Amid Swamped Market, Princess Growing

Princess Cruises is plowing ahead with plans for major expansion and other changes, despite a recent industrywide slowdown in demand among travelers for cruising.

The 35-year-old company has six new ships on order, is relocating its headquarters from Century City to Valencia and, come October, will be part of a separate company being formed by its parent company, Peninsular & Oriental Steam Navigation Co. in England.

P&O; announced in February that it intended to separate its cruise businesses from its port and ferry operations to enable both businesses to pursue strategies that best meet their long-term objectives and accelerate their growth.

Those objectives have yet to be revealed by company executives. A company-imposed quiet period has been enacted while the separation process is taking place. It is expected to be finalized in October.

“In the short term, cruisers will not see any changes in the Princess product,” Richard James, Princess Cruises senior vice president of customer service and sales, said in a statement. “However, in the long term, the new company will be better able to manage its continued growth, leading to greater and quicker expansion efforts.”

Once the “de-merger” is complete, both P&O; and Princess will be listed on the stock exchanges in London and New York. P&O;’s other operations have already been publicly traded in London, but this will mark the first time the cruise operations will be made available to the public.

The new company is tentatively being called P&O;/Princess and will feature P&O;’s cruise operations in Britain and Australia, Aida Cruises in Germany (P&O; acquired a controlling interest in Aida in November) and Princess in the United States.

A spokesperson for Princess said each cruise division is expected to continue operating as in the past and maintaining individual identities.

P&O; operates 21 ships with 11 more on order.

“It is unique to have that many ships coming but the industry is experiencing tremendous growth right now. Through these orders, P&O; is making a long-term investment,” James said in an interview.

Ranked as one of the top three cruise lines, Princess announced its expansion plans last summer, following on the heels of the success of Grand Princess, a ship weighing 109,000 tons with a capacity for 2,600 people.

Grand Princess made its debut in 1998 and was the largest cruise ship in the world until Royal Caribbean introduced Voyager of the Seas, a 142,000-ton ship with a capacity for 3,114 passengers, in November.

Even so, Princess is embarking on a $3-billion expansion plan at a time when travel agents say there is a glut of cruise berths.

At the same time, industry executives say there is a vast untapped demand, since the cruise ship sector comprises less than 5% of the vacation market.

“We’re spending billions of dollars and barely scratching the potential,” said James, who joined the company 16 years ago when it only had three ships in its fleet.

“Our biggest challenge is getting the word out,” James added. “The industry as a whole is growing, and we’re growing at a rate that’s right for us. It’s not about wanting to be No. 1; it’s about delivering a quality product to our customers. We’re not competing against [other cruise lines]; we’re competing against the vacation category.”

Rhonda Holguin of Montrose Travel said marketing by the cruise industry has begun to change the attitude of travelers.

“Princess has always had this reputation for elegance while Carnival is the fun ship,” Holguin said. “But we’re seeing Princess expand to younger people, say in their early 40s and 30s. They are evolving with the demands of the consumer.”

Those demands include providing passengers with as many options as possible, including food, activities, children’s programs, entertainment options and itinerary choices.

“Ultimately, the ship is the destination,” Holguin said. “People want to go on a cruise, have fun and not have to get off the ship if they don’t want to. It’s all about choice and Princess is giving that to them.”

When booking cruises for clients, Holguin said, it’s really up to them to choose a cruise company.

“We provide them with the selling points of each one but it’s like comparing apples to apples. Each one offers so much now and the prices are all similar, so the choice may come down to which ship has a better cabin location,” Holguin said.

“Overall, we’re pretty even for bookings between the different lines.”