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While the cruise industry enjoyed strong occupancy levels in 2009, many of those passengers were induced up the gangplank with discounts and incentives that brought cruise fares to historically low levels. That was great for the travelling public, but tough for cruise lines whose meager profits left shareholders looking for a life preserver.

Fast forward to the beginning of 2010. The economy is on the mend, interest rates are still low, there is pent up demand for travel, and this year’s Wave Season (the peak selling period for cruises from early January to mid-February) delivered strong sales for most cruise lines. In fact, several cruise lines reported that they enjoyed their best Wave Season ever this year.

As a result, some travel industry experts are now predicting that we’ve seen the end of the deep discounting in cruise fares that were available in 2009 and for the first two months of 2010. According to these experts, since sales for 2010 are off to a strong start and some cruises even have waiting lists why should they continue to discount their fares?

While there’s no question that 2010 sales have gotten off to a fast start, much of this demand has been fueled by discount and incentive programs put in place at the end of last year. For example, programs promising two-for one cruise fares, free cabin upgrades, generous shipboard credits, free air, incredibly low lead in prices, complimentary shore excursions, children cruise for free, and other incentives have continued to drive passengers up the gangplank.

The question is whether the travelling public will continue to snap up cabins once these incentives disappear, and whether there is anyone in the cruise industry willing to take that chance before the end of 2010. In my view, the answer is “no.”

I expect we may see a small increase in prices for cruises at the bottom of the market that have been selling for ridiculously low prices like $35 to $40 per day. These types of lead-in prices are difficult to sustain for long, do not build brand loyalty, and usually represent a last-minute response to slow bookings.

However, I think it is unlikely we will see much in the way of price increases for premium and luxury cruise lines for the remainder of this year. In fact, I’m still receiving cruise line flyers promoting various incentives – the latest this week from Crystal, Regent, Princess, Seabourn, MSC, Cunard and Costa.

The reasons for the continuing soft cruise market are as follows:

- Cruise ship capacity will continue to increase in 2010 as new ships are launched, yet the pace of passenger growth has slowed considerably, particularly in the US.

- Airline capacity has decreased, making it more expensive and difficult for passengers to take advantage of last-minute discounts that cruise lines once used to fill empty ships. As a result, passengers have to be sold on taking the cruise much earlier.

- In order to generate reasonable returns, cruise lines need to fill their ships to at least 115% occupancy (100% occupancy is two people in each cabin). So demand needs to increase significantly before cruise lines can increase fares or drop incentives.

- Some cruise lines have already announced and locked in deeply discounted fares and generous incentives for the entire 2010 season in order to get their share of passengers.

- People are now used to getting some kind of discount fare or incentive in order to book a cruise well in advance of sailing.  That’s not going to change overnight. In fact, it’s been years since it was necessary for anyone to pay the brochure rate for a cruise.

As a result, I think it’s premature to predict cruise line fares will return to normal anytime soon. However, I do think we have reached the absolute bottom of the market when it comes to pricing, and that there is only one direction for fares to go in 2011 – up. So if do you have a special cruise in mind, it may pay to start looking for it soon.

When I took my first voyage back in 1980, just about everything I wanted on board the ship was included in the overall cruise fare. The only extra fees I remember paying were for tips, shore excursions and alcohol, all of which were optional and reasonably priced.

Since then, however, cruise lines have become a lot more creative in finding ways to separate passengers from their money. For example, ships now offer specialty coffees starting at $1.50 per cup. They have reservation-only alternative restaurants that charge $15-20 per person (the main dining room and lido buffet are free). There are spa treatments that can cost several hundred dollars. And the latest cash grab involves private poolside cabanas that go for as much as $50 to $75 per day.

In addition, the mark-ups on items like shore excursions are beginning to get excessive. For example, a full-day excursion from the port of Civitavecchia to Rome now costs around $250 per person. In contrast, a return train ticket between the same cities runs about $15.

The bottom line is that the cost of these “extras” can easily exceed the cost of the cruise fare if passengers are not careful.

In fairness to the cruise lines, the basic cost of a cruise ticket has actually gone down over the past 20 years when adjusted for inflation, and still provides exceptional value. In fact, some cruise fares can actually run as little as $50 per person, per day (without fees and taxes) on some repositioning cruises. So if the margins aren’t as fat as they used to be on the cruise fare, it only makes sense that cruise lines are trying to make up for it by finding new sources of on-board revenue.

The good news is that all of these extra charges are optional, and most can be greatly reduced with some smart advance planning. For example, here are a few tips:

• Limit your dinners at the alternative restaurant to a maximum of one per week. And look for special prices – sometimes a ship will offer lower prices at these alternative restaurants on the first night, or on an evening with a late port call.
• If you have a spa treatment, don’t buy any of the expensive lotions and creams they will try to sell you – it can double the cost of your treatment.
• Don’t reserve private pool chairs or cabanas, and if you must, just do so on sea days when the crowds by the pool will warrant it.
• If your cruise line’s policy allows it, buy some alcohol to consume in your room. Also, if your cruise line has a reasonable corkage fee, consider buying some wine on shore to bring aboard for dinner – it may be cheaper than buying from the wine list.
• If you drink a lot of soda pop, purchase a “drink all you want” card for a flat fee if your cruise line offers one. They are a good deal. Also, refill your own water bottles at the bar rather than purchasing new ones each day.
• Plan to do some shore excursions on your own, especially when it’s an easy port to get around in, or if the organized excursions are too pricey. 
• Or, sail on one of the luxury lines where the cost of alcohol, alternative restaurants and tips are included in the basic cruise fare.

So while cruise lines are bound to keep adding new sources of on-board revenue to off-set thinner margins on the basic cruise fare, there are lots of ways to mitigate their effect. And for those who want to use all the additional perks, I think it’s great they have the option to pay for them without the rest of us having to subsidize the cost.

Postscript: Some of you may have been wondering why there was such as long gap between the last two blog entries. We were on vacation for the last week, driving our daughter to Dalhousie University in Halifax where she is starting school this week. But I’m back now, and looking forward to posting my blogs and hearing from you again on a regular basis.