Good News and Bad News
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(30-03-2009)

Good News and Bad News

Since the beginning of the year, several lines have announced better than expected results and an increase in passenger numbers booked despite the present world economic crisis. On the other hand, some ship orders have disappeared and other operating ships have been and are being removed from the scene.
The end is nowhere in sight but what will this mean for the industry and its clients.


Good News at Carnival

In reporting its first quarter results ending February 29, 2009, last week, Carnival Corp & PLC advised that its profits had increased over 2008 because of lower costs, including fuel cost cuts of 45%, but that its turnover had decreased because of lower fares. Net income grew from $236 million (30 cents a share) to $260 million (33 cents a share) while sales dropped by 9.1% to US$2.86 billion during the three months until February 28. Profits grew by 10% compared to 3.6% the previous quarter.
And booking levels are also up, but at much lower prices.

Carnival UK, meanwhile, (which includes P&O, Cunard, Princess and Ocean Village) had already reported that lower prices had been the key to increasing the number of bookings by 25% in the first two months of 2009, and while overall bookings has been up 25%, Cunard was said to be up 50%, even before the new Queen Elizabeth opens for reservations later this week. The difficulty here is that while bookings may be up by 25% they are valued in a devalued pound compared to the US dollars that Carnival reports in.


Good News at Royal Caribbean

In January, Royal Caribbean had reported fourth quarter profit of $1.5 million, still a profit but down substantially from $70.8 million in the same quarter the year before.

Meanwhile, Royal Caribbean's UK office recently reported that keen pricing, added value offers and high profile advertising have helped boost 2009 cruise bookings for Royal Caribbean International and Celebrity Cruises. "Bookings levels were up by 40% year-on-year during the January-February 'Wave' peak booking period, disclosed associate vice-president and general manager Jo Rzymowska. Similar reports from North America have passenger numbers up and yields down.

The big controversy last week however was an accusation that Royal Caribbean had been offering a group of people free cruises on the tacit understanding that they might file favourable cruise reviews with internet cruise sites.


Bad News for Carnival and Royal Caribbean

Despite higher profits at Carnival Corp & PLC, Standard & Poors last week reduced Carnival's credit rating from A- to BBB+ citing expected net yield declines, which had been revised from 11-15% to 16-18%. The worry is that in the current economic decline Carnival may not be able to fill its ships at revenue levels that will allow a reasonable return

On the same day as it downgraded Carnival's rating, Standard & Poors reduced Royal Caribbean's from BB to BB- again citing net yield declines based on what was happening in the market. The worry is that in the current economic decline Royal Caribbean may not be able to fill its ships at revenue levels that will allow a reasonable return, as well as the concern that it will need to finance another $1 billion for the Allure of the Seas, while financing for the Oasis of the Seas is still not yet in place.


Good News - Fewer Cruise Ships

In the present climate, it must certainly be considered as good news that some ships are disappearing from the market. While STX no longer have orders for a second F3 for NCL and will not confirm orders for the MSE Favolosa and MSC Meraviglia, this is capacity that either will not come o nto the market or will be delayed.
Next winter, at least three or four cruise ships will be taken out of service temporarily for use as accommodation at the Winter 2010 Olympics in Vancouver, thus relieving the pressure to fill as many ships next winter, at least for two or three weeks.


Bad News - Favourite Ships and Lines Gone

The bad news is that although Hebridean International Cruises survives, the cruising public has lost its best ship with the sale of the Hebridean Spirit for private use. Most of the Club Cruise fleet except the Albatros has now gone out of action due to that company's financial problems - indeed the Flamenco I was auctioned off just last week in Singapore. Other ships such as Saga's Saga Rose and Fred Olsen's Black Prince, both beloved of many, will also be leaving service this autumn.


Ambulance Chasers

Just as lawyers follow ambulances looking for clients, so two cruise lines went after Hebridean International passengers last week. First, on March 20, in an apparently unsolicited offer, Swan Hellenic Cruises announced that it would allow an additional 5% reduction to not only Hebridean clients who had been cancelled from the Hebridean Spirit, but also past Hebridean Spirit guests.
This may have upset Hebridean, as the following week, Silversea announced that it was the "official cruise partner" for guests cancelled from the Hebridean Spirit, and doubled the reduction to 10%.

Silversea quoted Mike Deegan, managing director of Hebridean as saying "We know our guests are extremely disappointed about the sale of Hebridean Spirit. However, with the option of either transferring to the Hebridean Princess or joining a Silversea cruise we hope they will be able to find an alternative holiday. We sincerely thank Silversea for their generous offer to our guests. We are sure they will have an equally enjoyable holiday aboard Silversea's fine ships."


And the Overall (Qualified) Good News Is

The good news for the lines is that people are still booking and the good news for consumers is that prices in many cases have never been lower. Book now while the two-for-ones, free kids places, no single supplemenst and £1 fares still last - how long this might occur is anyone's guess from a year out to three - well into 2011.
The unknown answer is how long this situation might last, as the longer it lasts, the more likely some of the weaker players will start falling by the wayside. So if you're booking ahead make sure you have some sort of protection.

(Source: By Mark Tré - Cybercruises.com)


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