Cruise lines hit rough waters, navigate well

cruise lines hit rough waters

While the popularity of cruise vacations has never been higher, earnings at major cruise lines are down. First they adjusted operations in a depressed economy. Then they absorbed high oil prices to hold the line on fares. Now, thanks to the effects of worldwide travel turmoil and a natural evolution of the industry, cruise lines hit rough waters and have a full list of decisions to make. While changes are inevitable, count on cruise lines to not stray far from their proven formula for success.

We start with this week’s announcement by industry leader Carnival Corporation that said turmoil in the Middle East and North Africa could cost about $44 million in lost revenue. From changing itineraries for safety purposes to a lack of interest in traveling to troubled areas, 280 voyages had to be issued new sailing orders.

“We pulled out of just all North African stops, in Tunisia and Morocco and Egypt, and we’ve pulled out of — actually, in some cases, we’ve had to pull out of Israel because we got a lot of resistance,” said Howard Frank, Carnival’s vice chairman and chief operating officer.

Other lines reported a similar effect on operations because of worldwide turmoil too and timing could not have been worse. This just after cruise lines have announced/deployed a record number of ships to the European market. Viewed as a smart move at the time, the more lucrative European markets were to bring greater earnings that came along with higher prices cruise lines could get from under-served Europeans.

But not if they don’t sail.

Here now we see the down side of cruise ships as mobile assets.

On one hand, the ability to move your floating resort to safe waters is a huge factor in favor of a cruise as a vacation option. Most itinerary changes are weather-related and happen with some regularity. Cruise ships can make alterations to itineraries and still provide a good vacation experience to consumers. Land-based vacation options hit by weather events don’t have that option or as cruise travel agents are fond of saying “We can move the ship, we can’t move the island” in defense of cruises over all-inclusive land vacations.

On the other hand, cruise lines really wanted to sail to the Middle East and North Africa among other destinations affected by weather or political unrest events. They can quickly modify an itinerary but can’t quickly sail back across the Atlantic to safe, calm, North American waters. In many cases, they are finding not the full ships of Europeans, eager to sail but less than full ships which at the end of the day are not producing the profits they want.

Then there’s the oil problem. Nobody wants to say the “F” word.

Fuel Surcharge. Cruise lines have for the most part held the line on pricing, not adding on the rabidly unpopular Fuel Surcharge. While they are much better prepared to implement a fuel surcharge and oil prices have risen far above the threshold at which they can, they don’t want to because they know what will happen. Booking levels will fall. Those who hold existing bookings recoil at the mention of the term and will be mad about it. Consumers know the price of oil is up but have little tolerance for an additional charge that really adds up fast.

For example, here is Royal Caribbean’s current policy

Royal Caribbean International reserves the right to impose a fuel supplement on all guests if the price of West Texas Intermediate fuel exceeds $65.00 USD per barrel. The fuel supplement for 1st and 2nd guests would be no more than $10 USD per guest per day, to a maximum of $140 USD per cruise; and for additional guests would be no more than $5 USD per person per day, to a maximum of $70 USD per cruise.


For a typical family of four, the market cruise lines have made such a huge push to get on the ships, that’s an extra $210 on a seven-day cruise. That could force those families off ships and on to land vacations and that is exactly what keeps cruise lines awake at night.

Still, Royal Caribbean announced plans this week for growth in Europe for 2012 adding another ship. The interesting part of the line’s 12-ship 2012 European deployment is adding (politically sound and happy) Amsterdam as a cruise port, handy to get to now with KLM service from Miami to Amsterdam.

Smart.

Smarter yet, passengers can get on and off ships at eight interports, creating 20 choices for embarkation and debarkation when the 12 homeports are included. That’s a lot of flexibility and exactly what they need to shore up confidence in their plan and help navigate what storms may come their way.

The ongoing trick to it all is to keep cruise vacations relatively convenient and affordable compared to other options. Cruise lines learned the hard way that in bad economic times travelers cut back on travel…but only for just so long. They may be looking for a greater value now than they once were. They may not be satisfied with just the lowest price now and will look beyond to see what they get for that price. The click-to-book people are probably clicking a whole lot more than they used to or using a travel agent to help insure value.

To get a look at the future, a glimpse at the past tells the story:

“The convenience and affordability of a cruise vacation continues to gain recognition as consumers discover the unrivaled experience cruising offers,” Carnival Chair and CEO Mickey Arison said. “As a result, long-term fundamentals for our business remain attractive in an environment where consumers increasingly value the importance of taking their holidays.”