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 capacity limited.

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 two-year high.

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 capacity.

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 value."

Although CLIA typically paints an optimistic picture of the cruise sector, its recent predictions are in line with those of Wall Street analysts.

UBS investment research analyst Robin Farley said recent trends and the general dynamics of cruise offered certain protections that other industries did not enjoy.

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 Caribbean.

"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 Europeans.

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 Americans.

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 U.S.

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.)

However, Michael 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.

Contrary views

Robert Simonson, 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 spending.

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 far. 

"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 Weston, Fla.

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."

Reder said 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 pinch.

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 vacation."

To contact reporter Johanna Jainchill, send e-mail to [email protected].

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