domenico pellegrino

SEATRADE MED Marseille, 27 November

“THE MEDITERRANEAN MARKET” session

The development of interporting in the Mediterranean and the future prospects for winter cruising

Domenico Pellegrino, MSC Cruises General Director

WELCOME

Distinguished guests,

fellow speakers,

ladies and gentlemen,

Thank you for inviting me to discuss the Mediterranean market, and in particular to comment on the development of interporting and the future prospects for winter cruising in the region.

THE MEDITERRANEAN : THE HIGHLIGHT OF EUROPEAN CRUISING

There is no doubt that the Mediterranean is the highlight of European cruising, just as the Caribbean is for North American passengers.

MSC Cruises was born in the Mediterranean sea and we truly believe in its huge market potential. To demonstrate this, we are deploying two ships in the area this winter.

MED AS DESTINATION

We believe in the Med as a destination too. The reason of that is no secret.

According to UNESCO, nowhere else can such an array of culture and history be found in such a relatively small area, while the region is also considered one of the world’s 25 biodiversity hotspots.

The Mediterranean Sea represents 46,000 km of coastline. Almost 150 million people live on its shores, which is visited by 200 million tourists every year (around onethird of all international tourists), making it the world’s most visited region (Source: UNWTO).

CAPACITY DEPLOYMENT & DISTINCTIVE CHARACTERISTICS OF MED MARKET

In terms of cruising, deployment in the Mediterranean has increased by 195% in the last 10 years.

According to the last ECC report, 171 cruise ships with a capacity of over 221,00l lower berths were active in the Mediterranean sea in 2011. Collectively, these ships carried over 4 million passengers on nearly 3,000 cruises.





Overall, 2012 will add a capacity of over 22,000 lower berths to the global market, approximately 17,000 of which will be positioned in the Mediterranean (corresponding to 5 ships out of 7).

It is obvious from these numbers that the Mediterranean sea continues to lie at the very heart of European cruising. And Mediterranean cruising involves some quite distinctive characteristics, such as:

First: a market distribution that follows a special doortodoor pattern with a very large number of independent travel agencies.

Second: a multinational and multilingual audience (MSC Cruises carried over 180 different nationalities on board this year)!

Third: the practice of interporting, meaning the choice of taking on new passengers in various ports of call along the cruise itinerary.

OPPORTUNITIES AND CHALLENGES OF INTERPORTING

From one side, interporting opens opportunities: the logic behind it is to offer holidaymakers a port that is close to their homes, thereby considerably cutting the costs of transportation and at the same time allowing new destinations to turn into local or regional source markets (depending on the transport connections available in the area).

From the other side interporting also creates challenges and requires particular skills especially in the inventory, revenue management and distribution areas. We at MSC Cruises decided to strongly commit to this practice. We developed a strong knowhow in the field and extended this practice to the winter season, making a typical summer product like the 7night cruise available all year long.

In 2011, during the winter season, we deployed three of our biggest ships in the Med, bringing every day more than 11,000 tourists to Mediterranean ports.





What was the reaction of port operators and port authorities to this huge commitment and investment?

1) They kept operational costs flat all year round, without taking into account the large

variability that exists in ticket prices between the summer and the winter season. When cruise lines revenue drops by approximately 50%, flexible port costs could certainly represent an interesting incentive for cruise lines to stay during low seasons and I am here to call for ports to develop a flexible pricing structure that follows the seasonal pricing curve, so behaving as real partners of the cruise business.

2) The second reaction – or should I better say nonreaction – was the lack of investment in infrastructure in and around ports to sustain and ease cruise line operations during winter, when weather conditions are more variable and it is sometimes difficult for ships to access a port. The case of the beautiful port of Marseille that is hosting us today is a classic example of this immobility. Here a number of projects to modify the entrance of the port have been under discussion for many years, but never come to fruition. In the last days we’ve again heard of some progress been made and we really hope that they will soon be implemented.

Not being able to call at a port today means that we are often forced to turn around and berth elsewhere, where facilities and services are rarely dedicated or adapted to the embarkation/disembarkation of passengers.

FUTURE PLANS IN THE MEDITERRANEAN SEA

So, to sum up briefly, the Mediterranean cruise market is facing four important challenges: 1. exorbitant and not flexible operational costs;





2. underinvestment in port infrastructure; 3. constant erosion of the spending power of consumers, which is particularly affecting

Southern European markets

4. the geopolitical instability of some countries, that is dramatically reducing the number of potential itineraries and destinations in the Southern Mediterranean basin.

Let me close with some final remarks.

In 2012 the number of ports of call dropped, while the overall ships capacity increased. This can only mean that cruise lines preferred to keep their ships at sea instead of calling at ports.

Next year the overall deployment in the Mediterranean region is expected to drop considerably: next summer, for instance, the capacity offered in the West Med will be reduced by 30%.

It seems clear that cruise companies are gradually reconsidering their deployment strategies, moving their ships to alternative and more profitable areas, such as the Far East.

However, we should not forget that in the last 10 years, the main driver of the growth of the global cruise business has been Europe, and, within Europe, the Mediterranean markets.

If we want the cruise business to continue its growth globally, we need to sustain and defend cruise growth in Europe and in the Med.

Thank you!

domenico pellegrino

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