EXECUTIVE SUMMARY ES1 STUDY OVERVIEW Cruise travel is one of the fastest growing sectors of the global tourism industry. Once small and localized, the cruise industry has grown into a sophisticated, multi-billion dollar enterprise with a wide assortment of products to offer vacation consumers. The cruise lines fueling industry growth have not been the sole recipients of the economic benefits generated by their efforts; for strategically located destinations with port and tourism infrastructure capable of accommodating cruise ship activities, the economic benefits derived from cruise ship homeport and port-of-call operations are sizable. These favorable economic benefits, coupled with other intangible contributions, are the central reasons why many communities are actively marketing and enhancing their destinations and welcoming cruise ship operators and passengers. In 2008, Mitchell Duplessis Projects (PTY), Ltd., (MDA) and supporting consultants were retained to prepare an analysis of market trends and outline a strategy for the City of Cape Town to increase its stature as a leading regional cruise destination. Conclusions associated with the study pointed towards opportunities over the long term for Cape Town and South Africa to welcome increased levels of cruise port-of-call and homeport traffic. These opportunities were linked to a number of performance factors—most notably, redoubled efforts by the City of Cape Town and regional partners to make gains in marketing and coordination activities. Following a series of local and regional discussions, growing cruise travel and leisure activities was elevated to a national discussion and initiative, with the Department of Tourism (DOT) seeking to advance the basic research and conclusions of the 2008 study in five areas: • Update market analysis and considerations to reflect notable changes in global and regional market fundamentals; • Broadly address the strengths and weaknesses of regional actors capable of directly and indirectly welcoming cruise and other maritime tourism activities; • Assess the economic impacts associated with current and projected cruise passenger levels; • Broadly weigh environmental and other impacts associated with current and projected cruise passenger levels; and, • Building from the foundation of work under the 2008 study and expanded 2009 assessment, update the overall strategic approach to growing of South Africa’s cruise and maritime tourism business. This Executive Summary highlights the key findings of this 2009 study effort. South Africa Cruise Tourism: Prospects, Benefits and Strategies | Final Report November, 2009 Version 5.0 | Page 3 ES2 SOUTH AFRICA CRUISE PROSPECTS Over the past three decades, the cruise industry has emerged as one of the fastest growing and popular segments of the worldwide travel and leisure industry. Since 1980, the global cruise industry has experienced a ten-fold increase in passenger carryings, expanding from an estimated 1.4 million to over 15.4 million in 2009. In this section, we summarize cruise industry growth trends on a macro level and estimate the growth potential for these activities to South Africa. ES2.1 Growth of the Industry The cruise industry has achieved extraordinary growth over the past three decades. The industry’s success over this period is primarily a result of: (1) Cruise line development of new, diverse products (ships, itineraries, ports, et. al.) embraced by their clientele; (2) Conversion of traditional land-based resort guests into cruise passengers; (3) Delivery of a high level of passenger satisfaction, leading to repeat customers; (4) Creation of a business model adaptable to changing market conditions; and, (5) Effective cruise line control of competition, operational costs, and revenue streams. With many of the fundamentals that contributed to the success of the industry still in place, cruise passenger volumes are expected to continue their positive growth trend. Projection of the worldwide industry suggests passenger levels could expand from the present 15.4 million to between 21.3 and 28.1 million by 2025. This growth will create demand for expansion of the number of present homeport and port-of-call facilities—especially within the industry’s most popular and profitable regions. Over the mid- to long-term, industry capacity growth will encourage expansion into new market regions, inclusive of Southern Africa. ES2.2 Other Global Cruise Industry Highlights • Four primary cruise conglomerates dominate the worldwide cruise industry. Carnival Corporation is the largest cruise operator, controlling more than 47% of total berth capacity worldwide. Royal Caribbean Cruises, Ltd. (23%), Norwegian Cruise Lines / Star Cruises (9%) and MSC Cruise (6%) are the other major industry participants. The remaining 15% of the industry is comprised of several smaller operators. • Inclusive of all cruise operators, the Caribbean remains the principal location for cruise capacity placement, followed by the Mediterranean, the U.S. West Coast, Northern / Western Europe and Asia / Pacific. In total, over eighteen different primary cruise sub-regions are present within the global marketplace, with many of these consisting of even smaller deployment characteristics and typical itineraries. At present, the Southern Africa region welcomes less than 1% of total industry capacity per annum. • While the majority of cruise passengers are still sourced from North America, cruise lines have made dramatic inroads in welcoming increasing numbers of Europeans and South Americans through creation of products designed to meet their specific travel desires and tastes. South Africa Cruise Tourism: Prospects, Benefits and Strategies | Final Report November, 2009 Version 5.0 | Page 4 • Thirty-one new cruise vessels representing an expansion of industry supply of nearly 68,000 berths and an investment of $US 18.5 billion are planned through 2012. These new deliveries along with projection of future vessel inventories suggest total industry supply could double by 2025. ES2.3 The Southern Africa Cruise Region and South Africa Prospects The Southern Africa cruising region extends along the African coast from Kenya to Namibia and includes Madagascar, the Seychelles and Mauritius. Vessels found within this region are purposefully deployed (i.e., in the region for multiple types of itinerary offers for a period of several weeks) or vessels on world cruise deployments and passing through the region. Cruise vessels in the region are typically smaller, older vessels catering to very specific market segments. Over the past four years, industry supply deployed to the region has fluctuated between 0.20% and 0.57% of the worldwide total. The region overall has not had the level of success most other emerging cruise regions have witnessed over the past decade. Challenges to growing the region have and continue to include: (1) Cruise line and passenger concerns over regional safety and stability, inclusive of widely publicized acts of piracy; (2) Current conservatism by cruise lines for deployment to regions considered far afield and a potential financial risk; (3) A lack of understanding by cruise lines of region offerings and possibilities; (4) High flight and vessel repositioning costs; and, (5) The small size of the regional consumer base for cruise products. There is a case for optimism over the medium to long term, however. Positive industry fundamentals, a reliance by cruise lines to explore and develop new cruise regions and products, Southern Africa’s diversity and marquee ports-of-call and major events such as the 2010 FIFA World Cup all are expected to provide space for improved industry prospects in the region overall and South Africa specifically. In consideration of these and other factors, cruise passenger levels to South Africa are projected to climb to between 200,000 to near 1,000,000 throughput passengers by 2025.1 South Africa’s success in marketing and delivery of a national / regional cruise experience will go far toward achievement of passenger throughput levels at the higher end of the projection range presented. ESTIMATED THROUGHPUT PASSENGERS – ALL SOUTH AFRICAN DESTINATIONS, 2010‐2025 1,200,000 1,000,000 800,000 600,000 400,000 Throughput Passengers Throughput 200,000 0 2010 2015 2020 2025 1 Throughput Passenger (also referred to a revenue passenger). Total number of passengers arriving and/or processed at a cruise homeportLow and port-of-call. Medium High SO UR CES: MDA AN D LDI, 2009 South Africa Cruise Tourism: Prospects, Benefits and Strategies | Final Report November, 2009 Version 5.0 | Page 5 ES2.4 South Africa’s Ports-of-Call and Homeports Cruise lines and their respective decision making groups—marketing and sales, marine operations, logistics, and finance—expend significant effort in evaluating a destination, and congruently, an itinerary to ensure it meets the various criteria established to differentiate their product offering and sell desirable and profitable cruise products. South Africa has a broad offer of prospective destinations of appeal for cruise lines. In reviewing seven South African destinations against cruise line selection criteria, Durban and Cape Town offer the most compelling cruise homeport opportunities for cruise lines. Leading ports-of-call candidates for the country include Richard’s Bay, Port Elizabeth and Mossel Bay. SOUTH AFRICAN DESTINATION OPPORTUNITIES Durban Cape Town Richard’s Bay East London Port Elizabeth Mossel Bay Saldanha ES3 IMPACTS AND BENEFITS TO SOUTH