Cruise operators weigh anchor to catch high tide: Nigel Cope reports on a form of vacation set to become the new package holiday of the Nineties

IN THE next few days Cunard, the cruise operator, is expected to announce the purchase of an additional liner, the Royal Viking Sun.

The acquisition, from the indebted Norwegian line Kloster, is the latest example of an industry in the midst of a feeding frenzy. In the past few months most of the big players in the world's dollars 6bn cruise market have announced plans to acquire or build bigger, better, plusher vessels.

P&O is spending dollars 1bn over the next three years, adding three new ships to its fleet. Cunard, owned by Trafalgar House, will spruce up the QE2 in November. Royal Caribbean, which ranks second in market share behind the American Carnival Corporation, is also expanding its fleet.

New entrants keep coming. Airtours, the budget-priced tour operator, plans to open up the cruise market to the sun, sea and sangria holidaymaker next year.

And then there's the Walt Disney cruise. The cartoon conglomerate has announced plans to offer cruises where families can spend quality time with Mickey Mouse and Pluto on the ocean.

'The desire for quality came in during the 1980s,' says Jennifer Brown, UK sales and marketing director of Royal Caribbean. 'Cruises may not be the cheapest holidays, but they are good value and prices have stayed down.'

There are two key developments in the British cruise market. While the world market, dominated by the US, has long been growing - numbers have doubled in the past 10 years - the idea of a cruise holiday is now catching on in Britain. Passengers numbers have trebled to 264,000 between 1986 and 1993.

Second, the profile of the typical cruise passenger is changing. It is now not just the over-50s who book a cruise to celebrate their early retirement. Cruising is broadening to accommodate the budget end of the market. Some think the cruise will become the new package holiday of the 1990s.

David Dingle, marketing director of P&O Cruises, explains: 'The trail-blazing package holiday has reached all parts of the globe, so distance is less important. People are now looking for more subtle differences in their holiday than just travelling a long way.'

He has a point. For Europeans, the package tour has stretched its tentacles from the Mediterranean, to Florida and on to exotic holidays such as safaris in Kenya and beach holidays in Goa and Sri Lanka. Some might find it dispiriting to travel all that way and still find the Germans have bagged all the sunbeds.

It is here that Airtours, the fast- growing tour operator, has seized its chance. When it paid pounds 16m for its first ship in April, its eyes were on converting the hardened package holidaymaker into a cruise passenger. So while a 12-night 'Golden Summer' cruise taking in Gibraltar, Casablanca and Lanzarote will cost pounds 1,200 on P&O's new luxury ship, the Oriana, next year Airtours has cruises that start at pounds 399.

'We were impressed by some of the American cruise companies that offer economical packages,' says Airtours' finance director, Harry Coe. The company says it will add more ships if this venture proves successful.

Not that the cruise operators will turn their backs on the older age group. This 'grey market' protected the industry from the worst ravages of the recession.

'The cruise industry did well in the recession,' says Mr Dingle. 'In a period of high interest rates and low inflation, retired people with low or paid-off mortgages had money for this kind of holiday.'

Now, with savings rates lower, and to fill their mushrooming capacity, cruise lines are seeking a younger, family clientele.

'I don't think cruises have become mass market, but they have become more accessible,' says Ms Brown. 'We have children's programmes on board, which helps to attract families, and we have tried to train travel agents to understand cruises better.'

Cruises certainly have a luxurious appeal. For the holidaymaker who prefers travelling by the least arduous route, they are ideal.

For the operators a cruise is just a floating hotel. Though services are not contracted out, as often happens in hotels, operations are becoming more efficient. P&O, for example, has been using ready-prepared meat and vegetables to cut work in the kitchen.

Cheap labour is another feature. P&O has European crews but has a history of employing Indians and Pakistanis as waiting staff and deckhands. Airtours' ships have European officers but many Latin Americans in other positions.

But there are some clouds on the sun-dappled horizon. One is potential overcapacity.

'There has been a lot of new capacity coming into the market and margins are under threat,' says Bob Carpenter, an analyst at Kleinwort Benson.

Discounting is another. In April Royal Caribbean cut prices for a three-week period to encourage customers to book further in advance. Last month P&O cut prices on two of its ships, the Canberra and Sea Princess.

Royal Caribbean's view is that it is often the travel agents, not the cruise operators, that cut prices.

This is a greater problem than the industry admits. With the high fixed costs of running a cruise liner, occupancy and price levels are the key to profitability. Encouraging passengers to book early helps cash flow. Late booking, with the prospect of sailing with empty berths, is damaging.

The result could be a further shake-out in the market as smaller lines which lack the economies of scale of the larger operators may be forced out or forced to sell.

But, while critics cry overcapacity, operators are confident that the cruise market can steam on. There are, says Royal Caribbean, so many destinations still to offer. Jennifer Brown names a few: 'Alaska (with covered swimming pools), Mexico, the Far East . . .'

(Photograph and graph omitted)