For the cruise industry, preparing for the slowdown in consumer spending is the easy part. It’s what to expect from two other critical factors — fuel prices and currency-exchange rates — that really give cruise executives heartburn.
Those two elements could ultimately determine how the industry weathers an otherwise stormy 2009. The effect from both is huge. At Miami-based Carnival Corp., the world’s largest cruise operator, executives say a 10 percent swing in fuel prices saves — or costs — the company $97 million a year. A 10 percent change in all foreign currencies against the U.S. dollar amounts to a $140 million swing.
But predicting where either will go is akin to guessing.
“The volatility of fuel and currency is just unbelievable,” Micky Arison, chairman and chief executive officer of Carnival Corp., told analysts during the company’s year-end conference call last month.
The fallout from the global recession is easier to see coming. Industry analysts say 2009 bookings have slowed considerably. On-board spending — on everything from art auctions to gambling to port-of-call excursions — also has tumbled.
Cruise lines recorded similar drops following the Sept. 11, 2001 terrorist attacks, but bookings bounced back quickly. No such rebound appears in sight this time, executives say.
“This is a pretty unique set of circumstances, where people can’t get credit. The consumer may want to do something, but this inability to get credit affects their decision,” Arison said. “The reality is that, baked into our numbers is a concern about the consumer, obviously, for all of ’09.”
Still, boosters insist there are reasons for optimism in the industry. Cruising has typically held up stronger than other leisure undertakings during previous slowdowns, as cost-conscious consumers are attracted to all-in-one package vacations.
“Cruise demand is somewhat resilient to a softer consumer economy,” analysts for Susquehanna Financial Group wrote in the fall, though they added: “It is not immune.”
Carnival says it is already seeing evidence that consumers are putting a premium on value. The company said its shorter, cheaper Caribbean cruises are “performing much better” than longer, more expensive offerings in Europe and Alaska. That’s a reversal of the past few years, in which Europe and Alaska outperformed the Caribbean, and cruise lines raced to deploy more ships to those regions.
It’s also potentially good news for Central Florida. All cruise ships out of Port Canaveral feature Caribbean itineraries. And Celebration-based Disney Cruise Line long ago decided to keep both of its ships in the Caribbean for all of 2009, after sending the Disney Magic to California in 2005 and 2008 and to Europe in 2007.
“All I can say is, we outperformed virtually every area of leisure [in 2008], and we believe we will do it in ’09,” Arison said. “Now what does that mean? It means we will do better than the rest of the [leisure-travel] industry — but how will the rest of the industry do?”