and you
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eliminate a lot of the hassle once
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you're there. Yeah. Uh, Federal Reserve
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Chairman Ben Bernani used the word
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recession this week for the first time.
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I know it pains us. Yes, I know. Now, of
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course, the obvious question is, is your
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business hurt by the economic turmoil
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and what do you do to counteract that?
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Well, uh it has to be affecting all
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businesses and it has to be affecting
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all of us. And of course, the economic
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situation is also hurting us indirectly
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because um um the downturn in the US
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economy is partly to blame for the
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impact on the US dollar and that of
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course affects many of our cost
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including our fuel costs which is
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horrific. Um but the interesting thing
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is how well cruising has held up. um you
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would expect and many people think of
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cruising as a luxury and a luxury a
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discretionary expenditure that's the
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first thing that has to go. The fact is
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over the last couple of years we're
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looking at increased bookings, increased
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pricing. We've grown about 10% and we've
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raised our price. We filled all that
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extra capacity and raise our prices
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about 5% on average. Um and so
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little I nobody says they're recession
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proof. Think we're proving to be
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recession resistant and the reason for
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that seems to be two things. One is
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cruising is simply something or
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vacationing is something that most
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people no longer consider a luxury but a
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necessity.
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The other thing is unfortunately
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cruising is still too cheap. Cruising is
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still uh cheap by relation to other
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vacations and um um the result is that
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you can take a cruise and if you look at
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it it's probably cheaper than what your
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alternative would be. Okay. Uh I know
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it's a very competitive business.
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Carnival is still the largest cruise
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line, but not the best. Not the best.
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No. Right. Just the largest. Um, how do
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you make sure that when people think of
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taking a cruise, they think of you
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first?
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Well, um, that's both a marketing
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question, but also I think people
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underestimate the importance of of word
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of mouth and the importance of of the
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service to accomplish that. Um, I
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actually joined this company 20 years
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ago and I remember being asked when I
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was joining, you know, Richard, I took a
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cruise and the service is so amazing.
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How do you create or how does your
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company create such amazing levels of
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service and um standards of of uh
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satisfaction?
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And I said at the time, that was 20
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years ago, I don't know, but I intend to
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find out.
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And 20 years later, um I'm still shocked
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at um the men and women who work so
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hard. And we have about 45,000 of them
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that work um day in day out,
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long hours, long weeks, um hard work,
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and they still convey
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absolutely that they're enjoying
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themselves and that they're they're and
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like doing it and they're successful at
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it.
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in terms of getting more people to come
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and in terms of getting people to come
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on a Royal Caribbean or Celebrity or
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Azamara or Pullman cruise. Um the way we
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do it is we simply offer a better
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satisfaction than others in our
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competitive set. People consider their
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vacations highly and they think about
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them and they talk about them. So people
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come back and they tell their friends
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about them. And so in each of our
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competitive markets, in each of the
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segments that we focus on, we aim to
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provide the best quality product in our
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competitive set. And that's how we
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continue to get more more guests and
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more profits. Okay. Uh I I suspect that
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more and more cruise passengers are
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bringing their cell phones and their
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laptops, etc. on board. Is that creating
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a problem in terms of any disruption or
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is it just a bad idea for people to do
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this when when they're on vacation?
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Uh, on the one hand, it's a bad idea
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because you really are on vacation and
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we all wish that we could just get away
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from the office and just enjoy
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ourselves. But it's a fact of life and
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my job isn't to think whether this is
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good or bad. It's what people want. And
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so the fact is people want it and so we
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have to provide it. So on most of our
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ships and shortly on all of our ships,
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uh your cell phone will work just as if
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you're walking down the streets of a
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different city. And so if you were if
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you flew to London, your your cell phone
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would still work and it's the same
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thing. You don't have to connect
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anything. You don't have to sign up for
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anything. It just works and that
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functions. Um, I'll leave it to others
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to decide whether that's good or bad,
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but it's what our customers demand and
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therefore it's what we provide. All
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right. Uh, there there have been reports
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in the last year or two about health
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problems in some cruise ships, mainly
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stomach viruses or whatever. Is this
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something that you uh your company has
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needed to worry about in terms of
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perception about the health and safety
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of going on a cruise or are these
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problems now kind of behind the
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industry? Well, I think um it's it's
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interesting. First of all, we have to
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worry about them. In fact, you always
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have to worry. The the primary uh
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concern is always the health and safety
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of our passengers and crew. And so, we
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put great effort behind that. Um, in
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addition to that, you have to worry
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about the perception because the
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perception often differs from the
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reality. And I mentioned that when it
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comes to cruising, um, people's general
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perceptions of cruising is sedentary is
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wrong. And some of the early publicity
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on some of the stomach flu outbreak uh
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was also misleading. And it's it is true
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we have stomach flu on cruise ships.
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It's actually the second largest illness
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in the United States. And so something
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that affects um some 20 million
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Americans also affected several hundred
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crew cruise passengers. But I think
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we've actually by by being upfront about
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it and by being um clear with the facts,
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working with the Center for Disease
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Control and others, I think we've been
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fairly successful in people
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understanding that you can get sick on a
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cruise ship. You can get sick at home
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and bring it on the cruise ship. Um
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you're probably safer if you get it home
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and bring it on the cruise ship because
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we we're better able to take care of
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you. But um but I think we've done a a
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pretty good job of educating the public
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that in point of fact um cruising has is
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safer than probably most other things
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you could be doing. Okay. You mentioned
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in an earlier conversation that you have
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been on 10 full cruises uh while you've
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been working at the company, which of
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course sounds wonderful except that then
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you have to remember that you're
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actually probably working during these
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cruises or at least that you can't
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relax. What is your biggest management
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challenge aside from having to go on
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these courses?
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Uh, well, I have the best job in the
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world. There's absolutely no question
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about it. I work for a wonderful
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company. I work with people I respect
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and admire. Um, you you can't get a
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better job than I have and I enjoy every
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minute of it. Um, um, one of the perks
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is you do get to go on cruise and my
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family love it. Um, I feel like I'm a
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little bit in a fishbowl, so I may not
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like it as much, but I still enjoy it.
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And, um, the big challenge has always
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been and will continue to be, um,
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getting the best people, keeping them
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motivated, keeping them in have them
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feel they have good jobs and that
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they're enjoying it, too. Because if
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they don't enjoy what they do, they
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can't provide the kind of service. And
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if there's one thing that differentiates
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cruising from almost any other vacation
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you have, it's a choice. I said one
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thing, I'm going to give you two. Two,
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one is choice. You can do almost
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anything you want on a cruise ship. And
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so you get more alternatives to choose
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from. And the second is you will get a
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level of service that you're not used to
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in in almost any other thing you may be
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doing. All right. My last question to
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you is
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if I took a cruise this year, I would I
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would find a certain number of
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activities and and service and and you
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know, places I could get off at, but say
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I took a cruise in three or five years.
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What how is what would I find that's
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going to be different? What's new that's
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going to be coming up that hasn't hasn't
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quite hit the industry yet? What new
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service? What new, you know, type of of
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place that you would go to or what, you
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know, what's kind of the hot new thing
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coming up in cruising? Well, our our
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mantra at Royal Caribbean is continuous
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improvement. Um, you know, there's no
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such thing as perfection in any human
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endeavor, but you constantly get better.
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You constantly learn. And, uh, our best
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inspiration for the future is what our
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guests say they're looking for. So,
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we're constantly on the lookout for what
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they're doing in other places, what we
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can imagine that they can do. I mean,
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let's face it, who would have imagined
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five years ago that somebody would want
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to go rock climbing on a cruise ship or
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surfing? And yet, the popularity of
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those is just overwhelming. Uh, I think
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what you will see is you will continue
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to see more and more destinations that
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you can go to, more and more interesting
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places. The the cruise offers just such
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a wonderful way to see places and to see
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it in a interesting way and in a
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non-threatening way. uh less hassle,
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none of the security lines, none of the
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um packing and unpacking that you would
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do if you tried to do this some other
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way. Um so one is you'll see more places
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to go and you'll continue to see we have
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seven ships on order. You will continue,
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I can promise you, you will continue to
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see new and different things. So we
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recently announced that our newest ship
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has a lawn club. You can play croquet on
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real grass. Um none of these putting
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greens on fake grass. You'll do it on
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real glass. We have a glass blowing
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glass blowing operation in conjunction
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with the Corning Museum of Glass. So,
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it's as as broad as your imagination is,
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I think the cruise industry will try and
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satisfy it. Great. Thanks very much for
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joining us. Thanks for your interest.
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Appreciate it.
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For more information, please visit
00:16:37
knowledge.warton.upen.edu.
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