World's cruise industry sailing rough waters
The cruise ship season in Sydney is in full swing and it's booming, with ships forced to anchor in the middle of Sydney
Harbour due to a lack of dock space. But despite the onboard party atmosphere and the postcard image of luxury
liner passengers waving to ferry commuters from ship rails, the world's cruise industry is sailing through rough
financial seas as the global downturn bites into tourism.
Cruise operators are desperately trying to attract passengers for 2009, slashing prices, offering last-minute deals, twofor-
one pricing, shorter cruises, family packages in which children sail free, and home port cruising which avoids the
cost of an airfare to reach an exotic departure port. Norwegian Cruise Line last month announced "BookSafe" which
will give passengers a full cash reimbursement if they cancel their cruise because of job loss. U.S. cruise retailers
CruiseOne and Cruises Inc have introduced "CruiseAssurance" to cover passengers in the event of them being sacked.
"What's changed is that cruise lines have offered ferociously discounted fares," Carolyn Spencer-Brown, editor-in-chief
of UK online Cruise Critic, told Reuters.
"2009 is looking like the biggest buyer's market ever with absolute cheapest fares seen in a long, long time," she said.
So far bookings for 2009 are holding, but Cruise Critic warns some cruise operators may gain 90 percent occupancy
rates this year but still lose money due to cheaper pricing and conservative spending by passengers.
"There's been no significant downturn for big ship cruise lines. They're dropping prices as low as necessary to fill ships
and then are hoping that passengers, in the holiday spirit, will feel moved to spend on onboard extras," said Spencer-
Brown.
Royal Caribbean Cruises Ltd, the world's second largest cruise operator, has already reported a profit collapse in the
fourth quarter of 2008 and expects 2009 revenue to be weak as it offers discounts to lure passengers. Royal Caribbean
in January reported fourth quarter profit of $1.5 million, down sharply from $70.8 million in the same quarter the year
before . The Miami-based company stopped paying its dividend last November as it looked to save cash, following a
similar move by its main rival Carnival Corp & Plc.
Carnival Corp, the world's largest cruise ship operator, managed to beat expectations in posting a 3.6 percent rise in
net income in the fourth quarter 2008, based on higher room rates, cost cutting and offsetting fuel costs. The
company said its net income in the quarter was $371 million compared with $358 million a year earlier. But the fourth
quarter profit included $31 million on the sale of the Queen Elizabeth 2 and a rapid decline in fuel costs. Carnival
says 2009 is going to be a tough year. It will report its first quarter results this month.
The cruise industry has seen unprecedented growth in recent decades thanks to soaring popularity in North America
and Europe, the two main markets, and emerging cruise ship markets in Asia and Latin America. Since 1980 the
average annualised growth of North America has been 7.4 percent and annual passenger volume has risen 79 percent
in the past eight years. An estimated 13.2 million people took a North American cruise in 2008. The Cruise Lines
International Association (CLIA), North America's largest cruise industry body, estimates 2009 will see only a 5 percent
rise in passengers to about 13.35 million. "The cruise industry is optimistic that it will weather the current economic
conditions and continue to grow," said CLIA's Executive Vice President, Marketing & Distribution, Robert Sharak.
"Overall bookings are holding. The primary trend cruise lines are seeing is a late booking pattern. Consumers are
waiting until the last minute to decide to travel," said Sharak.
Cheaper prices and incentives have seen some cruise operators post record bookings so far in 2009, he said. Carnival
recorded the highest weekly bookings in its history in the first week of March and net bookings since January are up
10 percent compared with the same period in 2008. Carnival said in December that bookings for 2009 were running
behind the prior year. It said it expects net revenue yields to fall 6 percent to 10 percent in 2009. "Growth has been in
the 8 to 12 percent, year-on-year, but nobody believes that we'll see that maintained this year. The new normal is thatToday, the 14-day cruise from Venice to Istanbul has not sold out and the current price for the cruise listed at
seabourn.com starts at Euro 8,523, a 10 percent discount on the brochure fare. "Right now it's fashionable to be
thrifty. That won't last," said Spencer-Brown, who agrees with the CLIA that luxury cruises will bounce back, possibly
as soon as 2010. Credit Suisse upgraded Carnival Corp and Royal Caribbean Cruises to "outperform" from "neutral"
last month, saying the companies will outperform helped by solid demand in the North American and European
markets. However, Goldman Sachs maintains its "sell" rating on both cruise operators and says it expects further net
yield deterioration as travel indicators continue to show weakness.
"The coming year will see continued diversification and global expansion of cruise operations, said the CLIA's 2009
outlook, citing the Caribbean, Alaska and Europe as strong markets and growth in Asia, the Indian Ocean and Middle
East. The North America market is reaching maturity, but cruise operators still see growth in "home port cruising" in
2009, which first became popular after 9-11 when people did not want to fly. CLIA members are offering more than 30
domestic ports in 2009. Family cruising is also one of the fastest growth sectors, due to its "value-for-money" appeal,
and has helped drop the average age of a cruise passenger to 46, said the CLIA. Meanwhile, smaller, newer markets
in the UK and Ireland, Europe, Asia and the Middle East are also offering prospects for growth during tough economic
times. "Europe looks today as the American market looked 15 years ago in terms of cruise interest and potential," said
Sharak.
Executives attending the Seatrade Cruise Shipping conference in Miami this week said yearly cruise penetration, even
in significant markets such as Britain and Germany, was much lower than the 3.5 percent penetration in North
America. There could be an additional 2 million cruise passengers a year in the UK and Germany if penetration rates
rose, they said.
A 2008 survey by CLIA found 34 million Americans plan to take a cruise in the next three years The CLIA fleet will see
14 new ships at a cost of $4.8 billion, ranging in carrying capacity from 82 to 5,400 passengers, set sail in 2009 to
meet this expected growth in demand. A further 21 new cruise ships, at a cost of $14 billion, are scheduled to enter
the North American market between 2010 and 2012. "The cruise ship order book is placed through 2012. Beyond that,
the lines will assess the economic environment and their particular situation with regard to new orders," said Sharak.
"The industry remains committed to long-term growth."
