Cruise ships doubling as hotels10 November 2017
Cruise ships are pulling double duty as hotels at major events all over the world, but a month-long dockside charter is no small feat. How can operators make the most of the trend? Eleanor Wilson speaks to Joyce Landry of events organiser Landry and Kling, Katina Athanasiou at Norwegian Cruise Line and Silversea’s Freddy Muller.
In 2016, while competitors at the Rio de Janeiro Olympics were posting damning photos of their unfinished rooms in the athletes’ village, a chosen few attendees were living a much easier life. The US basketball team was staying on Silversea’s plush Silver Cloud; docked nearby was the considerably larger Norwegian Getaway, chartered by Rio de Janeiro’s Olympic hosting committee and filled with officials. Organisers for the Tokyo 2020 Olympics are currently considering their own options for ‘floating hotels’. These charters take years to plan and last up to 40 days. For operators, they are an exercise in contract negotiation and complex project management. Long weeks spent in port also mean steering through land-based regulations to answer the question: legally, when is a ship not a ship?
Since the late 1980s, organisers of World Cups, Super Bowls, corporate conferences and government summits, as well as several Olympics, have all turned to cruise ships to bolster accommodation space. In some cases, it’s the only way a city can qualify to host a major event.
“Rio had to assure the International Olympic Committee that if they were to win the bid, the cruise lines would make ships available for accommodation,” says Joyce Landry, co-founder and CEO of cruise events organiser Landry and Kling, which worked with Rio de Janeiro officials and Norwegian Cruise Lines to plan the 2016 Norwegian Getaway charter.
The company organised its first dockside charter for a major event in 1987. “At the time, Rio needed the ships as adjunct hotel rooms to meet the city occupancy requirement to host the Olympic Games. It became a deciding factor in their award,” she adds.
Host cities often find themselves scrambling to build hotels and infrastructure to meet accommodation criteria, only for the new additions to turn into an economic burden once the event is over. Ships can provide several thousand beds each, with the quality of a high-end hotel and the added benefit of being temporary. Landry says governments are catching on.
“We didn’t anticipate the frequency [with which] we would be involved in projects like this − 30 years ago, these were one-off unusual events,” she says. “With cruise ships, they can now consider smaller cities and towns, and even smaller countries to hold these events, where they weren’t thinking that way before.”
Norwegian Cruise Line also provided accommodation aboard Norwegian Jade for the 2014 Sochi Winter Olympics. Katina Athanasiou, vice-president of charters, meetings and incentives at Norwegian, worked closely with Landry and Kling for the Rio de Janeiro project. A 20-year chartering veteran, Athanasiou says she’s “absolutely” seeing more long-term dockside charter projects than ever before. “The visibility to external constituents has been great because once people see that there is an option to provide something like this for events, then it continues to spark additional conversations,” she says.
Where a standard charter agreement would be between operator and client, a floating hotel project can involve corporate sponsors, local governments, port authorities and event organisers – many of whom have only a passing familiarity with cruising. At the start of the process, most clients’ general knowledge of the mechanics of a dockside charter is “typically a little bit limited”, says Athanasiou. Clients will often try to woo operators with the promise of good PR and the potential to boost bookings, although a dockside charter rarely has much of an effect on future sales. Cruise lines tend to have the upper hand in these negotiations since, charter or no charter, they should be able to fill their berths.
The knowledge gap means that a cruise line’s involvement is far from over once the contract is signed. Operators, clients and partners like Landry’s firm work together for the whole span of the project, often running up against fundamental differences between how a cruise ship and a hotel typically operate. One area that most often requires tweaking is the check-in process.
“Typically, on a cruise, all 4,000 of our guests embark on day one and will disembark on the last day of the cruise. With a floating hotel, the expectation of the customer is that they have guests that are checking in, just like a hotel stay, every single night,” Athanasiou says. “It’s a matter of understanding what their needs are so we can programme our systems and manage the security aspect properly.”
Some clients also expect to bring their own guests on board for an impromptu visit, unaware that every passenger needs to be on the ship’s manifest. Others choose the cruise ship option precisely because it’s more secure, as the US basketball team did – which means security may need to be beefed up while the ship is docked.
“Whenever a ship is used as a floating hotel, they always know exactly who’s on board the ship. It’s not like a hotel where anybody can just walk in,” says Freddy Muller, Silversea’s vice-president of corporate and incentive sales. “The more extraordinary fees could be for security: to have divers underneath the ships, to have security at the gangways or at the terminals around the clock, to have linesmen and stevedoring.”
On the other hand, sometimes the problem isn’t too many passengers, but rather not enough. A plan to charter Norwegian Star for the 2010 Vancouver Winter Olympics went under just a week before the ship was due in port because of a lack of bookings. The responsibility for that was on the charterer, Newwest Special Projects, which failed to gather enough interest amid Canada’s then struggling economy.
Athanasiou says while most private charters take between 12 and 24 months, projects of this size last twice as long because of the number of agents involved in the process. The Rio de Janeiro project was born eight years in advance of the actual games, during the city’s 2008 Olympic bid, but the contract for Norwegian Getaway wasn’t signed until 2014.
The first stage of a floating hotel project is a request for proposals (RFP) which is put together by the organising body – in the case of Rio de Janeiro, its Olympic host committee. The organisers do their best to make the proposition attractive to cruise lines, sometimes collaborating with a partner like Landry’s firm to send out their request. Those operators send back their bids, which the organisers evaluate.
“We start working with the idea of when they need the programme, where in the world it is and what the requirements are, to ultimately figure out if it makes sense to either reposition a ship there – which was the case for the Rio Olympics – or if we have a ship that is in that destination that it makes sense for us to pull out of regular service,” says Athanasiou.
“[Operators] should know how many other ships or lines are being included in the RFP process,” Landry advises. “They should ask for equal criteria for qualification. When we’re involved, we drive that part of the process and create a detailed RFP with equal criteria for everyone, so that the proposals can be evaluated fairly. If one line includes amenities and the others do not, that can make a big difference in the final price when you’re dealing with 30-day charters. The numbers are large, often in the tens of millions, and a misunderstanding of the requirements can make one ship much more or less attractive than another.”
The final fee for the charter takes any repositioning into account, as well as the revenue the ship would have generated in normal service, and the logistics of keeping a ship in port for an extended period. Strategies that work for a one or two-night stay during a routine cruise may now need to be rethought.
“Once you’re staying in port for five, ten, 20 or 45 days, there could be other fees involved such as obtaining additional water or removal of waste,” says Muller. “We’re accustomed to provisioning the ships in different ports of call, but where we have to stay alongside for extended periods of time, then we probably have to work with new suppliers.”
Port facilities must be able to take the load of a fully booked ship every day for several weeks. In Rio de Janeiro, new pipes had to be dug to provide Norwegian Getaway with fresh water and manage its sewage. This means that smaller cities, where a floating hotel would make the biggest difference to their capacity, sometimes lose out: Norwegian has had to turn down more remote projects where the ports can’t handle its ships. But one of the upsides to a government contract is that everyone involved has an interest in finding ways around infrastructure problems and red tape. According to Landry, Rio de Janeiro’s government waived taxes to keep charter costs down during the games.
“Usually, the officials and the government arms are working hand in hand with the committee to make sure that all of the objectives are met,” says Athanasiou. “So if there are initial regulatory challenges, typically they are worked through, because everybody is in collaboration to make sure these things happen successfully.”
Not everybody is always on board. Landry has encountered opposition from environmental groups concerned about air quality and local tourism industries that fear for their existing business. She and her team are currently negotiating a private project for the 2018 Pyeongchang Winter Olympics, where they’ve been asked to present a business plan showing not only that the ships would house guests who couldn’t be accommodated in local hotels, but that those guests would be actively encouraged to leave the ship and explore the area – using local tours, not the ship’s shore excursions.
In the US, post-9/11 immigration restrictions have made dockside charters almost impossible. Taxes have also become a concern: while ships registered under foreign flags aren’t usually subject to tax on short port visits, the rules are different for longer stays, as Carnival Cruise Line discovered when it was hit with millions of dollars in taxes after providing accommodation for US Government workers in the Hurricane Katrina relief effort. Outside the US, taxes are still a major stumbling block. “There could be sales tax, service taxes, additional insurance… and sometimes the event implies a tax as well,” says Muller.
As well as the Norwegian Star cancellation, the ill-starred Vancouver games also resulted in a court case in which middlemen Cruise Connections successfully sued the Royal Canadian Mounted Police (RCMP). A US District Court judge ruled that the RCMP had attempted to charter three ships to house its officers but then went back on a promise to take care of all Canadian taxes. Operators Holland America and Royal Caribbean walked away and the plan fell through.
In Tokyo, officials are currently deliberating whether to legally treat cruise ships as hotels, which would affect whether the ships need a business licence, if they need an import licence to serve meals to non-passengers, and if the crew can stay in port for more than 15 days. On-board bars and restaurants can usually stay open during a dockside charter as long as the local government issues the right licensing – the US basketball team bought Silversea’s full-service package with all fine wines and spirits included. However, local regulations often mean operators have no choice but to shut down casinos and big-ticket retail for the entire charter period, so the charter income must make up for that revenue.
“Chartering a ship for a dockside process is more expensive than chartering a ship when it’s out at sea, because a lot of the revenue-generating outlets cannot be opened on a ship when it’s dockside,” says Landry.
Muller confirms this. “It’s a little bit of a shock until the client is educated on everything that is included,” he says.Landry says this process, combined with the fact that operators have more bargaining power in the negotiations, means dockside charter contracts have become “more and more one-sided” over the years. The uptick in demand may prove to be a mixed blessing for operators, who see a wider range of opportunities but face more competition at the bidding stage. With so many factors and players in projects that can span almost a decade, it’s tricky to get the job done right – but high risk very often means high reward.