Budget cruises aren’t dead – but the closure of P&O Cruises makes market sense

<span>It’s the end of an era with the closure of cruise brand P&O, but Australians can still hit the seas.</span><span>Photo: Mick Tsikas/AAP</span>” src=”https://s.yimg.com/ny/api/res/1.2/bzOM.0cUhnDx9Y4EvUrfwQ–/YXBwaWQ9aGlnaGxhbmRlcjt3PTk2MDtoPTU3Ng–/https://media.zenfs.com/en/theguardian_763/e9e6fbbcd73d8b8d6 b3077475dbd2e2a” data src=”https://s.yimg.com/ny/api/res/1.2/bzOM.0cUhnDx9Y4EvUrfwQ–/YXBwaWQ9aGlnaGxhbmRlcjt3PTk2MDtoPTU3Ng–/https://media.zenfs.com/en/theguardian_763/e9e6fbbcd73d8b8d6b 3077475dbd2e2a”/></div>
<p><figcaption class=It’s the end of an era with the closure of cruise brand P&O, but Australians can still hit the seas.Photo: Mick Tsikas/AAP

News of P&O Cruises Australia’s dissolution may have left those with fond memories of the brand’s unique Australian travel style in mind. But experts say that while cruising remains popular, tastes are changing and new opportunities have opened up thanks to the widening of the Panama Canal.

CEO Josh Weinstein announced that P&O Cruises Australia would be closed and integrated into Carnival Cruise Line, owned by global ship operator Carnival Corporation, in March 2025, saying the decision was made due to the South Pacific’s small population and because of the “significant higher operational and regulatory costs”.

The Australian market is a modest part of the business of the world’s largest cruise line, US-listed Carnival, accounting for about 5% of revenue.

According to Carnival’s most recent annual report, its Australian division generated $1.2 billion in revenue in 2023, compared to $13.1 billion in the US and $6.6 billion in Europe.

Related: P&O Cruises Australia will close early next year

Due to the larger population and profitability of the Northern Hemisphere market, companies deploy most of their ships in the Mediterranean and Caribbean. However, demand in Australia remains strong.

The local cruise industry has recently come back to life, with passenger numbers in the most recent season surpassing pre-Covid eras, a revival considered remarkable for an industry once synonymous with the outbreak of the deadly pandemic.

Carnival’s Australian division, which also includes Cunard, Princess and Seabourn, is expected to make 846 domestic port calls in 2024, up from 575 last year.

Meanwhile, Virgin’s global founder Sir Richard Branson visited Sydney in December to launch Virgin Voyages in Australia, which targets the adult market, particularly singles. However, uncertainty over sea routes in the Middle East prompted the company to cancel 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 operated steamships from Europe to Australia, carrying mainly 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 huge moment in Australia’s history because it had taken quite some time for the colonies to get a steamship service to the continent,” says Frame.

“HR 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 cruise service in the 1930s (a trip from Sydney to Norfolk Island in 1932 that sold out in one day) the brand was trusted and had a place in the hearts of Australians,” he says.

Cruising really took off in Australia in the 1930s. A slump in international trade due to the Great Depression allowed ships to dock longer and passengers to travel at a more leisurely pace.

“These cruise ships were not like they are today; Passengers formed committees and organized their own fun to decide which activities to do. You saw pictures of egg and spoon races on board,” says Frame.

Then, in the 1970s, following the rise of jet airliners, P&O repositioned itself as a budget-friendly party ship rather than primarily as a form of transportation.

“The real change happened when P&O bought Sitmar cruises and the Fairstar. [Fairstar] became the nice ship. She was cheap and cheerful and often went on vacation to the South Pacific,” says Frame.

“There were no dress codes, there was nothing to worry about on board, and that is where P&O Australia gained its current identity as a truly relaxed, Australian experience.”

It’s difficult to pinpoint just one thing for P&O’s demise, says Pierre Benckendorff, professor of tourism at the University of Queensland.

New arrivals, the relative affordability of flying abroad for post-Covid holidays, and the growing influence of retired baby boomers who have the cash and whose tastes have grown beyond budget cruises – are among the factors.

Related: Cruise bookings are above pre-Covid-19 figures as the industry charges 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 seen explosive growth post-Covid.

“This is very much 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 generates more profit than [it does] with P&O.

“Some P&O ships were also starting to get quite old, and since they tend to be 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 that it made sense to integrate the P&O business into the larger Carnival brand, with its larger, more modern ships.

Consolidating fleets and registering them in the Caribbean, rather than Britain, is a significant cost saving for the companies, said Dr Patricia Johnson, senior lecturer at the University of Newcastle’s business school.

“It was only the widening of the Panama Canal that sent these colossal ships into the Pacific Ocean. Previously, there was no way they could deploy their fleets from the Caribbean to Asia and the Pacific without significant expense,” Johnson said.

Benckendorff says that instead of sailing large ships around the bottom of South America to the Pacific Ocean for the Southern Hemisphere summer season, they can now travel through the canal.

Meanwhile, investments in new cruise ship facilities in Australia over the past decade are allowing larger ships to dock here, he says.

Ultimately, the closure of P&O reflects Carnival Corporation’s confidence in the strength of the Australian cruise market.

“I would say that the brand as a cruise line became faded as the ships got older, and the market for cruises has become so competitive,” Johnson says.

A spokesperson for Carnival Australia said “a small number of jobs will be lost”. However, experts have noted that cruise lines have largely avoided hiring large numbers of Australians as they have sought to increase their margins in recent years.

Benckendorff previously told the Guardian that companies operating in international waters are not subject to the Australian minimum wage; Registering ships in places like the Caribbean allows them to pay lower wages.

Benckendorff says the Australian market has matured since the days of the Fairstar, moving into two key segments.

“Most cruisers are either retired baby boomers looking for something to do with their money, or they are families who get decent value for their money from an all-inclusive food package – it’s competitively priced compared to staying in a five-star resort,” he says. .

“I wouldn’t say budget cruises are dead, but I think the market has changed… Carnival wouldn’t have made this decision if they didn’t think they could fill the ships at a higher capacity.”

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