Traditional Lodging Makes Waves on the High Seas

Thomas Mielke | Cruise Sector, GENERAL COMMENTARY

Traditional Lodging Makes Waves on the High Seas: Aethos™ Examines the HR issues for Lodging Companies Considering the Cruise Sector

One has to applaud the blue-sky thinking of Ritz Carlton’s management team for having the guts to ‘go for it’. Whilst the brand continues to proliferate across the globe in city and resort destinations alike, and remains an estate agent’s and developer’s darling when it comes to branded residences, it has not yet, to date, conquered the other 72% of the world – which is the percentage of the world covered by oceans. This is about to change with the launch of Ritz-Carlton Yacht Collection in 2019.

Intrigued by Ritz-Carlton’s optimism and decisiveness, and wearing my HR and Talent Management advisory hat, I was thinking of some of the obstacles that must have been discussed in the firm’s board room before giving the go-ahead for this endeavour:

(a) Building and developing new expertise: Acquiring, building-up and developing – relatively quickly – a completely new set of skills and expertise supporting the cruise operations, both land- and ship-based, will be critical for Ritz-Carlton’s success in this sector. This will include, for example, shore and port operations, destination management, itinerary and contingency planning as well as nautical management. First steps have already been taken with the hire of Victor Cai, former CFO from Silversea Cruises. Yet, not all new talent can be bought or poached from the competition, so HR will need to be creative in sourcing talent and be able to identify who within the existing (hotel) talent pool could successfully make the switch.

(b) Diversifying the talent pool: Taking employees out of hotel operations and trying to transfer them to ship-based functions will always be tough. The cruise line business requires a certain ‘type’ of employee profile – specifically, when it comes to on-board positions (and almost irrespective of seniority level). Unlike equivalent land-based roles, ship-based employees work without weekends and often go months without seeing their families and friends. Their work shifts significantly differ from those of traditional hotel functions in a city or resort destination. Employees are thus less able to ‘switch-off’ and are required to bring on board a certain resilience and tenacity, coupled with an extremely positive outlook on live and an ability to deal extremely well with ambiguity. Moreover, ship-based staff will need to be, to a much greater extent, team players.

(c) Maintaining the corporate culture – or helping it to evolve: Protecting a corporate culture amidst a significant growth phase is difficult enough in the best of times during an expansion as a large number of new employees are, by default, joining the organization without any prior knowledge or in-depth understanding of its values and belief systems. In such circumstances, the risk of ‘diluting’ the corporate culture is thus relatively high and needs to be carefully managed. In Ritz-Carlton’s case, it is clear that it will have its hands full ensuring its world-renowned culture of ‘Ladies and Gentlemen serving Ladies and Gentlemen’ is continued and nurtured.

Whilst some luxury operators have opted for small, one-off local ‘cruises’ that do not require the infrastructure nor the logistics of a full-fledged cruise business (e.g., Four Seasons’ Explorer or Six Senses’ Dhahab [Aman and Alila have similar offerings]), Ritz-Carlton wants to go ‘all the way’. Human Resources and Talent Management were thus probably only a small agenda item when the strategy was devised to move ‘full-on’ into the cruise sector.

Business metrics must have been looked at, for example, when evaluating the competitiveness of the sector and when identifying the right partners to design, develop and build the ’boutique yachts’. Statistics are staggering: Since the early 1980s, the sector is said to have grown by approximately 8.5% annually. According to the CLIA – Cruise Line Industry Association – the sector reported nearly 23 million passengers in 2016. Cruise ships to be delivered in 2017 include two vessels from MSC Cruises, for example, as well as a vessel by Viking and Silversea. A total of eight ships are meant to be launched, and during 2018 and 2019, there probably will be a further 15 new cruise liners. Whilst demand in the mass market remains solid, it is in particular the smaller vessels and those suitable for expedition cruises that have peaked everyone’s interest (such as Silversea Muse, the Regent Explorer, Seabourn’s Encore or Ponant’s Le Lyrial yacht). The problem is – although the customers are loving such ‘bespoke’ experiences – many of the ports and destinations cannot keep up with the industry’s rapid expansion.

Even though some picturesque ports do not have the physical infrastructure to service the bigger ships and are thus allowing smaller vessels to gain a competitive advantage, providing direct access to its customers to such ‘authentic’ destinations, it is also true that many such ports are already reaching their maximum capacity – thus making it difficult for cruise companies to only offer ‘off the beaten track’ itineraries to its customers. Moreover, for every small port there are also numerous bigger ones where capacity is also limited and where the bigger operators will have a competitive advantage by having much more buying power. Such ports cannot afford to lose the recurring, high-volume business of a Royal Caribbean, for example, to accommodate a niche player.

Having the best product out there will not help when one does not have access to the ‘right’ ports. To an extent, it is this capacity problem that has led many cruise operators to buy private islands (e.g., Disney’s Castaway Cay, Holland America’s Half Moon Cay, Norwegian’s Great Stirrup Cay, MSC’s Ocean Cay, Princess’ Princess Cays, Royal Caribbean’s CocoCay).

It appears, then, that even the business challenges are boiling down to ‘nailing’ the HR side of things. Specifically on the destination management side – with Ritz-Carlton officially confirming in a recent press release that yachts will call “at unique destinations not accessible to large cruise ships, from Capri and Portofino to St. Barths” and Managing Director of the Yacht Collection Douglas Prothero separately stating in an interview with the National Post that “the pace of the itineraries is another differentiator: It’ll be slower, with less time at sea and more time to explore” ­- securing the right team that has the connections and the access as well as the know-how to put together such ambitious itinerary programs will be crucial to the success of this endeavour. With Ritz-Carlton wanting to launch in just about two years’ time, and taking reservations as early as May of next year, it is fair to say that timelines are tight.