Tom Stieghorst
Amid all the positive signs for cruise growth going into 2020, one thing that remains troubling is the continued low return for savings.
Interest rates continue to be anemic by historical standards, which should give pause to an industry still dependent to a great degree on seniors.
Unemployment is low, home sales are healthy, inflation subdued, the stock market at record highs. All of those things bode well for cruise sales. But anybody on a fixed income hasn't gotten a raise for quite a while.
I wrote about this seven years ago, and remarkably little has changed. Yields on the benchmark 10-year Treasury note closed 2012 at 1.76%, and as I write this the yield on the 10-year is currently 1.79%. For savers, it takes a nice sum in the bank or in CDs to be able to afford a cruise on that kind of return.
Interest rates did move up above 3% for a good part of 2018 as the Federal Reserve tried to wean the economy off of artificially low money rates that have been in place since the 2008-09 recession.
But it was forced to back off because of weak economies in Europe. Interest rates in Germany and some other European countries are now negative, which explains why Aida and Costa Cruises have had such a lousy year.
Some banks in Germany have begun charging small retail savers 0.5% for keeping their money in an account. Germans are so notoriously thrifty that they seem to be willing to put up with it for now.
Back in 2012 when I first wrote about the topic, Frank Del Rio, then chairman of Prestige Cruise Holdings, now CEO of Norwegian Cruise Line Holdings, expressed some reservations about low rates. He fretted that for luxury clients, it could be the difference between one cruise a year instead of two, or a shorter cruise instead of a longer one.
In the most recent investor call, Del Rio seemed pretty upbeat about the luxury customer, with the delivery of the Seven Seas Splendor on the horizon. Regent Seven Seas Cruises is 70% booked for 2020 at prices higher than this year, he said.
"Both Splendor and [Norwegian] Encore are benefiting from being introduced into a strong consumer demand environment, one where there continues to be no sign of a slowdown," Del Rio said.
Well, amen to that. But I still say that as strong as the cruise business is, it could be even better if interest rates were giving savers a little more to work with.