American Express (AXP) sent me a beautiful, 51-page brochure yesterday highlighting luxury cruises it can help people make reservations for. After a few minutes daydreaming about the $3,400 Athens-to-Istanbul tour, I wondered why AmEx would waste money pitching cruises in this economy.
As it turns out, the cruise industry is holding up remarkably well, even in a recession. Companies are launching a dozen new ships this year, with luxuries like loft suites, carousels, grassy parks and in-line skating tracks.
Cruise lines have seen a drop in business and are trying to catch budget-conscious customers with a boatload of deals, but that doesn't mean the industry is desperate.
In fact, analysts at Credit Suisse are making the case that cruising will outperform in the travel category for these reasons:
1. Solid demand. Helped along, particularly in the North American and European markets, by discount deals.
2. Bang for your buck. Cruising has a strong value proposition to exploit in this economy.
3. No conventions. The lack of corporate exposure means cruise ships are cushioned against disappearing business travel budgets.
4. Global opportunities. The global penetration opportunity is still intact.
5. Fuel costs. Cheaper gas will help earnings.
6. Prices. Cruising has seen more muted historical pricing gains vs. land-based alternatives.
7. Flexibility. Provided by asset mobility.
Ticket-price declines are starting to stabilize, said Credit Suisse analysts. They upgraded market leader Carnival (CCL) to outperform from neutral and upped the stock's price target to $30 (It got a 10% boost today to about $20.50).
The analysts also upgraded Royal Caribbean (RCL) to outperform from neutral, and made the price target a solid $12. It had been in the $10-12 range before. RCL shares jumped nearly 25% on the upgrade to $7.
SS Norway (12 times) '85 - '97; Radiance OS 06/01; Island Princess 11/04, Grand Princess 11/04/05, Golden Princess 7/21/06, Golden Princess 2/24/07, Explorer of the Seas 12/23/07, Island Princess 11/15/08