Bloomberg Audio Studios, podcasts, radio news. With fourth of July around the corner, the summer travel season is well underway. That usually brings a travel spike, but this year projections are actually down in the US, with would be domestic vacationers concerned about the state of the economy and international tourists turning elsewhere in the midst of geopolitical tension and economic uncertainty. But not all travel projections are down.
The Kruis in issues doing extremely well. Every single company is doing great. All the public companies that it is all hitting kind of record revenue, record earnings.
That's Red Brown. He's not a big cruise guy himself, but he does cover the industry for Bloomberg.
You speak to anybody who cruises, they'll defend it to their death. They love it. They think it's the best way to travel.
That passion for cruising is part of the reason why companies like Carnival and Royal Caribbean are expecting strong demand this year, and to keep up with that demand, they've descended on Galveston, Texas, an island city of about fifty thousand people that will host nearly two million cruisers this year.
It's a beach town first and foremost, so therefore it's a tourist town. So you'll have a lot of these shops selling t shirts, hermit crabs, things like that. But at the same time they're selling all those things out of a two hundred year old building that might have a Civil War era cannonball lodged into it as well, you know, you still have cobblestone streets, and then you also have state of the art cruise ships right next
to it. So it's a fascinating place that happens to kind of find itself at the center of the cruise universe.
What makes Galveston is such a good place for cruise tourism.
It's so attracted to the cruise companies because it does have such great access to the Western Caribbean, and also, if you think about the population centers that are around Galveston, it has three of the fastest growing cities in the in San Antonio, Houston, and Dallas within a five hour drive, so that just unlocked this incredible. They call it the drive in market for the cruise industry.
But not everyone in Galveston is happy about its status as the fastest growing cruise port in the country because the cruise industry's love affair with this small Texas city has come with trade offs, and the debate that's playing out there and in port cities around the world shows the big challenges that will come with the global cruise industry's ambitious expansion plans. This is the big take from
Bloomberg News. I'm Sarah Holder today on the show the seemingly unstoppable rise of cruise tourism and how it's transforming the port cities the industry relies on most. The cruise industry's recent turnaround has been pretty remarkable, especially when you think back just a few years to the start of the pandemic.
The story kind of did start a cruse. I think that's when it got real for a lot of people.
I remember living in San Francisco and hearing about the cruise ship kind of parked in the San Francisco Bay and not being such an early warning sign.
Karen Dever from New Jersey got on the ship with her husband for US celebratory cruise. Now she wonders when she will ever get off.
You heard these like horror stories of thousands of people being trapped in close quarters with this unknown virus kind of spreading through the ranks of people.
In the meantime, they've been air dropping supplies and coronavirus test kits to the cruise ship.
The cruise industry it was hit really hard, right and it kind of got slapped with a lot of skepticism and a lot of bad stereotypes about how you know, cruise ships are dirty and they're for older people and things like that.
It wasn't just stigma. In March twenty twenty, the industry was hit with a no sale order. The government mandated that cruise companies cease operations for over six months, but by late October ships were allowed to get back out there and passengers were just as eager.
It really did turn around almost immediately after they were able to start sailing again.
Almost forty million people will take a cruise this year. That's according to an industry trade group called Cruise Lines International Association, and RED says it's not a coincidence that cruises are seeing record demand right now amid economic uncertainty.
Cruises are cheap. They always kind of cite different numbers between like thirty and forty percent discount between a land based alternative and a cruise vacation. So if you think if you want to go to the Bahamas and maybe visit a Central American country as well in a week, there's really no cheaper way to do it than on a cruise. It's one ticket that you pay for most times, it's pretty all inclusive, so it's a very economical way for people, especially families, to travel.
But the post pandemic boom and cruises has started to strain ports around the world. For cities that are popular cruise ship destinations, places.
Like Barcelona or Venice, the Greek Islands, things like that, the limitations really come down to, like the capacity for locals to continue to host and be happy with tourists. It's you know, we've saw all the stories out of Barcelona, especially last year.
In Barcelona, locals protested over tourism last summer, chanting tourists go home and even squirting some travelers with water guns. The city has put caps on cruise ships, so his Santorini, Amsterdam is trying to phase out cruise ships to curb tourism and pollution.
And again, cruises don't bring as many people to those cities as airlines do and hotels do. But cruises are a very visible part of that problem. Right. You see these ships that are city blocks long and they're bright white, So I think that does kind of get an outsized attention, but really that is the stress when it comes to
those ports of destination. You have five thousand people that just kind of descend on a city and then they are gone by the end of the evening, and you know that can kind of irritate a lot of locals.
These destination ports have also seen increased demand because of regional conflicts that have reduced the options for seafaring travelers.
Very popular destinations in Israel and Russia are also closed at the moment because of the geopolitical issues in both areas.
All this has meant there are more passengers moving through a dwindling number of port cities, so cruise companies want to steer more of them away from the Eastern Caribbean and Europe towards destinations like Belize, Honduras, and Mexico. And that's what makes Galveston, Texas an appealing departure port. It gives access to the waterways that connects the US to those places. But departure ports like Galveston or like Port
Canaveral in Florida, are also facing their own challenges. People travel there to bord a cruise ship bound for another exciting destination, But even though tourists aren't trying to stay there, these port cities have thousands of people flooding through them too, which can be a big strain on local resources.
Port Canaval actually just failed in its latest attempt to add a new cruise terminal where they wanted to go from seven to eight, which doesn't sound like much, but seven cruise terminals is a lot of business, and local politicians are starting to think is maybe we should start to shift our attention our capital elsewhere.
And those limits on expansion in Port Canaveral are putting new pressures on Galveston, a historically smaller departure port about one thousand miles away, that's after the break. If you compare Galveston's cruise traffic to that of other major hubs, it may seem like a drop in the ocean. But Bloomberg's cruise reporter Red Brown told me, you have to put it in perspective.
Between the three biggest Florida cruz towns, Miami, Port Canaveral, and the Everglades. They do over three thousand cruises a year from those three cities. Right. Galv Soon we'll do around four hundred this year. But it's incredible when you think it's a town of fifty thousand people. Right. I drove it in a day. I walked most of it in three days, and it's more or less doubled to the amount of cruises they're doing.
That since twenty eighteen, when the Galveston Port got a new CEO named Roger Reese. Reese moved to Galveston after a five year stint at Port Canaveral.
He's a self proclaimed cruise guy.
He worked with the cruise companies throughout the pandemic, even letting their crew workers disembark on the island, and as.
Soon as they lifted the no sale order, Carnival said they're ready to go. They brought their ship in here.
And Carnival's first post COVID trip left from Galveston. Red met with Reese during his trip to Galveston, and Reese told him since the pandemic, cruise tourism in the city has only grown. Passengers came and went through Galveston's port almost three and a half million times in twenty twenty four, up from two point two million in twenty nineteen. There are three terminals at the port right now, with a fourth set to open in November.
We have fifty million people that live within twelve hours a year, and so I think after COVID people said, Hey, I'm not going to get on a plane, I'll strive. We can get to Galveston, drive there in a day and get them a cruise ship.
Reese says cruise ships were responsible for about sixty five percent of the port's revenue last year. The rest comes from cargo shipping and related activities. The port charges the ships for passenger parking, plus it collects a tariff on each passenger and rent from the company's leasing land for the terminals. According to a study commissioned by the port, cruise related activities bring in almost nine hundred million dollars
each year to the local economy. Divide that by the number of ships we have.
Today, every ship brings it two point one million dollars of revenues to the state and the local government's sales tax payroll, all that kind of stuff. And so while if you want to.
Stop that, they really don't have a lot going on outside of tourism. They also have a hospital there that is a bit of an economic engine as well. But you know, an extra billion dollars for fifty thousand people, you can do the math is really nice.
But there are other people in the city who see things differently, like the city's former mayor, Jim Yarborough.
I don't want to hear five or six seven termble Damn. I don't want to be overloaded. We can't handle so many people.
I don't want to be overloaded, Yarbro says, we can only handle so many people.
He is also a member of the board that governs the port, so earlier this year him and another council member actually proposed pausing the cruise development after the fourth cruise terminal, which is suppouted to open in November, does so and reevaluating is kind of the stance that they took. Lea, why don't we pause after that November opening, Let's reassess and see whether or not we want to continue to go down more and more cruizes.
Right when that fourth cruise terminal opens and it's set to host a ship called the MSc Sescape four times that month, bringing nearly ten thousand people through Galveston each time it docks and departs. But Yarborough thinks it would be smart to invest more in cargo shipping and less in cruises. While the cargo business doesn't bring in as much revenue for the port, it does employ more local workers and helps diversify the city's economy.
You started looking at the job that creates on the economic gripple to create cargo. The last past cruised all the time.
This is the thing that really kind of got me interested in this story was when we found out, you know, everything you're hearing out from the cruise companies is more cruising. Galveson's great. We love Galveston, but there are some local politicians that are beginning to raise the issue of whether or not Galveson wants to continue to tie its future to cruising.
When Yarbro and the other board member proposed that pause, it ruffled some feathers.
It made people, especially at the port, quite worried that that was going to send a bad signal to the rest of the industry that Galveston's kind of closing up his doors. It doesn't want any more cruising.
Red says there are two main factions in the city. And it's not as simple as pro cruise and anti cruise.
There's these two different terms that people use in Galveston. They call them bois. It stands they're born on island and IBC's island by choice. So Jimmy Arbaugh and the people kind of in his corner are bois. They're all born on the island. They love Galveston. They have this sense of kind of like, we want Galveston to be great, but we kind of still want it for ourselves, right, Like they don't want to just sacrifice everything and just let it be for the.
Taurus tourists who bring traffic and noise. Plus, they say it's not clear that travelers passing through the city to get on their ships are spending all that much money locally. About a third of tourists spend a night or two in Galveston before or after their cruises, but most don't stay long. Then you have the island by choice. People
like Roger Reeese, the port CEO. He and others who his view think that cruising is key to economic development in the area because the cruise industry brings jobs and money to the city. They're trying to get tourists to stay a little longer, spend more while they're in town. But Reese also stresses that courting tourists isn't the only thing the port is doing. It's invested heavily in revamping the cargo industry too.
They all kind of want the same things, but there's a rift in how they get there.
Yeah, they want their city to succeed, and they have different visions of what success looks like.
Yeah, exactly, And it's become very, very hotly debated.
That proposal to pause cruise development in the fall for a period of assessment. It failed in a council vote, but people like Yarborough aren't backing down without a fight. What it comes down to is this, not everyone in Galveston wants their city to become the next Barcelona.
People might not necessarily associate Barcelona and Galveston, right, but people in Galveston, do you know, they look at bars that I may, look at what's happening there and they say, maybe that's not the future that we want. And not to be melodramatic, but like the deal with the devil, you make when you do say, like we want more tourists right, Like, it's this immediate injection of cash that
becomes very difficult to distance yourself from. So I think people like Jimmy Arbrow and some of the other council members in the city are saying, this could be our only opportunity to use the money that we're getting from the cruise industry and then diversify right and set Galveson up for a future that isn't just tourism, it isn't just cruise ships. We could potentially bring industry back to Galveston and set it off on a new future.
Is that a tens that the broader global cruise industry is worried about right now as it continues to expand.
Yeah, I mean, the world's a big place, but there's only so many places people really want to cruise and visit. So it will continue to be a conversation, right But
the cruise industry, the cruise companies are extremely ambitious. I'm thinking of like Royal Caribbean CEO Jason Liberty, who guys it's kind of like us against the world mentality, So saying, like, cruising industry is two percent of the travel industry right now, they want a bigger chunk of that right, so they're not stopping their expansion anytime soon.
What could be the next Galveston in the US.
I think Galveson is the next Galveson, to be honest with you, just because the momentum is just so intense and you can tell when you're there just how important cruising is to the city and how important it is to the industry. Galveston for them is kind of the key that unlocks the Western Caribbean. So for the time being, I think it's kind of like, yeah, foot on the gas and Galveston for the industry.
This is the Big Take from Bloomberg News. I'm Sarah Holder. To get more from The Big Take and unlimited access to all of Bloomberg dot com, subscribe today at Bloomberg dot com slash podcast offer. If you liked this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow
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