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Cruise Industry

Raising prices and retaining record bookings - is it possible?

Kelly Evans  Mar 23, 2010

The consumer is dead. Long live the consumer.

If any industry should have been a relic of the boom, cruise lines, with their tricked-out "floating malls" catering to the whims and indulgences of consumers, were a likely contender.

Yet after a difficult 18 months, the industry is seeing a fairly impressive rebound in demand, a telling sign of the mind-set of U.S. consumers. That is bolstering the top line for operators like Carnival Corp., which analysts expect Tuesday to report that revenue for the three-month period ending in February rose to $3.1 billion, up 8% from a year earlier, according to Thomson Reuters.

Now comes the hard part, regaining some pricing power. Carnival Chief Executive Gerry Cahill last month announced "across-the-board" price rises of about 5% that took effect Monday. Competitor Norwegian Cruise Line said it will raise fares as much as 7% beginning April 2.

Whether these increases stick will speak volumes about how willing consumers are to spend in the absence of deep discounts. It also will show if the cruise industry has found clear sailing, after battling its way through the ravages of the recession.

Carnival, the world's largest operator with some 82 ships and 10 different brands, is one of several lines that reported record bookings during the winter "wave season," historically the busiest time of year for the industry.

Trade group Cruise Lines International Association said 2010 is expected to set a high for passenger volumes, with 14.3 million travelers this year, up 6.4% from 2009. Of that, it is anticipating 10.7 million North American passengers, the second consecutive yearly gain. A decline in 2008 was the first such drop in 14 years.

While cruise lines have discounted to lure passengers, sharply lower fuel and labor costs have dulled some of the pain. As those costs begin to rebound, and a strengthening U.S. dollar hurts competitiveness, operators like Carnival will become more dependent on higher prices to prop up margins.

And even if consumers are looking more resilient, many still are value-driven and so may be turned off by higher fares.

If that turns out to be the case, Carnival's stock, which has doubled over the past 16 months, could face rough sailing.

Raising prices and retaining record bookings - is it possible?
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