Understanding How Cruiselines Turn a Profit: Tips for First Time Cruisers

profits

If you are planning a long awaited vacation and considering a cruise, it is important to understand how cruise lines turn a profit so that you are not shocked by additional costs.

How do cruise lines make a profit when their base charges are relatively inexpensive?

A quick search of cruise prices shows cruises starting as low at $50 per person per night for an inside cabin, $62 per night for an ocean view, and in the low $100’s for a balcony cabin. That price includes nightly theatrical shows, all your meals in the main dinning room and buffet, most often room service, some enrichment activities like lectures, ship board nightclub admission, use of pool and some spa facilities, your accommodations, and sea transportation from port to port. For a comparable land based vacation, you could not find a better deal. However, it is important for first time cruisers to understand that they will have additional expenses on top of this base price. It is from many of these additional expenses that the cruise ships generate their profit.

Excursions

Cruise lines offer their passengers the convenience of booking shore excursions through the cruise line either on their website or while on board the ship. While cruise lines don’t prohibit passengers from booking independent tours, they strongly encourage passengers to book excursion through the cruise lines. The cruise lines generate quite a bit of their income from their excursions. A good cruise lines will seek to provide passengers with many excursions choices, to interesting sites, at a profit margin that won’t drive their passengers to save big bucks by booking independent tours. Industry critics complain that sometimes these excursions are of limited interest to passengers and largely over priced. In contrast to that criticism, have found all of my cruise line booked tour to be extremely interesting, and only slightly over priced compared to what I could book on my own. However, to save money, in many ports I have taken what I call a “Self Guided Walking Tour” in order to avoid the high cost of a cruise line provided tour. If you plan to take in your port city this way, make sure that you understand the amount of walking involved. Often the trip from the pier into town can be close to a mile. If you are not used to walking this far, they sometimes offer a bus into town, but this transportation is often over priced at around $10 per person. There are benefits to be gained in booking a ship’s tour. The passengers on ship’s booked tours will receive priority disembarkation, and if anything unforeseen occurs, like a flat tire or traffic jam, the ship will delay departure until the passengers rejoin the ship. If you have a problem on an independent tour the ship will not wait for you. When I compared the cost of a ship tour with an independent tour, I figure in the value of these two advantages.

Beverages

Beverages are the other strong area for cruise ships to turn a profit. While most cruises include basic coffee, tea, and juice, they make money selling both alcoholic and non-alcoholic beverages. If you are happy drinking the basic beverages, then you need not budget the extra expense. However, if you intend to enjoy a soda, non-alcoholic frozen fruit drink, beer, wine, specialty coffee, mixed drinks or exotic drinks, you will need to plan to add those expenses to the cost of your cruise. We asked our readers in a 2007 poll how much they spend on beverages per day. Only 20% of our readers spend less than $5 a day on beverages, with many of our readers spending well over $50 per day per person. Cruise lines limit or completely restrict alcoholic beverages from being brought on board. From a safety stand point this allows them to “cut off” someone who might be a danger to themselves or others, but it also provides them with a monopoly on alcoholic beverages service, thus maximizing their profits. You can visit our Cruise Line Alcohol Policies page to learn more about what the cruise lines allow and don’t allow to be brought on board. Another way that cruise lines increase their beverage sales is by offering different tasting options or daily specials. Tasting opportunities can range from basic wine tastings seminars, whiskey, vodka, and scotch tastings, martini tastings, and even beer tastings. Sometimes the ship will offer specialized wine events like a round the world tasting, food and wine pairing, or even special wine dinners. The events not only generate funds from the actual charges, but also by increasing the cruisers’ intrest in the product boosting future sales on the cruise. The important information to remember, is that if you plan to indulge, figure it into your budget for the cruise.

Spa

The ship board spas also provide revenue centers to the cruise ships. While a simple massage might be only slightly more or comparable to what your might pay at home or at a land based resort, nearly everything associated with the spa comes with a sales pitch. Often daily programs will feature lectures in the spa on “Fitness”, “Nutrition”, “Looking Your Youngest”, or “Detoxifying Your Body”. However often these “lectures” are really sales pitches for a spa related product or service. Also be prepared for the “Up-sell” when you are purchasing a product or service. It might be a face cream or an additional service. Some cruise lines have a special spa area like a steam room or therapeutic hot tub for which their might be an extra charge. Often the cruise lines charge a fee of up to $10 for yoga, pilates, or aerobics classes. If these products or services are an important part of your cruise vacation, make sure that you know that they are not included in the base price of your cruise. If you only plan to purchase a particular product or service make sure that you are prepared to say “no” to the sales pitch for the additional products.

Casino

I almost forgot about the profits made in the casino, since I personally spend so little time there. However, many cruisers spend much of their free time in the casino. Just like land based casinos, ship board casinos are not in business to give away more money than they take in. You can be sure that this is an area where the cruise lines make a substantial profit. Cruise ships casinos are not regulated by a government body, but instead follow a set of cruise industry best practices or guidelines. While they need to make sure their gaming machines are paying out well enough to keep patrons happy, they do not have to follow the strict guidelines followed by land based casinos. Often the cruise lines will have special events to attract patrons to the casino like slot tournaments or theme nights. If you plan to play in the casino, make sure you include your potential losses in your budget.

Other Profit Centers

The cruise lines are always looking for areas from which they can create additional profits. These features are often items that might not have been included in the cruise ships of yesteryear. Cruise lines are providing high tech services to their passengers as a means of new sources of revenue in the form of cell phone service, wi-fi, internet computers, and computer classes. Specialty restaurants also provide another source of income to the cruise lines. Specialty restaurants vary from cruise line to cruise line but generally they provide passengers with an alternative dining experience to the main dining room at charge of around $30 per person. Some cruisers report the specialty dinning to be be the only way to get a decent meal on their cruise, while others find the main dining room to be excellent and see no reason to pay the surcharge. For new cruisers, my advice is to research the kinds of foods and services offered at both venues to get an idea if this in an additional expense that you will need to pay on your cruise. If your cruise line’s main dining room gets rave reviews then you may not need to budget for this extra expense. However if you like a more intimate dining experience, you may choose to enjoy specialty dining for all or part of your cruise. Retail sales also make a handsome profit for the cruise lines. The ships sell everything from t-shirts to duty free liquor. Some times the ships offer great bargains or at least reasonably priced items to their passengers. Larger ships are including more and more retail space in a mall like setting to encourage on board shopping Again this is an area where cruiser would not need to spend money but they might want to include in their vacation budget.

Gratuities

Most cruise lines now have nearly mandatory tipping policies. Tipping has long been a tradition in the cruise industry, but in an effort to make sure that their staff gets fair compensation, the lines have recently been automatically adding the tips to passengers on board accounts or allowing them to be prepaid. This keeps the base price of the cruise artificially low. I’ve often wondered why the cruise lines don’t simply add the $10 or so a day to the base cost of the cruise, but I think they may still want to provide incentive for their employees to provide an exceptional level of services. If gratuities are not prepaid, then they are often automatically added to the on board account. However, in cases of particularly grievous services, they can still be removed. Most cruisers experience excellent service, so plan on adding at least $10 a day person to your base price. While this cost does not necessarily generate additional profits for the cruise, it does allow them to keep the base price of the cruise artificially low.

How to Plan Your Cruise

If this is your first cruise and you are not sure how much more your cruise is going to cost you, you can still plan your budget even before you book. First, if you have a knowledgeable travel agent they can give you an idea, based on your preferences, of where you will probably want to spend your extra money. If you are booking on your own, you’ll need to do some research on your own. Read online reviews of the dining experience, the shore excursions, beverage selections, and tipping policies. Then you can determine what your budget might need to be for your extras so that you can enjoy your cruise experience to the fullest.