Cruise CEOs hopeful bad news won't derail stronger pricing

By Tom Stieghorst
MIAMI BEACH — CEOs at the Cruise Shipping Miami conference here last week agreed that the past few years of negative publicity for their industry have been an anomaly and stronger pricing is ahead if the news stays benign.

"We've been able to persevere through every single one of these events," said Norwegian Cruise Line CEO Kevin Sheehan. "My hope is we finally have a strengthening economic landscape, rising real estate prices, a strong stock market, all of the things that lead people to cruise over the next couple of years."

Carnival Corp. CEO Arnold Donald said he thinks the industry is very strong. "But I think clearly we have experienced in the last few years demand growth less than capacity growth worldwide in terms of the price we would like to see for all of our various products and services."

Carnival executives briefed Wall Street analysts on the first day of the four-day event here and said net yields are still down 11% from their prior peak, according to Tim Conder, an analyst at Wells Fargo.

Carnival has forecast recovery starting in the second half of 2014.

Although negative news has been a drag on prices, the growing number of ships has played a part, executives acknowledged.

"There's been no pricing [power] in this industry for 20 years, or some number of years, way longer than I've been here," Sheehan said. "There is that constant tension because it is so efficient to bring in a new ship."

Sheehan announced at the conference that Norwegian's next ship, the Norwegian Escape, will be based in Miami beginning in November 2015 for seven-day cruises in the Caribbean, where pricing is currently weakest.

But Sheehan said that because the Norwegian Epic is moving to Europe full time next year, there will be no net increase in Caribbean capacity.

Europe was once viewed as the cruise industry's next growth market, but weaker-than-expected economies have contributed to the stagnant pricing in some markets there.

While German passenger counts grew 9.2% last year, TUI Cruises President Richard Vogel told a conference audience that demand in the U.K., Europe's largest sub-market, is flat.

David Dingle, CEO of Carnival U.K., said he expects it to remain flat for several years.

Among other reasons, he cited the time it takes for good economic news to work through the pricing pipeline, and the idea that cruise lines through their price-to-fill-beds tactics in recent years did not encourage "good habits" like early booking, which produces stronger yields.
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