Economy and the Cruise Industry
Written by: Paul Motter
Cruises on sale, new ships on order, Europe getting cheaper. The cruise industry is unlike most U.S.-based travel businesses. Let’s take a look at the many ways in which the economy will affect cruising.
The first thing you will notice is that cruise prices are already on sale. You can see the Carnival “October Recharge Sale Event” the company is sponsoring now. We also see the NCL “Pity the Procrastinator” sale. Royal Caribbean is offering bargains on short cruises right now.
Cruise lines have always used highly fluid pricing to attract customers. I would expect to see some of the most affordable cruise prices in years in the next few months. Now, they naturally expect to make up the difference with what you spend onboard, but no one is required to spend anything onboard if you don’t want to, and in fact most people do spend less onboard during economic downturns.
Another very interesting change we are seeing is in the Dollar to Euro exchange rate. We are back to about $1.35 to one Euro. Last summer it was closer $1.60. Now, this current change in relative value is being caused by a SLOWDOWN in the European economy, something we have not seen for five years.
With the dollar getting stronger and the European economy getting weaker, cruises to Europe should be far more reasonable in the future than they were last summer. Furthermore, the European economy is expected to lag the U.S. economy by about two years. This means Europe should be even more affordable once the U.S. economy starts to recover and should stay that way for one or two seasons.
2009 could be the best year to cruise Europe since 2000.
With the credit crunch and the change in Dollar/Euro exchange rate, the cruise lines that have financing and can afford to build new ships have an advantage. Rumors have circulated that NCL cancelled the F3 project, but my personal gut feeling is that it is just on hold as NCL partner Apollo Management renegotiates the price. The ability to raise almost $1 billion in credit is a rare asset these days, and the shipyards should appreciate every penny they can get.
It should be noted that Royal Caribbean did secure financing for both of its new ships “Oasis and Allure of the Seas” from Scandinavian sources.
Meanwhile, other cruise lines which do NOT have new ships in production; Princess (after Ruby which will debut next month), Carnival (which has but one new ship on order) and Holland America (no new ships on order) have all recently announced extensive upgrades to their current fleet. Upgrading the existing fleet is always an advantage to a slowdown in new shipbuilding. These are all Carnival Corp. cruise lines.
Notably, Royal Caribbean International has six new ships on order, including the two new Mega-mega-ships Oasis and Allure, and four of the Solstice class for Celebrity. The unanswered question right now is whether the passenger market will be there for these new ships as they arrive. I believe it definitely will be for Oasis because it is so groundbreaking. Whether the Celebrity Solstice class debuts are right-timed remains to be seen. We will know more after initial reactions to Celebrity Solstice which debuts in November. If it works out, great, if not the third and fourth ship building schedules could be slowed down.
So far Solstice looks beautiful and fully in line with Celebrity Cruiser’s expectations. It has a beautiful and tasteful design, especially in the pool and spa areas. The cabins are about 20% larger which should make them very appealing.
Fuel prices are falling, hovering around $90/barrel, and even lower. This is down from $147/barrel back in February. This gives the cruise lines much more flexibility in pricing and itinerary offerings. It also helps to mitigate airline prices for getting to cruises.
If anyone has any other thoughts on economy and cruising – please comment below.
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