NEW YORK -- While
Washington was awash in bad economic news last week, officials of
the Cruise Lines International Association and some analysts were
cautiously painting a somewhat rosy picture for the cruise sector
in the months ahead.
Terry Dale, president
and CEO of CLIA, told a group of reporters at the Mandarin Oriental
hotel here last week that anyone wanting to cruise this year should
"book early and book often," because demand would be high and
Never mind that the
Commerce Department was reporting that December retail sales were
at the lowest point since June. And never mind that just a week
earlier the Labor Department had reported a 5% unemployment rate, a
The mood at the
Mandarin was just shy of dot-com-era exuberance.
Dale predicted that
with 12.8 million people expected to cruise this year, the growth
in number of passengers, though smaller than in 2007, would produce
better yields and higher ticket prices, thanks to a decrease in
Dan Hanrahan, CLIA's
marketing committee chairman and president of Celebrity Cruises and
Azamara Cruises, observed: "A lot is being written about the
economy these days. But it's looking like it's in good shape, based
on what the cruise lines are seeing. And the reason is
Although CLIA typically
paints an optimistic picture of the cruise sector, its recent
predictions are in line with those of Wall Street
UBS investment research
analyst Robin Farley said recent trends and the general dynamics of
cruise offered certain protections that other industries did not
Among them is the
ability to change location quickly. The three largest North
American cruise lines -- Carnival Corp., Royal Caribbean Cruises
Ltd. and NCL Corp. -- each increased deployment in the strong
European market in 2008 while reducing exposure in the
"One of the attractive
characteristics of the cruise industry is that the assets are
mobile, which is important when demand for certain itineraries
fluctuate," Farley said.
Even if cruise lines
eventually have to lower ticket prices, Farley said, they could
make it up with onboard revenue.
"We have noted
previously that even though passengers are quite price sensitive
regarding ticket purchase, they historically generate higher
onboard revenues once on vacation," she wrote.
Most leisure analysts
agreed that the cruise industry's increasingly international source
market adds protection from fluctuations in U.S. demand.
Moreover, the euro and
the pound remain at record levels vs. the dollar, adding to cruise
lines' profits while making cruising a bargain vacation for
Also, as Hanrahan
pointed out, even if demand in Europe were to fall, the market is
still underpenetrated compared with the U.S. Only 5% of Europeans
have ever cruised, Hanrahan said, compared with 17% of
Tim Conder, leisure
analyst with Wachovia, acknowledged investor concern about the
possibility of too much capacity growth in Europe this year, which
could cause yields to dip slightly. But he suggested it would be
trumped by increased scale, and he agreed that cruise was well
positioned to counter reduced consumer spending in the
Bank of America
analysts were also bullish on the cruise industry overall but
continued to watch it closely after a survey of travel agents
suggested that cruise demand fell precipitously in December and
that booking trends were weak.
In December, BofA's
booking index dropped to 47.4, its lowest level since the company
began tracking cruise bookings in August 2006. It was 58.3 in
November. (In the bank's monthly survey of travel agents, an index
score above 50 means that bookings were higher than the same month
the previous year, while below 50 means bookings were lower than
the year before.)
Savner, Bank of America's leisure analyst, said that the December
survey showed "an improved Caribbean," with increased demand and
stable pricing, which he predicted would drive strong yields in the
first half of 2008.
leisure analyst with William Blair and Co., offered an opposing
view. He predicted that rising U.S. unemployment "is likely to hurt
demand for Caribbean cruises" and that low-income cruisers who
traditionally buy Caribbean trips would tighten their
High-end and European
cruisers would also be affected, he predicted, by weakened housing
and stock markets.
Susan Reder, president
of Altour/Classic Cruise and Travel of Woodland Hills, Calif., said
that although her luxury business continued to be strong, she was
concerned about cancellations among wealthier clients.
"Out here in Southern
California, we are dealing with the [screen]writers' strike ... and
we have seen a few cancellations from clients in the entertainment
industry," she said. "We hope people won't start canceling trips
because of the stock market and home sales."
Overall, agents offered
varied views of the industry's resilience. At the CLIA news
conference, Dale presented the results of a recent survey of 900
CLIA travel agents regarding this year's Wave season, the
January-to-March period that traditionally generates the heaviest
bookings of the year.
Ninety percent expected
"as good or better" Wave sales compared with 2007.
Whether Wave bookings
are a good indicator of the sector's strength, however, is
debatable. While 35% of respondents expected Wave season to be
their highest volume booking period, another 32% reported
consistent cruise sales throughout the year.
Even so, any weakness
in Wave bookings would be worrisome, and indications are mixed thus
"From what I'm hearing,
the Wave is somewhat weak, and lines are already adding additional
sailings to their sales or improving the price points," said Shawn
Tubman, chief marketing officer of Extraordinary Vacations Group in
In December, Crystal
Cruises launched a large sale on Mediterranean cruises. Spokeswoman Mimi Weisband said, "People might be
skittish about traveling to Europe with the high exchange rates."
So although "there are no signs of the Med being slow," she added,
a sale would "bring the good prices to people's attention so they
know there are good deals out there."
Last week, NCL launched
what it called its biggest sale of the year, and Seabourn Cruises
unveiled a promotion offering 2-for-1 international business class
air fare for guests on 10 Europe cruises this year.
Bud Smead of Cruise
Holidays in Arvada, Colo., is among the agents reporting a strong
Wave season. "If the first 17 days of the year are any indication,
everything looks real good," he said.
Smead said that many of
his agency's bookings were "fairly high-end with high per-person
ticket prices. Maybe the bad economic news isn't affecting those
who are purchasing these high-end vacations."
Altour/Classic Cruise and Travel was tracking ahead of 2007 with
some suppliers, adding, "It does seem that the wealthy are
definitely still traveling."
In May 2006, Carnival
Corp. COO Howard Frank described a "bifurcation occurring in the
economy," saying that the company's premium brands were doing well,
but lower-end clients "are feeling the impact of high fuel prices
and higher consumer interest rates."
One executive at a
mass-market cruise line recently suggested that, as is often the
case, the middle and lower levels of the U.S. economy might have
felt the effects of an economic slowdown before it became
front-page news. If so, they could have already adjusted while
banks and upper classes are only beginning to feel the
Hanrahan touts the
value proposition of a cruise in a climate where people want to
travel: "People think they deserve a vacation, and they will
probably do without something else. Maybe they will put off buying
a new car or a new refrigerator, but they are going to take their
contact reporter Johanna Jainchill, send e-mail to [email protected].