Luis Ajamil President and CEO

Bermello Ajamil & Partners, Inc.

October 2014

CRUISE SHIPS IN MICRONESIA

CHALLENGES AND OPPORTUNITIES

LUIS AJAMIL

BERMELLO, AJAMIL & PARTNERS

OCTOBER 2014

Cruise experience

Cruise line experience

1 THE CRUISE INDUSTRY

Worldwide expansion

1960 1970 1980 1990 2000 2010

Cruise passenger growth

0

5,000

10,000

15,000

20,000

25,000

Pa

sse

ng

ers

('0

00)

Asia Europe North America

Deployment

Alaska

4 Caribbean

1 Mediterranean

2

N. Europe

3

Mexico West

5

Top 25 worldwide attractions

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

Ma

gic

Kin

gd

om

Dis

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Glo

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ing

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orld

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ive

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ark

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Strategic industry growth factors

FACTORS CONSTRAINT

PASSENGERS >+40 M (NA only annual)

SHIPS YES

SHIP YARDS 12-14 SHIPS/YR

CAPITAL / PROFITABILITY NO

MANAGEMENT CAPACITY NO

CURRENCY FLUCTUATIONS NO

FUEL YES (NO)

ITINERARIES EXPANSION

WARM WEATHER PORTS EXPANSION

COMPETITION FEW COMPANIES

Cruise industry companies

RCCL, 24%

NCL, 7%

[CATEGORY

NAME], [VALUE]

CARN, 48%

OTH, 14%

Cruise line business model

• Control supply and demand through new-builds &

deployments;

• develop cruise itineraries that are easy and profitable sell

• ticket price is only a portion of the overall revenue possibilities

• Create revenue opportunities on-board & shore-side;

and,

• shore excursions

• destination-oriented deployments

• On-board retail options

• bar and casino revenues

• On-board services: spa, classes, experiences

• Control the expense side.

• balance cost of a destination against the value it produces

Success factors

• New products that generate sustained interest in cruising; • New, exciting vessels, diverse on-board products and services • New regions, itineraries and on-shore product offerings

• Converting land-based resort guests into cruise passengers;

• High level of passenger satisfaction; • leading to repeat clientele and lower conversion costs

• Adapt quickly to changing market conditions; and,

• Limited competition, reduced operational costs, and diversified revenues.

Capacities

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

0

2

4

6

8

10

12

14

Ca

bin

be

rth

s

Nu

mb

er

of

ship

s

Vessels Passengers

Average orders over the 10 year cycle

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Forecast world cruise growth

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

50,000,000

55,000,000

60,000,000

Pa

sse

ng

ers

Low Medium High

Forecasts

• The forecasts are based on current ship building

infrastructure

• Carnival’s Corporation announcement of exploring ship

building in China could be a game changer of

accelerating growth

2 CURRENT SITUATION

Guam cruise passenger throughput

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Guam vessel capacity

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Current situation

• Attracting vessels on round the world, repositioning or

Pacific cruises

• No major recurring patterns in region

• No nearby source markets of passengers

• No regular homeport operations

• Luxury and premium brands

• Explorer consumer

• Japanese, NA and limited European passengers

Asia – Pacific past trends (2013)

• North American and European operators have been

concentrating on building markets close to home

• Voyager of the Seas deployment will mark the beginning of

new regional competition.

• Industry supply over the last two years has tightened

• Once cruise lines begin to place new orders and expand

capacity, markets such as the Asian-Pacific region will have

more appeal

• While there is much interest in consumers in the Asian-

Pacific market, few lines understand how to tap into

this growing travel and leisure base

• Huge size of the overall market and diverse consumer groups

WHAT A DIFFERENCE A YEAR MAKES

THINGS ARE CHANGING

• Starts with an increase in global

capacity

• Commitment to Asia - Pacific

• Developing the source market

• Visiting Guam

• Guam as a base for Micronesia

GLOBAL

ASIA/ PACIFIC

SOURCE MARKET

MICRONESIA

GUAM

A start to the local cruise industry

Today

• Asia – Pacific is the talk of the industry

• Other markets are already beginning to feel the

commitment to this region

• Royal Caribbean is putting its brand new Quantum of

the Seas in Asia

• Carnival is relocating its COO to Asia and exploring

local ship building

• Australia has been the most successful growth market

for the industry

• More is yet to come

The potential cruise

market expansion is

tremendous

The Caribbean

UNITED STATESNew Orleans

Mexico City

MEXICO

Gulf of Mexico

BELIZE

GUATEMALA

EL SALVADOR

CUBA

JAMAICA

HONDURAS

COSTA RICA

PANAMA

Medellin

Bogotá

HAITIKingston

BAHAMASNassau

DOMINICAN REPUBLIC

Caribbean Sea

North

Atlantic

Ocean

TRINIDAD

GU

YA

NA

Caracas

Port-of-Spain

COLOMBIA

VENEZUELA

Cali

North

Pacific

Ocean

Miami

Port Everglades

Tampa

Cancun

Puerto Morelos

Playa del Carmen

Cozumel

Vera Cruz

Galveston

Key West

Havana

Freeport

Montego Bay Ocho Rios

Port Antonio

Cap Haitien

Puerto Plata

Santo Domingo

Port-au-Prince

BRAZIL

Georgetown

& TOBAGOCristobal

Balboa

Panama

San Blas Is.

San Andres

Providencia Is.

Puerto CortesPuerto Barrios

Belize City Turneffe Is.

Guanaja Is.Roatan

GRAND CAYMAN

Cartagena

ARUBA

CURACAO

BONAIREWillemstad

Margarita Is.

PUERTO RICO

ST. THOMAS (U.S. VIRGIN IS.)

ST. CROIX

ST. LUCIAMARTINIQUE

DOMINICAGUADELOUPE

BARBADOS

Bridgetown

GRENADAST. VINCENT

Fort-de-France

ANTIGUABARBUDAST. M

AARTINANGUILLA

ST. CHRISTOPHER

NEVIS

Acapulco

Panama Canal

LimónPuerto Caldera

ST. JOHNS (U.S. VIRGIN IS.)

Georgetown San Juan

NICARAGUA

WESTERN

CARIBBEAN

LOWER SOUTHERN

CARIBBEAN

LOWER WESTERN

CARIBBEAN

EASTERN CARIBBEAN

BAHAMAS

TRANSCANAL

Itineraries are key for recurring patterns

• Lines are focused on cruise itineraries • easy

• profitable

• sell to cruise consumers

• Diversity of destinations

• Manageable distances to reduce speeds and fuel consumption

• Creation of cruise itineraries that fit within consumer vacation patterns – mini-breaks

– week long cruises

Micronesia

• Diversity of history, culture and attractions

• Market Segmentation and expanded itinerary

opportunities

• Good airline accessibility

• Available port facilities and services

• Shore excursions, business opportunities

Interisland cooperation

• Ports should offer

complimentary

experiences

• Variety • Active

• Passive

• Cultural

• Eco-tourism

• Shopping

• Multi –national

• Marquee value

homeport

Port of call

Port of call

Port of call

Port of call

Cruise line owned destinations

3 ASIA-PACIFIC MARKET

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Pa

sse

ng

er

Be

d N

igh

tsAsia cruise bed nights

SA

RS

3,085,500

3,768,540

4,306,903

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

Pa

sse

ng

ers

Historical Low (9%) Mid (10.5%) High (12%)

Projected Asia growth

Major Factors

• Natural potential for development.

• Timing of cruise line expansion and strategy.

• Interline competition.

• Seasonality (by month).

• Daily fluctuations.

Seasonality

S E A S O N A L

S E A S O N A L

Y E A R R O U N D

Deployment patterns are beginning to emerge

• Summer in the North

• Beijing market

• Japan

• Korea

• Winter in the south

• Singapore base

• Others are coming

4 CASE STUDY – THE ATLANTIC

The Atlantic Corridor

The Islands

12 nights UK/UK

Nov 2014

14 nights UK/UK

Mar 2014

The Classics

24 nights Nov 2014

14 nights Mar 2014

The Classics - extension

14 nights Mar 2014

7 night Mar 2014

7 night Nov 2014

22 night Mar 2014

Inter – Islands and variations

22 night Mar 2014

7 night Nov 2014

15 nights

12 nights

8 days Nov 2014

Island hoping

16 days June 2014

West Med / Atlantic Islands

28 nights Dec 2015

Genoa-La Palma-Genoa

42 nights

London/London

Feb 2015

Transatlantic variations

27 nights FT. Lauderdale / Barcelona

Mar 2014

32 days Cape Town / Marrakesh

Segmented Accra

34 nights

Rome / Cape Town

October 2015

32 nights Nov 2014

West African Cruises

83 days UK / UK

Sep 2014

Around Africa

5 SHIPS

Average passengers per ship by year of construction

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Average ship length by year of construction

0

200

400

600

800

1000

1200

1980 1985 1990 1995 2000 2005 2010 2015

Av

era

ge

Le

ng

th (

fee

t)

RCI fleet

Past ship drivers – physical

• The width of the

panama Canal

• The air-draft of the

Verrazano Narrows and

Golden Gate bridges

• The draft of smaller

harbors (for non-

transatlantic)

Future drivers – market and economies

• More passenger amenities

• Better sales yields

• Outside cabins – larger perimeter

• Balconies

• Grander atriums

• Logistics

• Distribution of passengers

• Boarding and disembarking

• Better economics

• Crew to passenger ratios

• Power / fuel consumption

6 MANAGING GROWTH

Managing the Destination

• This is the area where planning is essential • Now is the time

• It is not just about a pier or dock or terminal.

It is about the destination as a whole…

• Meeting the needs and expectations of the visitor.

• Competing for economic and social impacts.

• Providing value for money .

• Managing resources today and for the future. • Not just stores, shops and restaurants

• Historic and natural resources, roadways, ports, parking areas,

environment, etc.

Passenger experience

• Providing an outstanding guest

experience

• Cruise lines are challenged to keep

the cruise experience exceptional

• Must deliver a variety of products &

services

• Must deliver a destination within a

short period – no second chance!

• A negative experience can tarnish a

passenger’s entire cruise vacation

The Paradox

……the more charming and attractive

the destination the more desirable……

The Life Cycle of the Urban/Port Waterfront

Settlement A Port is established City detaches

Declines Rediscovery

Ships are growing faster than waterfronts can be

transformed

Cruise ships enter the mix

• Bringing an urban use to a older waterfront

• The perfect blend between people and shipping

• But ----- cruise ships are also bringing certain issues that

need to be planned • Congestion

• Security

• Access

San Francisco

San Francisco

The San Francisco Embarcadero

The new San Francisco Terminal

San Francisco’s newest terminal first

• Totally integrated into the waterfront • Multiple uses

• Public park as a waiting area

• Public access to the wharf

• Green design • Recycled water system

San Francisco

San Francisco Pier 27

San Francisco Pier 27

Disappearing fence

Recycles its own water

Dublin

Fully integrating the port into the City

Will work with and without the ships

Integrating the riverfront

Facilitating traffic

New “Dublin – Times Square”

An active riverfront – “open to the public when ships are out”

7 ECONOMICS

Economics

• Economic impact is the key

• Plan to maximize return

• Port investment is difficult

• Passenger spending and logistics

North American port revenues (US$/pax)

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

Total expenditure per passenger

$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00K

etc

hik

an

AK

Av

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imo

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BC

Av

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Ja

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ica

Va

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ou

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Ac

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Ba

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Cu

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Sa

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An

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/ B

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Ba

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St

Luc

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Co

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Ric

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Turk

s a

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Ca

ico

s

Newest terminals in the newest markets

Singapore

Hong Kong Singapore +US$400 m

Hong Kong +US$350 m

Newest terminals in the newest markets

Singapore

Hong Kong

8 POLICY

Assembling the issues and meeting the challenges

Venues

Cruise

Operations

Access

Transportation

Funding

Product

Development

Marketing

Framework Policy

Cruise Industry Community

Private Sector

Building The Future

Ship Supply

Product

Demand

Product

Innovation

Marketing

Partner

Support

Infrastructure

Transportation

Planning

Economic

Impact

Environment

Experience Development Job Creation

Image Projection

Comprehensive policy framework

• Physical strategy

• Cruise facilities evaluation and capacity plan

• Site strategies

• Public and private uses, ISPS security

• Tourism development

• Building for land based and cruise tourism

• Regulatory framework – simplicity covering berthing

policy, environmental, etc.

• Financial strategy

• Setting tariffs

• Identifying issues requiring funding

• Lead by public or private sector

• Hard port infrastructure, operations, upland

development

Comprehensive policy framework

• Marketing strategy

• Cover consumer and cruise line outreach

• Make cruise easy to sell

• Use existing tourism lines of communication to

expand message

• Regional cooperation – name brand recognition

• Community strategy

• Focus on cooperation – address low hanging fruit

(traffic patterns, GTA use, separation of facilities and

community, education

• Vessel management - Caps on pax, hours, etc.

Destination strategies for regions and ports

• Organize at a regional level;

• Combine resources to effect consumer demand

• Educate and motivate the travel industry to sell the region

• Increase cruise line business acumen; and,

• Communicate on how the region can increase profitability

• Control expense side issues – taxes, fees & regulatory costs

• Increase flexibility.

• Change as market opportunities and / or challenges warrant

• Know your client today and who they will be tomorrow

9 CLOSING

Conclusions

• The future is bright – it will take a little time

• Use that time wisely to plan

• 2005 till today marks a major expansion in Australia / South Pacific

region

• 2015 will mark a major milestone for cruise line deployment and

beginning of focus on the Pacific

• RCCL deployment of the Quantum of the Seas

• Carnival Corporate commitment and ship building

• Strategies are broad to reach local source markets

• China

• Japan

• Korea

• This will open the entire Pacific region for growth

Conclusions

• Growth 1

• Guam will grow for traffic growth in the region

• Growth 2

• As the industry develops a Micronesia visitation product will

evolve

• Growth 3

• A Guam based market will evolve

• Guam

• As a port-of call

• As a homeport

October 2014