A Split Cruising Paradigm?
Written by: Paul Motter
We are living in interesting times, and cruising reflects it as well as anything. On the one hand people are filled with “hope” and excited for “change,” yet simultaneously there is palpable fear, uncertainty and doubt. There are two major players in the cruise world, Carnival Corp. and Royal Caribbean International (with apologies to NCL and all the other independent cruise lines).
These two parent corporations control the vast majority of the cruise market, about 75% when combined, divided almost equally with a slight edge for Carnival Corp. which owns Carnival Cruise Lines, Holland America, Princess, Cunard, Costa (Europe’s main line) and Seabourn. Royal Caribbean owns Royal Cariibean Line with 22 ships, Celebrity, Azamara and a few European players such as Pullmantur and TUI.
Just like the dichotomy between hope and FUD (fear, uncertainty and doubt), we see two vastly different approaches to the current economic situation. Carnival has circled the wagons, planning to unveil only one new ship, Carnival Dream, in 2009. Royal Caribbean, however, has FIVE new ships to debut between now and 2012 for Celebrity Lines alone. They also have two new ships of the new Oasis-class which will be the biggest cruise ships ever built by 30%, the first set to debut in 2009. All together, Royal is bringing almost 27,000 new passenger berths online within four years. That’s 27,000 additional cruise tickets they need to sell every week.
Both cruise lines have stock prices that are touching on 10-year lows, despite the fact that Royal caribbean reported its best quarter EVER just about a month ago. Such is the FUD, that even without a corresponding confirmation that cruising is suffering as a business, Wall Street has already punished these companies brutally. The fact that both companies suspended their dividends doesn’t help, but when Royal Caribbean announced it after the market closed yesterday their stock price actually blipped higher.
Yes, it’s only paper losses. The last two times Royal Caribbean has hit this price it has come back as a five-bagger within three years, but this time could be different. Something tells me this whole econimic situation is just a bit overblown. Its a gut feeling only, but while I hear the media talking ceaselessly about how horrible things are, in fact most of the people I know are just sitting out the bad times, waiting for them to pass as they have always done.
“But this time it’s different,” – I have news for you, they ALWAYS say that. I only bring this up because I am just in awe of what can happen for almost no reason. Yes, real estate and banks are in trouble, but how does that really affect cruising? With the drop in fuel prices the profit margin has gone up for all cruise lines, and last quarter’s best-ever results for Royal Caribbean were attributable to the extra capacity Royal Caribbean brought online last year. Nothing about the formula has changed, except fuel costs have dropped considerably. It is purely the economy that has changed around the industry.
It will be very interesting to see how this whole situation shakes out; a new President, a Wall Street crisis, auto-makers teetering on the brink, the top selling items in stores right now being safes and guns. If you ran a $2-billion company, where would your money be? I think running a company right now is very similar to gambling – the key is staying in the game and careful money management.
Speaking of money management – we recently heard about a big cruise agency going under. Rumors are out there that they did not forward customer payments to the travel suppliers. To be clear, by LAW a travel agent must forward any money he takes in from a customer to the travel supplier (cruise line, hotel, airline) immediately. They get paid their commissions from the suppliers after the travel is completed.
This is NOT a widespread problem, but it is something to mention. If you book a cruise with any agency (and yes, we still recommend that you use reputable travel agencies to book all cruises) be sure that you receive a booking number from the cruise line within a day of making any deposit or final payment. Do not go along with any agent who tells you that you might get a lower price by letting them hold the money until the last minute, or any such business. It isn’t legal. It has only happened a couple of times since I have been in the business, but I have seen travel agents who are close to going under get desperate and hold onto incoming cash-flow hoping they can make it up later.
Times are tough for cruise agents. People are still cruising, but when the cruise lines drop prices the amount of the cruise price they earn as commission goes down even more. A 7-day cruise is only netting them about 1/2 what it was getting a year ago. This is good news for consumer – not good for the travel agents. Some agents tell me things are fine however, even good. There are a lot of ships that need to be booked every week.
What else is new? Every cruise line out there has now announced the end of fuel supplements. Oil is about $53/barrel now – what is was two years ago. That is amazing.
And…. PIRATES! They have become brazenly ruthless. They are now going as far out as 450 miles and taking ships the size of a modern cruiser. So far, they stick to cargo vessels because it is easier to hold wheat or oil hostage than hundreds of angry passengers. Their success in getting ransom payments is predicated on playing a long waiting game and picking on governments that do not have the will or military might to put up a good fight.
But they did try to attack a small cruise ship once about four years ago. The ship got away with careful maneuvering and some luck. I doubt they would try to pick on a cruise ship again – too much trouble, but these are not exactly the most rational criminals the world has ever spawned.
The area of danger is Somalia, near what is known as “The Horn” of Africa. To be precise, it is near Yemen at the southern end of the Red Sea. Not many cruise ships go there, and if they do there are areas of patrol they can stay within as the pass the danger zone. In truth, there is not a lot to see in that part of the world and any cruises that go there are generally just relocating from one cruising region to another.
Anyway – this has been something of a downer cruise blog, so let’s cheer ourselves up a little. Hey, its almost the holiday season. My advice? Give a cruise as gift – they’re on sale and they give you something that lasts a lifetime – great memories! Spend some of that money, your mattress is too lumpy with all that cash stowed in it.
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Posted: November 19th, 2008 under Paul Motter.