Thursday, November 20, 2008
How is the Recession Affecting Cruises?
The economy is really starting to effect the travel industry. Cruise lines are no exception. Facing a large growth in passenger capacity due to expanding fleets among the major cruise lines, the seemingly deep global recession that is approaching is starting to affect the cruise line's bottom line. The main solution: stay closer to home.
When fuel was the problem, the answer was simple: add a fuel surcharge. But with the price of oil literally one third of its peak this summer, the surcharge looks and feels greedy. Most major cruise lines have at least partially ended that practice. However, operations are getting more expensive over time and revenues aren't exactly increasing. Pricing hasn't increased generally for cruising over the last 15 to 20 years, but the ships have become larger and more expensive. The cruise industry appears to be on its way to have a razor thin profit margin. Billion dollar ships won't pay for themselves with $500 cruise fares. And in a competitive marketplace, postponing improvements and innovations won't work either. In some cases, cruise lines have been experimenting with extra a la carte features, like Royal Caribbean's premium steak experiment in the main dining rooms. But by and large, we're seeing an expansion of port usage in the US, and a reduction of European, South American and Asian itineraries.
For proof, just look at Baltimore. In 2008, fewer than 30 cruises departed from this Northeastern port, serving Royal Caribbean and Norwegian Cruise Lines. In 2009, Baltimore sees much more service, jumping to nearly 80 cruises. The Northeast has been a great market for Cruise Lines in the early part of this decade. Norwegian and Royal Caribbean maintain year round service from New York City, where voyagers are willing to pay a premium for service that doesn't require a flight to Florida, California or even further afield. Often times, cruise lines were able to charge more for sailings leaving from the Northeast than the cost for a cruise for Miami plus airfare - especially in the summertime.
Carnival took the hint in a big way this year. The Fun Ship line cut its nascent European schedule in half, and redeploys the Liberty to Miami this summer, instead of the Mediterranean and moves the Pride to Baltimore for regular service this summer. Royal Caribbean is moving out of the South American market in 2009, cancelling a lot of Radiance sailings for the fall and winter of next year and leaving the ship to concentrate on Mexican sailings off the West Coast.
Sailing to exotic ports can have its draw, but for the big cruise lines, whose bread and butter have been the Caribbean and sailings leaving from the US, its a big expense and given NCL's problems in selling South American sailings, there isn't a lot of money to spread around there. Norwegian Sun South American sailings were selling for under $25 a day per person for 19 and 20 night voyages. That's cheaper than many European hostels. If that's what it takes to fill the ships on the most exotic itineraries, it's no wonder that cruise lines are staying closer to home to ride out the recession.
When fuel was the problem, the answer was simple: add a fuel surcharge. But with the price of oil literally one third of its peak this summer, the surcharge looks and feels greedy. Most major cruise lines have at least partially ended that practice. However, operations are getting more expensive over time and revenues aren't exactly increasing. Pricing hasn't increased generally for cruising over the last 15 to 20 years, but the ships have become larger and more expensive. The cruise industry appears to be on its way to have a razor thin profit margin. Billion dollar ships won't pay for themselves with $500 cruise fares. And in a competitive marketplace, postponing improvements and innovations won't work either. In some cases, cruise lines have been experimenting with extra a la carte features, like Royal Caribbean's premium steak experiment in the main dining rooms. But by and large, we're seeing an expansion of port usage in the US, and a reduction of European, South American and Asian itineraries.
For proof, just look at Baltimore. In 2008, fewer than 30 cruises departed from this Northeastern port, serving Royal Caribbean and Norwegian Cruise Lines. In 2009, Baltimore sees much more service, jumping to nearly 80 cruises. The Northeast has been a great market for Cruise Lines in the early part of this decade. Norwegian and Royal Caribbean maintain year round service from New York City, where voyagers are willing to pay a premium for service that doesn't require a flight to Florida, California or even further afield. Often times, cruise lines were able to charge more for sailings leaving from the Northeast than the cost for a cruise for Miami plus airfare - especially in the summertime.
Carnival took the hint in a big way this year. The Fun Ship line cut its nascent European schedule in half, and redeploys the Liberty to Miami this summer, instead of the Mediterranean and moves the Pride to Baltimore for regular service this summer. Royal Caribbean is moving out of the South American market in 2009, cancelling a lot of Radiance sailings for the fall and winter of next year and leaving the ship to concentrate on Mexican sailings off the West Coast.
Sailing to exotic ports can have its draw, but for the big cruise lines, whose bread and butter have been the Caribbean and sailings leaving from the US, its a big expense and given NCL's problems in selling South American sailings, there isn't a lot of money to spread around there. Norwegian Sun South American sailings were selling for under $25 a day per person for 19 and 20 night voyages. That's cheaper than many European hostels. If that's what it takes to fill the ships on the most exotic itineraries, it's no wonder that cruise lines are staying closer to home to ride out the recession.
Labels: carnival, cruises, economics, ncl, royal caribbean, travel
Tuesday, April 01, 2008
Carnival Caves on Fees, Avoids Lawsuit?
Carnival Corporation caved on its plan to retroactively charge people for fuel surcharges today, according to USA Today. This move saves the company a lot of future trouble and allows them to back out gracefully of a bad faith $40 million windfall the company had basically extorted out of their consumers.
Here's the back story. On November 7, Carnival announced a $5 per passenger per day fuel surcharge to cover the rising cost of fuel. This is a common way for travel providers to hide a fare increase without having to share the increased fare with travel agents who are often paid commission. What made this particular fuel surcharge so awful, was that Carnival applied the fee retroactively. If the traveler has yet to sail, but has a cabin booked, extra charges of up to $140 per cabin applied. The only exception was for people who were already paid in full by the day before the announcement was made. Thousands of travelers lost, Carnival Corporation won to the tune of $40 million. Royal Caribbean soon followed, reaping $21 million of their own.
Other cruise lines jumped on the surcharge bandwagon, but did so for new bookings only. (Disney Cruise Line is the only major cruise provider not to charge a fuel surcharge.) The move, as you imagine, was not only highly unpopular, but also borderline illegal. After multiple complaints, both Carnival Corporation and Royal Caribbean were being investigated for unfair business practices with the Florida Attorney General.
Royal Caribbean quickly backed off as the investigations started to happen, refunding all retroactive charges. (Fuel surcharges booked after the November start date still apply.) However, Carnival hung tough until today, more confident that the terms of their Contract of Carriage would allow their surcharges to stand. Or maybe they were more confident in the large political donations given to Governor Charlie Crist's campaign in 2006, while he was Attorney General.
It turns out, Carnival approached the then Attorney General about this proposed Fuel Surcharge and got the thumbs up from the Crist machine. Two weeks later, two Carnival subsidiaries - Princess and Holland America Line - sent a check to the Florida Republican party for $125,000 according to the Orlando Sentinel.
Once this came out, rumors had been swirling in the industry that Carnival was about to cave, and today they did - now avoiding both a class-action lawsuit from angry travelers, but also potential pursuit of some real serious action by the Florida Attorney General. But is this story over? Or will it start sticking to Florida's Governor? Stranger things have happened.
Here's the back story. On November 7, Carnival announced a $5 per passenger per day fuel surcharge to cover the rising cost of fuel. This is a common way for travel providers to hide a fare increase without having to share the increased fare with travel agents who are often paid commission. What made this particular fuel surcharge so awful, was that Carnival applied the fee retroactively. If the traveler has yet to sail, but has a cabin booked, extra charges of up to $140 per cabin applied. The only exception was for people who were already paid in full by the day before the announcement was made. Thousands of travelers lost, Carnival Corporation won to the tune of $40 million. Royal Caribbean soon followed, reaping $21 million of their own.
Other cruise lines jumped on the surcharge bandwagon, but did so for new bookings only. (Disney Cruise Line is the only major cruise provider not to charge a fuel surcharge.) The move, as you imagine, was not only highly unpopular, but also borderline illegal. After multiple complaints, both Carnival Corporation and Royal Caribbean were being investigated for unfair business practices with the Florida Attorney General.
Royal Caribbean quickly backed off as the investigations started to happen, refunding all retroactive charges. (Fuel surcharges booked after the November start date still apply.) However, Carnival hung tough until today, more confident that the terms of their Contract of Carriage would allow their surcharges to stand. Or maybe they were more confident in the large political donations given to Governor Charlie Crist's campaign in 2006, while he was Attorney General.
It turns out, Carnival approached the then Attorney General about this proposed Fuel Surcharge and got the thumbs up from the Crist machine. Two weeks later, two Carnival subsidiaries - Princess and Holland America Line - sent a check to the Florida Republican party for $125,000 according to the Orlando Sentinel.
Once this came out, rumors had been swirling in the industry that Carnival was about to cave, and today they did - now avoiding both a class-action lawsuit from angry travelers, but also potential pursuit of some real serious action by the Florida Attorney General. But is this story over? Or will it start sticking to Florida's Governor? Stranger things have happened.
Labels: carnival, cruises, florida, holland america line, princess, royal caribbean, travel
