Sectoral Report: Cruise Industry (August 2012)

Cruise tourism is among the world’s fast growing sectors, as the number of cruise passengers worldwide doubled during the past decade to over 20 million in 2011.

Our empirical work indicates that the driving force behind this growth is the increase in income per capita globally combined with more competitive pricing of cruise packages achieved largely through economies of scale.

Within this growth story, the Mediterranean is a key destination, as it boosted its share in the global cruise market to 21 per cent in 2009 from 15 per cent in 2004.

The most popular destinations in Europe are Italy, Spain and Greece, each of which attracts some 2-2.5 million tourists each year to this sector.

Although Greece is a highly attractive destination for cruises, it has not managed to capture the tourist revenue that it could, because Greek ports are not used as home ports for cruise ships due to their low competitiveness but mainly as ports of call. This shortcoming is crucial to the sector’s development, as average expenditure per passenger (by the passenger and the cruise line) is around €600 in home ports and roughly €80 in ports-of-call.

Based on our model, we estimate that global demand will exceed 30 million cruise tourists in 2016. If this is realized and Greece retains its share in the global cruise market, annual revenues from cruise tourism will exceed €0.9 billion in 2016 (from €0.6 billion in 2011).

However, over the next five years Greece could secure even greater gains – better reflecting its natural comparative advantages – if a number of significant structural distortions are removed. The full liberalisation of cabotage combined with investment programmes for ports (mainly in Piraeus) are initiatives in the right direction. But it is also necessary to:

• promote concession agreements for the management of cruise terminals as well as the upgrade of facilities in less developed ports
• enhance competitiveness in ship repair and bunkering services, and
• formulate a strategy that ensures the smooth arrival of tourists so as to avoid delays that could damage the growth prospects of the industry

Under the scenario of increased home porting whereby 2/3 of cruise passengers visiting Greece would actually start their cruise from a Greek port, the above mentioned increase in global demand could potentially boost annual revenue for the cruise sector in Greece to as much as €2 billion in 2016 from €0.6 billion in 2011.