MIAMI -- Responding to analysts who say the flood of new cruise
ships will extend rate discounting into 2001, top executives at
cruising's two largest companies said capacity is just one of
several factors responsible for this year's lower cruise prices.
Micky Arison, chairman of Carnival Corp., cruising's largest
operator, and Richard Glasier, chief financial officer of Royal
Caribbean Cruises, cited altered travel patterns in the aftermath
of higher-priced millennium sailings; heated competition among the
leading cruise operators, and negative publicity from a spate of
recent ship mishaps as factors responsible for the weaker pricing
they expect will continue through the second half of 2000.
Last Wednesday, Glasier admitted during a conference call with
cruise analysts that "the pricing situation has gotten more
challenging over the past month."
He added, "Royal Caribbean will continue to feel pricing
pressures during the second half of the year."
Glasier also said Royal Caribbean's per cabin yields for the
second half of the year will be slightly lower compared with the
same period last year.
Arison offered similar comments during a conference call with
analysts following Carnival's release of second-quarter results
last Tuesday.
Carnival's net income for the quarter ended May 31 totaled $204
million, slightly up from the figure of $203.3 million posted
during the same quarter in 1999.
Carnival's second-quarter revenues were $875.1 million, compared
with $796.1 million for the same quarter last year.
Most significantly, Carnival's gross per diems were down 6% for
the quarter, and net yields declined 3.3%, said Howard Frank,
Carnival's vice chairman. Both figures indicate lower cruise
rates.
Arison said the second-quarter results were affected by higher
fuel costs and "pressure on cruise pricing."
Like Glasier, Frank said softer pricing will continue into the
second half of the year. That news did not please cruise analysts,
who fear the pricing slide will extend well into next year.
"[Carnival's] comments on the second half are really troubling,"
said Jason Ader, an analyst with Bear Stearns & Co. "The
industry is overbuilt right now."
Added J. Cogan of Banc of America Securities, "The new [ships]
are coming on quite quickly. That's not going to slow over the next
four years."
Arison said capacity is only one factor in cruising's rate
slide.
"There are probably a dozen or so reasons" for the lower rates,
said Arison, citing unusual travel patterns effected by the
upcoming Olympic Games, this year's late Easter holiday and the
U.S. presidential election.
He added that the top cruise operators have grown increasingly
competitive, creating a "spiraling effect of companies trying to
one-up each other" by lowering rates.
"It's not necessarily all capacity related," said Arison. "The
fact is there are cruise markets without capacity increases that
have also experienced yield deterioration."
The good news, said Arison, is that Carnival continues to
attract new cruisers.
"We grew the number of passengers carried by more than 100,000
-- the largest quarterly increase in passenger counts in recent
history," he said.
Carnival's occupancy levels grew by 2.4% to an average of 102.3%
for the quarter.
Arison and Frank said that while pricing remains soft, cruise
rates may be "leveling" based on "anecdotal" evidence and strong
booking trends, particularly at the Carnival Cruise Lines unit,
where bookings are 35% ahead of last year.
"If that keeps up, it could have some effect on pricing," said
Frank.
"Eventually, the rates will be so attractive to passengers that
we will see demand outweigh capacity," said Arison. "But that has
to be sustained over more than five months" to affect pricing, he
said.
Cruise sellers said while they've noticed the lower rates,
demand has increased at the retail level. Cheryl Myerson, a past
president of the National Association of Cruise-Oriented Agencies
and owner of The Cruise Director in Arvada, Colo., said rates were
especially low in the Caribbean, but she'd also noticed
"competitive" fares in Alaska and Europe.
"Every few years there's a cycle [of lower rates]," said
Myerson. "After 17 years, I can predict them."
Myerson's agency, which she described as "an aggressive
marketer," had record-breaking bookings this spring.
"Our May was greater than some of our peak periods," she
said.
Strong demand for cruises from clients that include a sizable
amount of first-timers and 20-somethings is making up for the lower
pricing and hence lower commission, according to Myerson.
"The passengers are stepping up," she said. "They're ready."