Pricing for Europe cruises departing in the second and third quarters of this year has been flat or down since late March, adding to earlier concerns that the region will experience a soft season in 2012, a UBS Investment Research analyst has indicated.
In a research note published April 10, analyst Robin Farley said that based on the UBS Cruise Data Tracker, pricing for Northern Europe, the Mediterranean and “other” European sailings fell between 1% and 5% on a two-week cumulative basis.
Costa Cruises’ pricing fell 8% week over week at the start of April but stabilized after April 8, she said.
“It appears Costa has been able to stimulate demand at least in part by some pricing action,” Farley wrote. “Investors should recall that Carnival [Corp., Costa’s parent company] included 13% to 25% net yield decline for the Costa brand in its 2012 guidance, so this 8% sequential pricing drop, while sharp, is within the range of company expectations for impact to net yields.”
The UBS Cruise Data Tracker follows average cabin prices for the six largest North America-sourcing cruise lines and two of the largest European-sourcing cruise lines, totaling more than 7,000 sailings available over all forward quarters.
Costa is being closely watched by markets because it owns the Costa Concordia, which grounded off the Italian coast on Jan. 13 in an accident that killed 32 people.
Farley, in an earlier research note, predicted that while Europe has been a lucrative source market for the major cruise lines during the past few years, the Costa Concordia accident and myriad economic issues affecting several European countries could affect overall 2012 performance.
She noted that 56% of revenues from Carnival Corp. brands were generated from non-North American passengers in 2011, a figure that included its Europe-based lines as well as European passengers who cruised on its North American brands. In 2010, that figure was 54%, Farley said.
At Royal Caribbean Cruises Ltd., 49% of ticket revenues came from non-North American guests last year, compared with 45% in 2010, and the company has said it expects the percentage to exceed 50% in 2012.
Major lines continue to rely on significant sourcing from Europe this year, based on deployment decisions that were made 18 months ago or longer.
Farley wrote that, given its proximity to the Europe market, the Concordia accident “could impair for 2012 the torrid passenger sourcing growth” that the industry has seen in Europe over the last decade.
“Europe has become an increasingly important sourcing market for the cruise lines, with 36% to 37% of Carnival Corp.’s 2012 capacity and an estimated 35% to 40% of RCCL’s sourcing capacity allocated to Europe,” Farley wrote.
Howard Frank, Carnival Corp.’s vice chairman and COO, told shareholders on April 11 that European sourcing increased from 19% of all passengers in 2006 to 26% last year. However, Frank added that the company considers its top growth markets to be Australia, Asia and South America.
Farley, like the cruise line executives themselves, said she believed any downturn in European bookings would be short-lived.
And over the longer term, she indicated, the Europe source market is ripe for the picking. In 2011, Farley said, 6.1 million Europeans cruised, a 9% increase over 2010.
Disney’s good fortune
The Concordia event, coupled with economic setbacks in Europe and the spike in airfares this year, will have less impact on cruise lines that are deploying ships domestically. One of them is Disney Cruise Line, whose president, Karl Holz, said it was just luck that the company decided to keep all four of its ships homeported in the U.S. this year.
“It didn’t have anything to do with any geopolitical or economic issues or airfares or anything like that,” Holz said. “We agreed that the year Fantasy launched, this year, we would deploy our ships from Port Canaveral and from New York, Galveston and Seattle.”
He added: “Of course, now I’m glad we did that. But we will have Disney Magic back in Europe next year, and I’m happy about that, too.”
Disney, however, is hoping to make inroads in the Latin America market in 2012. Latin America passengers currently account for just “single digits” of the total number who cruise with Disney.
Randy Garfield, president of Walt Disney Travel Co., said that courting the Latin America market was one reason why the Disney Fantasy is operating seven-day cruises from Florida’s Port Canaveral.
“You can’t expect customers from Latin America to travel the distance to Florida for a shorter cruise,” he said. “With our seven-day option on Fantasy, customers from Latin America can book a cruise along with a land vacation in one of our parks and have a two-week vacation.”
Follow Donna Tunney on Twitter @dttravelweekly.