CRUISE SEGMENT SUB-REPORT WESTERN CAPE TOURISM MASTERPLAN DEVELOPMENT STRICTLY CONFIDENTIAL PREPARED FOR: The Department of Economic Development and Tourism (DEDAT) of the Provincial Government of the Western Cape, South Africa PROJECT NUMBER: EDT 004-19 FOCUS: UK, Europe & Americas LEADERS: Rashid Toefy, Deputy Director-General Ilse van Schalkwyk, Chief Director Economic Sector Support SUBMITTED BY: ANITA MENDIRATTA, Founder and President - AM&A DATE: February 11th 2020 FINAL 1. INTRODUCTION In Q3 2019 ANITA MENDIRATTA & Associates is honoured to have been invited by DEDAT to participate in a process around establishment of, as expressed by DEDAT: “a 15- year tourism master plan for the Western Cape (WCTMP). The Master Plan will set the foundation to start shaping the development needed to maintain and develop a sustainable and thriving tourist destination.” Central to WCTMP development is conducting comprehensive research around the potential of the Western Cape for travellers from two priority global regions, namely: 1) The Americas: representing 16.64% of current overseas travellers to South Africa with 57.2% of those visitors going to the Western Cape (WESGRO) 2) Europe: representing 60.57% of current overseas travellers to South Africa with 62.0% of those visitors going to the Western Cape (WESGRO) with emphasis on Megatrends and Destination Potential. This process is well underway, with Draft 2 of AM&A’s research underway with DEDAT. Within the report composed by AM&A, 15 Traveller Megatrends were identified as central to shaping the future of tourism growth globally. Within the 15, one of them, namely CRUISE TOURISM (no. 10), represents a significant, continuous- growth niche within global tourism. Top-line review of the cruise tourism megatrend from the AM&A report, as shared below, yielded enhanced interest from DEDAT: TRAVELLER MEGATREND 10: Cruise Tourism has been a booming segment in recent years, leading the way in scope and scale of segment CRUISE TOURISM development. As stated by Cruise Lines Industry Association (CLIA), the world’s largest consortium of cruise lines representing over 50 cruise line companies which control over 95% of global cruise capacity: ● The cruise industry is projected to continue to grow throughout 2019 with an estimated 30 million travellers expected to cruise, up 6% from 28.2 million in 2018. ● In the coming year 18 new ships are on order from CLIA cruise lines. ● A total of 272 CLIA-member cruise ships are projected to be in operation by June 2019. 2 | Strictly Confidential ● The cruise industry continues to make a positive impact on communities around the globe by sustaining 1,108,676 jobs equalling $45.6 billion in wages and salaries and $134 billion total output worldwide in 2017 ● 65% bookings occur online, 37% at a travel agency ● From a traveller perspective, growth is grounded in cruise tourism’s: • reach of destinations • ease of travel (only unpack once) • affordability • all-inclusive packages eliminating additional costs / surprises • opportunity for multi-generational travel • openness to solo travellers • high degree of passenger personalisation of on-board and import experiences • advances in connectivity making onboard working possible • shift from traditional focus on older (55+) travellers to younger, Millennial and Gen-Z travellers • strength of loyalty programmes • growth in image to be more stylish, smart and hip as a way of travel ● While overall the segment is still one of the smaller ones in terms of all international holidays, its development has been exceptional with double-digit growth rates and increases that were twice as much as international holidays in general. ● Spread of cruise passenger source markets globally: • N America: 56% • Europe: 30% • Asia-Pacific: >10% (NB: China dominates the 3 | Strictly Confidential passenger share of Asia's cruise market with over 70% of the region's 4.24 million passengers in 2018) • Africa: 2% • South American: 1% Most popular destinations region is North America, followed by Europe, South America...though strong growth is occurring in Asia and African cruise itineraries In parallel to the AM&A research study underway for DEDAT, an additional request was made by DEDAT to AM&A for further review and analysis of the Cruise Tourism sector to, as expressed by DEDAT "unpack cruise tourism as an experience from Americas and Europe as that is where the target market is based." This document reflects further exploration of the Cruise Tourism segment, both globally and from the perspectives of travellers from the Americas, UK and Europe. IMPORTANT: While Cruise Tourism is expanding in ship product diversification, especially in the areas of: Expeditions and River Cruising, these are not featured in this report as deemed not relevant to Western Cape cruise tourism development due to the small, protected, waterway requirements of these vessels and high volume of small, local destination itineraries. This report is only focused on medium to large cruise vessels only, reflecting passenger loads of 1000+ suitable for exposed, large seaway cruising. 4 | Strictly Confidential 2. THE GLOBAL CRUISE TOURISM SEGMENT The Cruise Tourism segment is a relatively young segment with modern roots. It was in the 1970s that transatlantic voyages first began for travel and leisure, not for the purposes of sea-based transportation. ENTERTAINING ORIGINS OF CRUISING While a new niche offering a unique holiday choice whereby ship was the destination as much as the destination port(s) of call, a concept created by Caribbean based entrepreneurs with the development of ‘fun ships’ the love of cruise travel was ignited with the long-running success of the television series The Love Boat. On-air from May 5, 1977 until Feb 27, 1987, in its original period of weekly broadcasting (and still in syndication worldwide to this day), American viewing markets in particular were able to get an insider perspective of the exotic, exciting, exclusive and exploration-rich potential of cruise travel. It is fascinating that concept for global travel can have such simple, yet profoundly impactful, origins. From the 1970s, passenger volume doubled every decade lead by North America with the vast majority of capacity and activity, followed thereafter by Europe, and to a lesser yet still valuable degree, Australasia. Today, Cruise Tourism is the fastest growing sector in the tourism industry, with an annual growth rate of 7.4%. (CLIA) In terms of worldwide economic impact, in 2018, with 28.5 million passengers taking to the waters, the sector generated an estimated: . US$ $150 Billion in economic activity . Over 1 Million jobs With the average length of cruise holidays being 7 days, Cruise Tourism continues to reflect the ship being as much of a destination as the destination port(s) of call. 2019 projections from CLIA remain strong and steady. (CLIA 2019 State of Industry Presentation) 5 | Strictly Confidential From a passenger age perspective, Cruise Tourism is a wonderful multi-generational travel option, meeting the needs of toddlers to elders, as reflected by the following split across generations: (Source: Statista 2019) CRUISE ACTIVITY – CORPORATIONS AND DESTINATIONS From a regional split perspective, current cruise destination activity is as follows: (Source: Cruise Industry News 2019) Importantly, the high cost and complexity of cruise ship construction has resulted in only a small number of global cruise companies possessing the lion’s share of supply. At present the industry is divided as follows in terms of cruise companies. 6 | Strictly Confidential (Source: Cruise Industry News 2019) Respective passenger numbers as estimated as follows: (Source: Cruise Industry News 2019) Segment-wise, the split is as follows: 7 | Strictly Confidential (Source: Cruise Industry News 2019) Organic growth of cruising by leading cruise corporations can be strongly credited to: . Significant investment by cruise companies into new products development, both in: . hardware (ship design and operations) and . software (guest experience delivery) . High control of guest experience delivery resulting in high levels of passenger satisfaction and brand loyalty . Relative ease of conversion of land-based resort guests into cruise passengers as an all- inclusive model on the water . Ease of travel resulting to high repeat clientele This is positive news for ports-of-call, as 65% of those passengers will spend extra days exploring the destination and spending personal funds off-ship. CRUISING TODAY As growth of passenger numbers steadily increases, so too does ship building, launching and redeployment, and new port introduction. Still, innate centres of gravity exist in the segment as a result of regional geography, destination diversity, climate and overall tourism appeal. The Mediterranean (17.3%) and Caribbean (34.4%) are by far the most popular regions for cruise itineraries. This is due to the Caribbean’s proximity to the US, the number one global source market. Price, weather, and ease of travel diversity around the region are also contributing factors. The Mediterranean offers similar advantages for the European market, providing passengers with a varied itinerary in a short time frame, warm weather, and affordable routes. Interesting to note: 8 | Strictly Confidential CRUISE PASSENGER INSIGHTS AROUND THE GLOBE (CLIA, 2018) Mediterranean Moves – Cruises in the Mediterranean are moving up in popularity with an impressive 8 percent increase from 2017 to 2018 totalling more than