News & Events

Network News - 09/07/2014

Mystery – are cruise ship visitors worth the trouble?



Author: Lynsey Schembri
Published on the Malta Today, 9 July 2014

cruise ship studyIt is not uncommon to read in brochures about the idyllic setting of our Grand Harbour. These show a rising sun which illuminates the buildings surrounding the harbour, making the sea shine bright which, like a mirror, reflects majestically on the beauty and grandeur of the bastions. Certainly there are only a few ports in the Mediterranean that can match its splendour. Pause for a break and hold your breath as you can enjoy the triumphant entry of a cruise liner carefully manoeuvring its way into the harbour.

This is a view, a particular one indeed, envied by many, enjoyed by few. It goes without saying that this scenario is just the starting point of this nascent industry which was heavily invested by the private sector that in the past decade saw cruise liner visitors hitting our shores. What is still a mystery is why we have never bothered to measure its economic contribution while monitoring the numbers arriving, noting their spending patterns. Such a study is long overdue.

For this reason PKF Malta has taken the initiative to compile an economic study that can really and truly gauge the economic benefits. The stark truth is that such an exercise faces untold hurdles. Perhaps surprisingly if one were to attempt to analyse such data, unfortunately, the ball would simply roll into a space where there is a bleak void with no reliable statistics or data available. Naturally for the Malta Tourist Authority and for Viset, the company which invested in berthing facilities, this would be a rather interesting study.

It is still a mystery whether the whole activity is profitable and by how much. Of course this can only be professionally assessed if one were to analyse the expenditure habits of these day visitors that arrive on these luxury ships. The challenges the sector is facing is a simple one. Make our port as attractive as possible, try to offer the best services and a unique retail experience next to the arrival terminal so that the economy can maximise opportunities from these cruise liners.

The greatest challenge is that all the aforementioned happens in a few hours as it is customary for cruise liners to berth at each port for a short span of time. At PKF Malta we attempted to compile such a study by first utilising current data available to gain an insight on a quest to unravel the mystery surrounding the profitability of the industry and measure its future growth potential.

As is well known, the economic crisis of 2008 brought the European economies to a halt and it is not surprising that the cruise liner industry suffered its share of the crisis. Tourism was one of the sectors which were greatly affected by the recession and cruise liner travel was no exception. The sharp fall in the number of cruise liner passengers was felt particularly in 2009 when total cruise liner travellers numbered as few as 439,630.

The following years were overshadowed by the economic crisis, with figures struggling to reach the level achieved in 2008. Thankfully, in 2011 slight signs of recovery could be identified with the inertia picking up when the number of total cruise liner passengers mirrored that reached in 2008, standing at 556,564. The sector grew further in 2012 when this figure rose to the record-high 608,786. Such figures augur well and one would have thought that the sector had finally got back to its feet and would only continue to grow, save possibly for some unforeseen circumstances. However the recent arrival totals took a turn for the worse as 2013 turned out to be a very negative one. So much so, that it reached an even lower figure than that of 2009, only 431,397. What could have been the reasons behind such a drop? What could have contributed to an even more negative influence on the sector than the worldwide economic crisis of 2008?

The easy answer is fuel prices. This expense is a constraint constantly affecting cruise liner companies that decide to extend their voyages to include a visit to our Grand Harbour. Variation in fuel prices at ports of visit would naturally have a say on whether or not the particular cruise company decides to visit that particular port or not. The hike in the price of fuel might hence explain the significant drop in cruise liner passengers experienced in 2013.

Indeed, the number of cruise liners calling fell from 322 in 2012 to just 286 in 2013. However, one must note that this figure is still better than the numbers in 2009 and 2010 (261 and 275). This begs a further question – did the price hike in fuel by itself truly cause this sharp fall in cruise liner passenger numbers? Prima facie there is no easy answer to this question but one expects that PKF Malta can unravel the mystery when concluding the study.

Upon inspecting cruise liner calls for the years 2011 up to the present year, it could be seen how different cruise companies varied the number of cruise liners which visited Maltese shores. Most companies did not change their patterns too much, however it was not quite so when it came to the major companies making use of the Valletta Waterfront.

The large number of cruise liners observed in 2012 can be mainly attributed to a particular company sending 20 more cruise liners than in the previous year. Moreover the relatively smaller, so to speak, companies (in terms of cruise liner vessels they own entering the port) also increased their presence in the port, albeit by a smaller number. These increases were rapidly reversed as cruise companies seemed to cut back on the influx of cruise liners entering the Valletta Waterfront. The same company which increased the number of cruise liners by 20 in the previous year reduced this by 50, leading to only seven of its cruise liners entering Maltese waters. A number of smaller companies followed suit, reducing their numbers in a similar fashion.

More tangible conclusions can be found when interviews are conducted with ship agents yet cruise schedules seem to be showing that the current year will not be much different than last year. A total of 286 cruise liners is expected to enter the port as opposed to the 282 which entered the port last year. However, what is the ideal number of cruise liner passenger arrivals that can lead to a reasonable return on investment? Forecasts conducted based on previous cruise liner passenger data seem to indicate that the number of passengers will increase when compared to the previous year.

Drawing a 95% confidence interval, estimates suggest that the expected number of such arrivals is 491,156, an increase of roughly 60,000 with respect to last year. It must be emphasised that these figures are obtained by averaging over all possibilities and hence should not be considered as point estimates. But what about the price of fuel? Surely this will still play an important role in determining the number of cruise liners visiting Malta. Based on previous data, with a 95% confidence interval, it is expected that the harmonised price index will rise by 1.98 above its current value of 135.51.

Following the large cut-down on the index in April 2014, with its value falling down to 135.6 from the previous 149.14, the index is expected to grow slowly in a fashion similar to that seen in previous years. Hence, assuming no exogenous pressures are exerted on the given system, one can be 95% confident that the price index will fall within the confidence interval.

The above figures certainly seem positive and although an increase is predicted it is a must to keep in mind to never be too confident of our market as we might hit an “iceberg”. While it is important to continue to support established industries, the government must in our opinion also take full cognisance and nurture cruise ship tourism to ensure that the number of day trippers keeps on increasing. A concluding point is that it is important to give visitors a rewarding experience, encouraging them to return as regular tourists. Only thus can we safely say that the ball will keep rolling in such a way that it accumulates no moss.

PKF Malta thinks that the myth can be solved by conducting scientific studies that require deeper understanding of the expenditure habits of cruise ship visitors. Without the conclusion of such studies it is like flying without navigation equipment… certainly a wasteful and somewhat dangerous experience.

Lyndsey Schembri

Lynsey Schembri is a senior statistician with PKF Malta.
Published on the Malta Today, 9 July 2014
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