Budget cruising is not dead – but the closure of P&O Cruises makes market sense

<span>It’s the end of an era with the demise of the P&O cruise brand but Australians will still be able to take to the seas.</span><span>Photo: Mick Tsikas/AAP</span>” src=”https://s.yimg.com/ny/api/res/1.2/bzOM.0cUhnDx9Y4EvUrfwQ–/YXBwaWQ9aGlnaGxhbmRlcjt3PTk2MDtoPTU3Ng–/https://media.zenfs.com/en/theguardian_763/e9e6fbbcd73d8b8d6b3077475dbd2e2a” data- src=”https://s.yimg.com/ny/api/res/1.2/bzOM.0cUhnDx9Y4EvUrfwQ–/YXBwaWQ9aGlnaGxhbmRlcjt3PTk2MDtoPTU3Ng–/https://media.zenfs.com/en/theguardian_763/e9e6fbbcd73d8b8d6b3077475dbd2e2a”/></div>
<p><figcaption class=It’s the end of an era with the demise of the P&O cruise brand but Australians will still be able to take to the seas.Photo: Mick Tsikas/AAP

The news of P&O Cruises in Australia may be winding down for those who fondly remember the brand’s unique Australian voyages. But experts say that while cruising remains popular, tastes are changing and the expansion of the Panama Canal is opening up new opportunities.

Announcing that P&O Cruises Australia would close in March 2025 and be integrated into Carnival Cruise Line, which is owned by global ship operator Carnival Corporation, CEO Josh Weinstein said the decision was made because of the small population of the South Pacific as well as “much higher and higher operation. regulatory costs”.

The Australian market is a small part of the operations of US-listed Carnival, the world’s largest cruise company, accounting for around 5% of its revenue.

In 2023, the Australian division generated US$1.2bn in revenue, compared to US$13.1bn in the US, and US$6.6bn in Europe, according to Carnival’s latest annual report.

Related: P&O Cruises Australia to shut down early next year

Due to the larger population and profitability of the northern hemisphere market companies deploy most of their ships to the Mediterranean and the Caribbean. However, demand in Australia remains strong.

The local cruise line industry has recently taken off, with passenger numbers in the latest season surpassing the pre-Covid era, a revival seen as significant for a sector once synonymous with the outbreak of the deadly pandemic .

Carnival’s Australian division, which includes Cunard, Princess and Seabourn, is scheduled to make 846 domestic port calls in 2024, compared to 575 last year.

Meanwhile, Virgin’s global founder, Sir Richard Branson, visited Sydney in December to launch Virgin Voyages in Australia, which targets the adult market, particularly singles. However, uncertainty about Middle East sea routes has prompted the company to ax next year’s Australian season.

P&O has a long history in Australia.

Originally, the Peninsula & Oriental Steam Shipping Company, as it was once known, ran steamships from Europe to Australia, carrying mainly goods and immigrants rather than tourists.

“P&O is a heritage brand that predates Australia as a country; people came here on a P&O ship in 1852,” says Chris Frame, cruise ship historian and author of a recent book on the history of P&O cruises.

“This was a huge moment in Australian history because it took quite some time for the colonies to get a steam service to the continent,” says Frame.

“P&O was a big part of Australia’s immigration story; it’s how so many people moved here to start a new life. And by the time the company launched a cruise service in the 1930s (a voyage from Sydney to Norfolk Island in 1932 sold out in one day) the brand was trusted, it had a place in Australian hearts,” he says.

Tourism was very successful in the 1930s in Australia. Due to the slump in international trade caused by the Great Depression, ships were able to dock longer and passengers traveled at an easier speed.

“These cruise ships were not what they are now; passengers used to set up committees and organize their own fun to decide what activities they would do. You would see pictures of egg and spoon races on a table,” says Frame.

Then, in the 1970s, after the rise of shareplanes, P&O repositioned itself as a budget-friendly party ship rather than primarily a mode of transport.

“The real change came when P&O bought Sitmar and the Fairstar cruises. [Fairstar] the fun ship came. She was free and cheerful and would take holidays to the South Pacific,” says Frame.

“There was no dress code, there was nothing to worry about on board, and that’s where P&O Australia got its identity right now as a very chilled out, Aussie experience.”

It’s hard to pin down P&O’s demise, says Pierre Benckendorff, professor of tourism business at the University of Queensland.

Factors include new entrants, the comparative affordability of flying abroad for holidays post-Covid, and the growing influence of cash-strapped baby boomers with a higher taste for budget cruises.

Related: Cruise bookings surpass pre-Covid numbers as industry uses aggressive pricing

Benckendorff says that of Carnival’s 10 cruise brands – which range from high-end luxury to niche and budget options – the company’s biggest, Carnival Cruise Lines, is experiencing a post-Covid boom.

“More than anything, this is about how they want to position these brands, and it would be fair to say Carnival [Cruise Lines] ships are bigger with higher capacity, and the brand is generating more profit than [it does] with P&O.

“Some of the P&O ships were also getting older, and as they are mostly smaller, it makes sense for the company to put their resources into the Carnival brand.”

The expansion of the Panama Canal in 2016 made sense to absorb the P&O business into the larger Carnival brand, with its larger, more modern ships.

Consolidating fleets and registering them in the Caribbean, rather than the UK, is a significant cost saving for the companies, according to Dr Patricia Johnson, a senior lecturer at Newcastle University’s business school.

“It was the expansion of the Panama Canal that released these terrorist ships into the Pacific Ocean. Before that there was no way they could deploy their fleets from the Caribbean to the Asia/Pacific without significant costs,” says Johnson.

Benckendorff says that instead of sending large ships around the base of South America to the Pacific Ocean for the southern hemisphere’s summer season, they can now travel through the canal.

Meanwhile, investment in new cruise ship facilities in Australia over the past decade means those big ships can dock here, he says.

Ultimately, the closure of P&O reflects Carnival Corporation’s confidence in the strength of the Australian cruise market.

“I would argue that the brand, as a cruise line, was fading as the ships got older, and the cruise market is so competitive,” says Johnson.

A Carnival Australia spokesman said “there will be a small number of job losses”. However, experts have noted that cruise lines have largely avoided hiring large numbers of Australians in an attempt to boost margins in recent years.

Benckendorff previously told the Guardian that companies operating in international waters are not subject to Australia’s minimum wage; registering ships in places like the Caribbean allows them to pay lower wages.

Benckendorff says the Australian market has matured since the Fairstar days, moving towards two main areas.

“Most boaters are retired baby butchers looking for something for their money or families who get pretty good value from an all-inclusive package – it’s competitively priced against staying in a five-star resort,” he says. .

“I wouldn’t say budget cruising is dead but I think the market has shifted … Carnival wouldn’t have made this decision if they didn’t think they could fill the bigger ships.”

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