Yahoo Finance Budget cruising isn’t dead – but the closure of P&O Cruises makes market sense
News of P&O Cruises Australia being wound up may have stung those with fond memories of the brand’s uniquely Australian style of voyages. But experts say that although cruising remains popular, tastes are changing and new opportunities have appeared thanks to the widening of the Panama Canal.
Announcing that P&O Cruises Australia would be shut down in March 2025 and integrated into Carnival Cruise Line, owned by global ship operator Carnival Corporation, CEO Josh Weinstein said the decision was made because of the South Pacific’s small population as well as “significantly higher operating and regulatory costs”.
The Australian market is a modest part of the operations for the world’s biggest cruise company, US-listed Carnival, representing about 5% of its revenue.
In 2023, the Australian division generated US$1.2bn in revenue, compared with US$13.1bn in the US, and US$6.6bn in Europe, according to Carnival’s most recent annual report.
Related: P&O Cruises Australia to shut down early next year
Because of the larger populations and profitability of the northern hemisphere market companies deploy most of their ships to the Mediterranean and Caribbean. However, demand in Australia remains strong.
The local cruise line industry has recently roared back to life, with passenger numbers in the most recent season surpassing the pre-Covid era, a revival considered remarkable for a sector once synonymous with the outbreak of the deadly pandemic.
Carnival’s Australian division, which includes Cunard, Princess and Seabourn, is scheduled to make 846 domestic port calls in 2024, compared with 575 last year.
Meanwhile, Virgin global founder Sir Richard Branson visited Sydney in December to launch Virgin Voyages in Australia, which targets the adult, specifically singles, market. However, uncertainty about Middle East sea routes prompted the company to axe next year’s Australian season.
P&O has a long history in Australia.
The Peninsular & Oriental Steam Navigation Company, as it was once known, initially ran steamships from Europe to Australia, mostly carrying goods and immigrants rather than tourists.
“P&O is a heritage brand that predates Australia as a country; people arrived here by P&O ship in 1852,” says Chris Frame, a cruise ship historian and author of a recent book on the history of P&O cruises.
“This was a massive moment in Australia’s history because it had taken quite some time for the colonies to get a steamship service to the continent,” Frame says.
“P&O became a huge part of the Australian immigration story; it’s how so many people moved here to start a new life. And by the time the company launched a cruising service in the 1930s (a Sydney to Norfolk Island trip in 1932 that sold out in a single day) the brand was trusted, it had a place in the hearts of Australians,” he says.
Cruising really took off in the 1930s in Australia. A slump in international trade caused by the Great Depression meant ships could dock for longer and passengers travel at a more leisurely pace.
“These cruise ships weren’t like they are now; passengers used to form committees and organise their own fun to decide what activities they’d do. You’d see pictures of egg and spoon races on board,” Frame says.
Then, in the 1970s, after the emergence of jet planes, P&O repositioned itself as a budget friendly party ship rather than primarily a form of transport.
“The real shift happened when P&O bought Sitmar cruises and the Fairstar. [Fairstar] became the fun ship. She was cheap and cheerful and would do holidays to the South Pacific,” Frame says.
“There was no dress code, there was nothing to worry about on board, and that’s where P&O Australia got its current identity as being a really chilled out, Aussie experience.”
It’s difficult to point to just one thing for P&O’s demise, says Pierre Benckendorff, a professor of tourism business at the University of Queensland.
New entrants, the comparative affordability of flying overseas for holidays post-Covid, and the growing influence of retired baby boomers flush with cash and whose tastes have grown beyond budget cruising – are among the factors.
Related: Cruise bookings sail above pre-Covid numbers as industry employs aggressive pricing
Benckendorff says that of Carnival’s 10 cruise brands – which range from high-end luxury to niche and budget options – the company’s largest, Carnival Cruise Lines, has been booming post-Covid.
“More than anything, this is about how they want to position these brands, and it would be fair to say Carnival [Cruise Lines] has larger ships with higher capacity, and the brand is generating more profit than [it does] with P&O.
“Some of the P&O ships were starting to get quite old too, and as they’re mostly smaller, it makes sense for the company to put their resources into the Carnival brand.”
The widening of the Panama Canal in 2016 also meant it made sense to absorb the P&O business into Carnival’s larger brand, with its bigger more modern ships.
Consolidating fleets and registering them in the Caribbean, instead of in the UK, is a significant cost saving for the companies, according to Dr Patricia Johnson, a senior lecturer at the University of Newcastle’s business school.
“It is only the widening of the Panama Canal that let loose these behemoth ships into the Pacific. Prior to that there was no way they could deploy their fleets from the Carribean to the Asia/Pacific without significant costs,” Johnson says.
Benckendorff says instead of sailing big ships around the bottom of South America to the Pacific for the southern hemisphere’s summer season, they can now travel through the canal.
Meanwhile, investment in new cruise ship facilities in Australia over the past decade means those larger ships can dock here, he says.
Ultimately, P&O’s closure reflects Carnival Corporation’s confidence in the strength of the Australian cruising market.
“I would argue that the brand, as a cruise line, was becoming jaded as the ships aged, and the marketplace for cruises has become so competitive,” Johnson says.
A Carnival Australia spokesperson said “there will be a small number of jobs that are lost”. However, experts have noted cruise lines have largely avoided employing large numbers of Australians as they’ve sought to raise margins in recent years.
Benckendorff previously told the Guardian that companies operating in international waters aren’t subject to Australian minimum award wages; registering ships in places such as the Caribbean allows them to pay lower wages.
Benckendorff says the Australian market has matured since the days of the Fairstar, shifting towards two key segments.
“Most cruisers are either retired baby boomers looking for something to do with their money or they are families who get quite good value from a package that is all inclusive of food – it’s competitively priced against staying at a five-star resort,” he says.
“I wouldn’t say budget cruising is dead but I think the market has shifted … Carnival wouldn’t have made this decision if they didn’t think they could fill the larger capacity ships.”
