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Cruise lines face stormy weather  Nov 24, 2008

When the 54,000-tonne cruise ship Westerdam leaves Fort Lauderdale, Fla., later this year, the boat is likely to be filled, even in the face of the ongoing global economic crisis.

The question is at what price.

Experts believe cruise lines will be doing everything possible this holiday sailing season, including heavily discounting the prices of their cabins, in order to keep the boats filled.

"I do think cruise lines are scrambling at this moment. They know that they have a great deal of open inventory and they are trying many creative ways to get potential passengers to buy," said David Shields, vice-president with CruiseMembersOnly, a Massachusetts travel agency that specializes in cruise packages.

After all, a cruise line is the one business that has to keep sending its boats out in a bad storm, even one of the financial variety.

Darkening skies…

The first half of the year was actually pretty good for the cruise sector.

Cruise lines moved 5.3 per cent more people around to various vacation hot spots in the first six months of the year compared to the same time last year.

That growth rate was a little flatter than the industry's historical average of 7.4 per cent.

Still, with many potential cruisers in Canada and the United States already looking to shelve their travel plans, the January-to-June increase appears quite acceptable.

"Nobody is recession-proof, but we're recession-resistant," said Robert Sharak, executive vice-president for marketing and distribution for the Cruise Lines International Association, which represents most of the major cruise lines.

Indeed, as the financial crisis began to gather steam in September, some industry participants were making noises that the sector, which had only experienced one year of negative passenger growth (1995) in the past 18, might again avoid the consequences of an economic slowdown.

"Despite the uncertain economy, all our major brands globally performed quite well with increased corporate-wide revenue yields," said Mickey Arison, chairman and chief executive officer of Carnival Corp., which runs prominent ship vacation lines, such as Carnival Cruises and Holland America Line. He made the statement back in September, when the company announced its second-quarter financial results.

By the end of October, however, Carnival said it would suspend its quarterly dividend starting in 2009 and was forecasting lower earnings per share for 2009 than 2008's forecast of $2.81.

"In light of the unusually high cost of raising new capital, continuing concerns about financial institution liquidity and current uncertainties in the global economy, we believe that preserving cash is a prudent step which will further strengthen the company's balance sheet and enhance our financial flexibility," Arison said.

… and heavy seas

Of course, Arison was not the only corporate captain who underestimated the extent of the global economic slowdown.

And Carnival is not alone in taking evasive action as the industry battens down its financial hatches and tries to ride out the ongoing economic swells.

Royal Caribbean Cruises Ltd. posted record earnings in its third-quarter results but also said the economic situation is turning sour quickly.

"While we are pleased with our third-quarter results, the operating environment has changed dramatically in recent weeks," said Richard Fain, Royal Caribbean’s chairman and CEO.

At the beginning of the year, Minneapolis-based Cruise Holidays, another large travel agency specializing in cruise vacations, was talking about more people travelling to the unnoticed gems of the seas, such as some European destinations.

By November, however, the agency was watching bookings get cancelled and potential sales evaporate.

"In the past few weeks, cancellations are up by a third," Peter Thomson, Cruise Holidays' chief operating officer, said to USA Today.

In September, Royal Caribbean International dumped one trip to Quebec City, although the motive at the time was fuel savings.

Not only is the economy causing headaches, so are the authorities.

In November, the Florida Attorney General launched a legal action against Imperial Majesty Cruise Lines for $4 million US. The state alleges that over the past four years, the company foisted a hidden surcharge for higher fuel costs on passengers through increased ticket prices.

Cruise lines fight back

The cruising industry has argued that, unlike other kinds of tourism, boating vacations have all kinds of room to grow.

In a survey completed earlier in 2008, the industry association estimated that the potential market for its product is a whopping 128 million people, or 44 per cent of the entire population of the United States.

Of that smaller group, only 57 million had ever taken a cruise.

Now, operating on the theory that people are likely to take more than one cruise in their lifetimes, the CLIA predicts that between 33 million and 50 million people will take a ship vacation within the next three years.

Surprisingly, lower costs might be an advantage for cruise lines over other types of vacations.

Sharak pointed out that, by definition, a cruise includes most of a vacationer's costs, such as food and entertainment.

As well, cruise lines are offering all kinds of specialized sailings in order to attract people other than the "socks-with-sandals" crowd usually associated with such boating excursions.

Some lines are offering singles cruises as younger men and women take to the seas. There are eco-cruises to hard-to-reach places, such as the Galapagos Islands off of Chile. You can even get that botox procedure done on a Norwegian Cruise Line cruise.

Then, there is that January cruise where you can improve your clowning skills while you sail around the western Caribbean. And, as the economy continues to run into trouble, this might be the one cruise that could be more popular as the New Year approaches.

Cruise lines face stormy weather
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