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SUMMARY REPORT

ECONOMIC IMPACT OF THE 2014–2015 CRUISE SECTOR IN NEW ZEALAND

AND FORECASTS TO 2017

© Cruise New Zealand, 2015. The use of any statistic, graph, chart, table and/or quote needs to acknowledge Cruise New Zealand as the copyright owner.

© Cruise New Zealand, 2015. 2

EXECUTIVE SUMMARY Cruise is a good news story in New Zealand. This sector has grown five-fold in the last ten years to become the equivalent of New Zealand’s 3rd largest country of holiday arrivals, behind Australia and China (Statistics New Zealand, YE June 2015). This growth is set to continue, with history-making projections over the next two seasons. Globally, the growth scenario is similar, with year on year growth, from 21.3 million in 2013, to projected increases of 22.1 million in 2014 (+3.8%) and 23.0 million in 2015 (+4.1%) (Cruise Lines International Association (CLIA), 2015). The global sector is set to expand further with 58 new ships on order providing in excess of 180,000 extra berths till 2022. Six percent (6%) of the currently available 482,000 beds from 421 ships are deployed in the Australasian region (CLIA, 2015). China is currently the biggest driver of growth in the global cruise sector, with a 80% compound annual growth rate and making up almost half of the 1.4 million cruisers out of Asia (CLIA Southeast Asia, 2015). Australia is also significant for having generated double-digit growth over the last consecutive 12 years as a source market, and breaking North America’s penetration rate for the first time ever, to reach 4.2% (CLIA Australasia, 2015). China’s potential and Australia’s growth combined means New Zealand’s cruise fortunes are likely to remain optimistic. At $436.1 million in Value Added generated in the 2014–2015 cruise season, this injection into New Zealand’s economy is worth even more than the direct value added of the Arts and Recreation industry (Tourism Satellite Account, 2014). Cruise is especially beneficial to the regions as the variety of voyages spreads wealth variously into 17 regions, outside the main trunk route of Auckland-Rotorua-Christchurch-Queenstown. The cruise sector also has the benefit of extending New Zealand’s tourism season beyond that of summer, from August to June. A summary of the cruise activity and its economic impacts in the 2014–2015 cruise season and forecasts for the subsequent two seasons are illustrated in Table ES below.

Table ES: Summary of cruise activity and economic impact in the 2014–2015 cruise season and forecasts for the subsequent two seasons

Season Voyages Vessel Port Days

Unique Passengers

% change

Passenger Port Days

Value Added (million)

% change Employment

2014–15 127 716 201,370 -‐0.7% 1,125,100 436.1 7.4% 8,365 2015–16f 135 701 267,800 33.0% 1,378,800 543.3 24.6% 10,354 2016–17f 135 755 259,200 -‐3.2% 1,409,200 540.1 -‐0.6% 10,371

Source: Cruise New Zealand


2014–2015 CRUISE ACTIVITY AND ECONOMIC IMPACT Given New Zealand government agencies’ current inability to accurately record the true size and value of the cruise sector1, Cruise New Zealand commissions a variety of research to compile its annual economic impact report. The production of this report is based on three data sources:

i) Passenger and Crew surveys conducted in partnership with CLIA (Cruise Lines International Association) Australasia

ii) Electronic card data by Paymark iii) Economic measurement and forecasting by Market Economics

This reporting is done on an annual basis as defined by the cruise season which starts in August and ends in June. a) Cruise Activity In the 2014–2015 cruise season, 32 ships made 127 voyages, which visited a total of 716 port calls around New Zealand, and carried 201,370 passengers and 75,400 crew (Table 1).

Season Voyages Unique Ships Vessel Port Days

Unique Passengers

Unique Crew

2014–15 127 32 716 201,370 75,400


Table 1: Summary of 2014-2015 Cruise Activity Compared to the 2013–2014 cruise season, this was a marginal drop in terms of passenger numbers (-0.7%) but a significant increase in terms of voyages (+6.7%), port days (+2.6%), and crew numbers (+9.1%) as cruise ships on average had a higher crew complement this season (Table 2).

Season

2014–15 2013–2014 % change Unique Ships 32 33 -‐3.0% Voyages 127 119 6.7%

Vessel Port Days 716 698 2.6% Unique Passengers 201,370 202,722 -‐0.7%

Unique Crew 75,400 69,080 9.1%


Table 2: Changes in cruise activity between the 2014–2015 and the 2013–2014 cruise seasons

1 www.cruisenewzealand.org.nz/data (Challenges of Official Measurement)


b) Passenger Source Markets Australians continued to make up more than half of all cruise arrivals (51%), followed by North Americans (20%) and then British (7%). New Zealand as a source market is also notable, making up 11% of total cruise arrivals (Diagram 1).

Diagram 1: Proportion of cruise arrivals in the 2014-2015 cruise season Australians superseded North Americans in terms of passenger arrivals to New Zealand in the 2008–2009 cruise season and has dominated ever since. This is likely to continue as Australia as a source market has been enjoying double-digit growth for the last twelve years and now boasts the highest penetration rate (calculated as the number of cruisers as a proportion of their population), even higher than that of North America. This gives cruise lines the confidence to deploy more tonnage in this region – that Australians will fill the ships. c) Passenger Movements There are three distinct passenger types for cruising in New Zealand:

1. Transit – those that cruise into and depart New Zealand on the same cruise;

2. Exchange – those that either embark or disembark their cruise in New Zealand. They are likely to have either flown into New Zealand to catch their cruise out, or cruised into New Zealand and flown out; and

3. Homeport – those that embarked and disembarked in New Zealand for their Pacific Island cruise.

In terms of movements (Table 3), a significant majority of Australians (85%) tend to be on a transit cruise. North Americans (65%) on the other hand tend to be on an exchange cruise around New Zealand, with 67% of Americans and 59% of Canadians exchanging in New Zealand. New Zealanders tend to be on a winter cruise that homeports out of Auckland (75%)2.

2 As only the first movement is counted, New Zealanders on a Pacific Island cruise would have to embark first, hence “75%” is derived from embarkation numbers as a proportion of total New Zealand cruisers.

Australia 51%

USA 17%

New Zealand 11%

Other 8%

Great Britain 7%

Canada 3%

Germany 2%



Nationality Season 2014–2015

Embark* Disembark* Transit Total % of Exchange of Nationality

Australia 7,347 7,957 88,048 103,352 14.8% Canada 1,910 1,966 2,728 6,604 58.7% China 902 327 1238 2,467 49.8%

Germany 1,290 1,224 2,037 4,551 55.2% Spain 40 74 229 343 33.2% France 385 309 819 1,513 45.9%

Great Britain 3,457 2,486 8,870 14,813 40.1% India 80 66 98 244 59.8% Italy 48 61 637 746 14.6% Japan 449 413 666 1528 56.4%

New Zealand 16,434 4,178 1,412 22,024 93.6% Singapore 104 40 138 282 51.1%

USA 10,077 12,175 10,997 33,249 66.9% Others 2,326 2,257 5,071 9,654 47.5% Total 44,849 33,533 122,988 201,370


Table 3: Cruise passenger arrivals by nationality and movement in the 2014–2015 cruise season * Denotes the first movement recorded, i.e. when a passenger embarks and disembarks the same ship in New Zealand, only the first movement (embarkation) is counted so that the total is a unique passenger count. Exchange passengers tend to be worth more to New Zealand as they tend to spend a few nights in New Zealand before or after their cruise. The added spend in accommodation, flights, transfers and evening activity for an exchange passenger results in a much higher spend than a transit passenger who visits for a few hours during the day. Survey research shows that 67% of embarking passengers had a pre-cruise stay that averaged 2.2 nights, and 40% of disembarking passengers had a post-cruise stay that averaged 2.9 nights. This was reinforced by electronic card data spend, which showed peak activity happening a day after the cruise (Diagram 2).


Diagram 2: Exchange Passengers - credit card users recorded before, during and after a cruise in the 2014–2015 cruise season.

d) Regional Activity A positive characteristic of the cruise sector is its ability to spread the wealth into the regions. A cruise to New Zealand is considerably port intensive, accessing a new destination within overnight sailing. It is thus possible to see the length of New Zealand within a week. A typical itinerary calls into at least 6 ports, Auckland-Tauranga-Wellington-Akaroa-Port Chalmers-Fiordland, and Napier, Bay of Islands and Picton may be variously added to create differentiation. The spread of cruise arrivals in terms of passenger and crew port days thus reflects the type of itineraries that New Zealand attracts (Diagram 3). As the marquee and key exchange port for New Zealand, Auckland tends to attract pre and post-cruise stays and more overnight stays than the other regions. This reflects its comparatively larger share of passenger and crew port days.

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Diagram 3: Proportion of Passenger and Crew port days in the regions in the 2014-2015 cruise season

e) Economic Impact of the 2014–2015 cruise season Three areas of spend contribute to the economic impact measurement:

1. Passenger-spend 2. Crew-spend 3. Ship-spend

All spend by passengers and crew before and/or after their cruise are also included in this economic impact assessment. These combine to form the Total Direct Expenditure, which was $572.2m. Imports such as fuel and international airfares that do not ‘stick’ to the New Zealand economy are removed to produce ‘Net Additional Direct Expenditure’. The study then establishes the indirect and induced activity that results from the net additional direct expenditure of the cruise sector, to establish how much value is generated in New Zealand’s economy. This is synonymous with GDP (Gross Domestic Product) and in turn used to determine employment being the number of jobs supported (see Glossary for more information). In 2014–2015, New Zealand enjoyed a net additional direct expenditure of $340.3 million from the cruise sector which resulted in value added of $436.1 million, and supported 8,365 jobs (Table 4).

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Passenger Port Days Crew Port Days Port Days

Region Source: Cruise New Zealand


Value Added $(million)

Season Net Additional Direct Expenditure Value Added Employment

2014–15 340.3 436.1 8,365


Table 4: Summary of the 2014-2015 cruise economic impact *Net Additional Expenditure measured excludes spend that does not stick to New Zealand economy. For example ship fuel and international airfares Passenger-spend was by far the highest contributor to the economic impact at 77.6% of the total value added, followed by Ship-spend at 14.5%, and Crew-spend at 7.8%. Compared to the 2013–2014 season, the 2014-2015 season reflects a growth of 7.4%. Electronic card data that tracked the 2014-2015 and 2013-2014 cruise seasons showed that passengers spent more on average this season than last. In the regions, Auckland as the marquee and key exchange port benefitted the most from cruise, making up 43.7% of the national Value Added (Table 5). Wellington which is the headquarter of most government and banking services, is another key beneficiary at 12.2%; followed by Canterbury (11.4%), Otago (8.2%) and Bay of Plenty (8.0%).

Region Value Added $(million)

Passenger Related

Crew Related

Cruise Vessel Related Total

Northland 10.8 1.4 1.3 13.4 Auckland 142.3 12.2 36.2 190.7 Waikato 8.3 0.8 1.5 10.6

Bay of Plenty 28.2 3.1 3.7 35.0 Gisborne 0.8 0.1 0.2 1.0

Hawke's Bay 16.4 2.3 2.1 20.7 Taranaki 3.2 0.3 0.7 4.2 Manawatu 2.8 0.3 0.5 3.6 Wellington 41.6 5.2 6.5 53.2 West Coast 0.5 0.0 0.1 0.6 Canterbury 41.8 3.8 4.0 49.5

Otago 29.3 3.0 3.5 35.9 Southland 4.7 0.3 2.2 7.1 Nelson 1.5 0.2 0.3 2.0

Marlborough 6.4 1.0 1.0 8.4 Other 0.0 0.0 0.0 0.1 Total 338.5 33.8 63.8 436.1

*For the purposes of an Economic Impact Assessment the majority of direct expenditure on airfares and ship fuel are excluded.


Table 5: Value added of the 2014–2015 cruise season in the regions


In terms of employment supported, Auckland makes up 38.5%; Canterbury at 12.5%; Wellington at 10.5%; Otago at 10.1%; and Bay of Plenty at 9.9% (Table 6).

Region Employment

Northland 273 Auckland 3,217 Waikato 163

Bay of Plenty 829 Gisborne 22

Hawke's Bay 549 Taranaki 43 Manawatu 66 Wellington 877 West Coast 12 Canterbury 1,044

Otago 844 Southland 183 Nelson 41

Marlborough 202 Other 1 Total 8,365


Table 6: Employment supported from the 2014–2015 cruise season in the regions FORECASTS FOR 2015–2016 AND 2016–2017 New Zealand’s cruise industry is forecast to grow rapidly in the 2015–2016 season with 33.0% increase in passenger numbers, 24.6% increase in value added and 23.8% increase in employment supported (Table 7). Not only will there be more ships, with the 2015-2016 season welcoming 5 ships making their maiden voyage to New Zealand, but the ships on average are also larger. This is reinforced by the entry of Explorer of the Seas, sister ship to Voyager of the Seas (currently the largest ship in terms of passenger numbers to operate in New Zealand) who will make 10 voyages to New Zealand. Indications for the 2016–2017 season are also looking positive at this stage, and look set to continue the record-breaking levels set by the impending 2015–2016 season. The much hyped Ovation of the Seas will make its debut in New Zealand as the largest ship ever to visit New Zealand in December 2016, and Princess Cruises will have its largest ever deployment in New Zealand, with the addition of Emerald Princess. As schedules are still being fleshed out, it is anticipated that the 2016-2017 season will continue the growth and lift New Zealand cruise records onto a higher average.


Season

2014–2015

2015–2016f

% change

2016–2017f

% change from 14/15

Voyages 127 135 6.3% 135 6.3% Unique Ships 32 34 6.3% 42 31.3%

Vessel Port Days 716 701 -‐2.1% 755 5.4% Unique

Passengers 201,370 267,800 33.0% 259,200 28.7%

Unique Crew 75,400 91,600 21.5% 91,500 21.4% Value Added $(million) 436.1 543.3 24.6% 540.1 23.8%

Employment 8,365 10,354 23.8% 10,371 24.0%


Table 7: Summary of forecasts for the 2015-2016 and the 2016-2017 seasons Based on the voyages that have been booked for the next two seasons and historical occupancy rates, it is anticipated that there will be continued growth (Table 8) out of New Zealand’s traditional cruise markets of Australia (+37.3%), USA (+14.9%), and Great Britain (+29.6%). More importantly, the growth out of the USA in the 2015–2016 season is forecasted at 38,200 passengers, breaking the previous record set at 35,814 passengers in the 2007–2008 cruise season. Increased open jaw voyages by Holland America Line, this 2015-2016 season, with the maiden voyage of Noordam and the entry of Azamara Club Cruises, with Azamara Quest making an exchange in Auckland, help to grow this higher-yielding market. The number of New Zealanders set to cruise is also forecasted for a steep increase (+46.7%), in response to the much-increased number of homeports by Pacific Pearl this 2015-2016 season.

Nationality 2014–15 2015–16f % change 2016–17f % change from 14/15

Australia 103,352 141,900 37.3% 131,000 26.8% Canada 6,604 8,700 31.7% 9,000 36.3% China 2,467 1,900 -‐23.0% 1,500 -‐39.2%

Germany 4,551 6,600 45.0% 7,000 53.8% Spain 343 400 16.6% 400 16.6% France 1,513 1,200 -‐20.7% 1,200 -‐20.7%

Great Britain 14,813 19,200 29.6% 19,900 34.3% India 244 300 23.0% 200 -‐18.0% Italy 746 800 7.2% 700 -‐6.2% Japan 1528 800 -‐47.6% 700 -‐54.2%

New Zealand 22,024 32,300 46.7% 31,900 44.8% Singapore 282 300 6.4% 200 -‐29.1%

USA 33,249 38,200 14.9% 40,200 20.9% Others 9,654 15,200 57.4% 15,300 58.5% Total 201,370 267,800 259,200


Table 8: Forecasts of passenger arrivals by nationality for the 2015-2016 and the 2016-2017 seasons


Regionally, in terms of value added, all regions are forecast for a positive 2015–2016 season with the exception of Hawke’s Bay (Table 9). Hawke’s Bay will see a drop of 14% in value added from the loss of calls by Princess Cruises who has traditionally included Napier in its New Zealand itineraries. Consequently, Gisborne’s cruise sector which is made up solely of the 12 calls by Golden Princess, is set to grow by 1,100% in voyage calls and 330% in value added. This reflects how easily cruise lines can move their assets to where it suits them best. However when 2016–2017 is compared against 2014–2015, there is all round growth in terms of value added. It is important to note that the 2016–2017 season is still subject to substantial changes as cruise lines look to fine-tune their itineraries. The movement will likely settle by the first quarter of 2016.

Table 9: Forecast changes in 2015–2016 and 2016–2017 cruise seasons with 2014–2015

© Cruise New Zealand, 2015.

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INFLUENCING FACTORS Beyond the 2015–2016 and the 2016–2017 seasons, the growth looks set to continue. Australians’ ability to fill ships is one of many significant influencing factors. China’s well-documented potential is another, as more and more cruise lines ply their latest hardware in that region to attract more first-time cruisers out of the market that can be as large as 83 million according to a research done by Hong Kong Tourism Board. The Australasian region is an attractive option to offset China’s winter, as demonstrated by the deployment of Ovation of the Seas in December 2016 after it finishes its first season in China. Congestion in neighbouring Sydney and the western Pacific Islands may also shift more capacity into New Zealand. However the proposed Border Clearance Levy or Travel Tax, introduced by the government at the 2015 Budget, is likely to significantly limit New Zealand’s growth prospects. In the consultation document, the government indicated an implementation date of 01 January 2016. As deployment and itinerary planning has been set for the next two years, and planning is already underway for the 2017–2018 season, the full impact of the tax will be felt in the 2018–2019 season. In that year, based on conservative growth projections from current forecasts and analysis of the impact of the tax, the value of cruise to New Zealand looks set to contract by 14%, to the tune of $85.2 million in value added, and a loss of 1,629 jobs (Diagram 4).

Diagram 4: The impact of the Travel Tax on cruise growth projections The impact on the cruise sector is enormous because:

1. Cruise is not a mode of transport – it is a holiday option which is very price-sensitive.

2. It has a high crew to passenger ratio (on average 1:2.7), which imposes a huge cost on cruise lines at the maximum proposed levy of $22.80+GST per crew. It has to be remembered that cruise lines need to make the decision to deploy to New Zealand before passengers can make the choice to purchase a New Zealand voyage. Hence there is a real need to ensure New Zealand is still generating positive yield for cruise lines.

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3. Other government charges include Marine Safety Charge and the Oil Pollution Levy. Collectively, these per head charges will add to as high as $62.62 per passenger. A similar per head charge in Alaska contracted the market by 17% and from which they have yet to fully recover despite a subsequent reduction in that charge.

Based on discussions with cruise lines, they are likely to remove repositioning voyages and reduce home porting in New Zealand, and Cruise New Zealand anticipates cost-conscious cruise lines are also likely to exit the market. This scenario results in the forecasted loss of $85.2 million in value added and the loss of 1,629 jobs. The government hopes to recoup $7-8 million in costs and the potential loss from the impact of the tax will be ten-fold what they hope to recover. CONCLUSION Already the equivalent of New Zealand’s 3rd largest inbound holiday arrivals behind Australia and China, cruising in New Zealand is poised to continue growing at record-breaking levels. At a forecast increase of 33% in passenger numbers and 25% in value added for the upcoming 2015–2016 cruise season to reach 267,800 passengers and $543 million in value added, similar levels look likely for the subsequent 2016–2017 season. This is a level of activity that New Zealand has never seen before. Looking beyond 2017, New Zealand prospects continue to look good. Australia’s resilient growth as a source market over the last consecutive 12 years, to the point of breaking North America’s stronghold for the title of the highest proportion of cruisers in the world, means New Zealand will continue to grow on the back of Australia. Added to that, with all the deployment to China, means New Zealand has a good chance to attract some of that deployment when those ships look to go elsewhere during China’s winter. Congestion in Sydney and the western Pacific Islands also mean there is a good chance cruise lines will look to New Zealand to ease some of that pressure. The cruise sector acknowledges the importance of border clearance activities but in its proposed form, has the potential to cap the illustrious growth forecasted. New Zealand is already known for its high costs of operating. The Travel Tax will shift New Zealand into the top quartile of expensive ports in the world, which will greatly reduce the attractiveness of operating here.


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Glossary • Total Direct Expenditure: is the actual spend that occurs as a result of

cruise industry activity in New Zealand. For example a vessel arrives in Auckland and then purchases $100,000 of fuel. This spend is counted as Total Direct Expenditure by the cruise industry.

• Net Additional Direct Expenditure: The net additional direct expenditure is the spending by the cruise industry that sticks to the New Zealand economy. This is important as it critical to remove the proportion of the Total Direct Expenditure that flows directly offshore. This is especially important for the cruise industry because two of the largest ship-spend categories are fuel and international flights, which are predominantly imports. The example of a ship that buys fuel in Auckland, shows an instance where the bulk of the Total Direct expenditure simply flows offshore and creates very little benefit to New Zealand’s economy.

• Value added: Value added is the most appropriate measure of economic impact. It measures the level of value that is generated within an economy. It is closely related to GDP, the standard measure of economic performance of an economy. The value added is calculated using the Net Total Direct Expenditure, Indirect Effects and Induced Effects.

• The Indirect effect of direct spending: The indirect effect occurs when suppliers to the cruise industry increase their demands for goods and services from their suppliers in order to meet the increased demand from the cruise industry. For example, a providoring company receives an order for $20,000 worth of fresh fruit and vegetables from a cruise line. They immediately place orders with a range of suppliers for the goods. These suppliers in turn, purchase more seed, fertiliser and machinery in response to the increased sales they are making. The indirect or Type I multiplier attempts to capture all these transactions in a single “multiple”. In effect it measures how many times a single dollar of increased demand is multiplied through the economy.

• The Induced effect of direct and indirect spending: The induced effect captures increased spending due to increases in wages and salaries paid to workers and owners indirectly, and indirectly affected sectors. As people earn more money for the additional work they do, they spend more. The induced multiplier attempts to capture this round of increased economic activity. The induced multiplier is usually added to the indirect multiplier to produce a Type II multiplier that measures the total economic effect of additional spend.

• Employment: This is measured in employment count (EC), which counts all jobs regardless of hours worked as one employment. The Employment Count data is drawn from Statistics New Zealand’s Business Directory1 (2014) and Linked Employer-Employee Data2 (2013). These two datasets are used to

1 The Business Directory records employed persons by industry and location. 2 The LEED records a count of self-employed persons by industry.


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establish a total count of employment. This is different from the Tourism Satellite Account (2014) employment measure of Full-time Equivalent (FTE) which combines full and part-time employment data sourced from the Household Labour Force Survey and Quarterly Employment Survey.

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