Ripple effect: Cruise lines feel shock waves

NEW YORK -- Already in the midst of a challenging year, cruise suppliers now find themselves struggling to retrench financially and operationally following last month's unprecedented terrorist attacks on the U.S.

Unlike the airlines, cruise operators haven't felt the direct impact of the suicide hijackings. After all, the anti-U.S. terrorists involved targeted commercial airlines and not leisure shipping.

But there have been many indirect -- and profound -- effects for cruise lines following the attacks.

The most immediate problem faced was the large number of passengers unable to embark and disembark ships due to the closure of almost all major U.S. ports. At the same time, thousands of cruise vacationers were stranded, either en route to or from cruises.

Several ships remained in port with passengers aboard because of the flight cancellations.

Later, as many U.S. ports reopened, albeit under very tight controls, cruise operators still faced a maze of rescheduling decisions due to the closure of New York's cruise-ship piers and passenger terminal, which remained under the control of emergency workers.

Within a week, it became clear that the incidents will take a significant economic toll on cruise suppliers. Analysts predicted a significant downturn in leisure travel in the days after the attacks, and statements from the country's largest cruise suppliers seemed to bear out those fears.

At Carnival Corp., the industry's largest supplier, bookings were off 40%, and the publicly traded line's stock plunged 32% to $16.95 -- at the time an all-year low and Carnival's lowest price since 1997 -- when the New York Stock Exchange re-opened on Sept. 17.

Micky Arison, Carnival's chairman, declined to give a specific forecast for the future. "It is very, very hard to know what the ripple effects of [the attacks] will be," he said.

Like other operators, Carnival's operations were heavily impacted by the attacks, as several sailings to and from New York were rerouted to other ports and the line dealt with thousands of vacationers who encountered difficulties traveling to and from Carnival ships because of the airport shut downs.

At Royal Caribbean Cruises Ltd., Richard Fain, the company's chief executive officer, said the immediate financial impact of the attacks, including "loss of revenue, extra security costs, lodging and transportation costs" were in the range of $20 million to $25 million. The company's shares fell 40%, to $12.76, also a low for the year, on Sept. 17.

Fain said the long-term costs of the attacks would be difficult to determine. "It's hard for us to fully assess what this means to our company," Fain said. "Obviously, the fear of terrorism is not good for tourism."

Royal Caribbean's bookings for Sept. 12 to 14 were down 50% from one week earlier; about 1,000 passengers had canceled their future bookings by the week of Sept. 17, he said.

Still, said Fain, "It is far too early to draw conclusions from this information. We will need to continue to monitor the booking cycles carefully."

Otherwise, Royal Caribbean faced the same difficulties that confronted Carnival and other lines.

Most of Royal Caribbean's sailings were about two-thirds full in the days immediately following the attacks, said Fain, as "there were many difficulties in getting our guests to and from the ships."

Bermuda- and New England/Canada-bound ships homeporting in New York were particularly affected, forcing Royal Caribbean to shift ships to Baltimore, Boston and Philadelphia.

At the third-largest supplier, P&O Princess Cruises, the story was similar. The London-based firm's American depository shares fell 39%, to $13.10, on the New York Stock Exchange on Sept. 17, meaning the shares of all of cruising's three largest lines hit 52-week lows following the air attacks.

Like the other lines, P&O Princess faced the diversion of a number of New York-bound cruises to Boston and difficulties getting passengers to and from ships due to the air transportation shut down.

"The cost of the disruption we have experienced, including the costs of the future cruise credits, reduced onboard revenue and additional hotel and flight costs for disembarking passengers ... will be in the range of $3 million to $5 million," said cheif executive officer Peter Ratcliffe.

"Obviously Princess' bookings have been impacted by the attacks," said Ratcliffe. "However, it is too early to draw any conclusions about the medium-term booking pattern. We will be monitoring the situation closely."

Ratcliffe, Arison and Fain all said that they expect bookings to bounce back in the coming weeks. Indeed, industry watchers believe that despite the losses, the largest cruise lines are positioned to weather the travel downturn brought on by the Sept. 11 attacks. But some of cruising's smaller lines may find it impossible to survive.

Said Arison, "There are a number of [our] competitors who are in question, and I don't know how long they can last."

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