Posted on March 2, 2003 - by Ralph Grizzle

Wave Produces No Tidal Surge

This year’s Wave produced barely a ripple on the collective shores of the North American cruise industry. Unlike the last few years, one-day booking records went unbroken. Keyboards in the cruise line public relations departments heralded no headlines such as this one last year: “Carnival Cruise Lines Breaks One-Week Reservations Record Two Weeks In A Row.”

Cruise executives told their stories by repeating words like “uncertainty” and “disappointing,” and prefacing their remarks with phrases like “the challenges we face.”

“Clearly, this has been a more disappointing Wave period than any of us had hoped for right now in this period of uncertainty,” said Royal Caribbean International Chairman Richard Fain in early March. Other cruise execs echoed Fain’s remark. “Our second quarter is shaping up to be a challenge,” Carnival Cruise Lines’ President Bob Dickinson said.

The report from travel agents, however, was mixed. While one North Carolina retailer lamented “the weakest February we’ve had in 10 years,” we talked to several retailers whose businesses ““ or at least, whose bookings – were thriving.

Just Cruises in Michigan reported cruise bookings were up 35 percent over last year but that actual earnings were about the same as last year due to lower prices.

Connecticut’s Cruise and Vacation Center told us bookings were up 100 percent first quarter but that most of the activity has come from an unexpected source: resorts. Why not cruises? “I can’t explain it,” said owner agency Christopher Tichy. “Maybe it’s all the talk of Norwalk virus or people worried about the security of cruise ships. I just don’t know.”

Industry trade publications also told the story. Cruise Week kept pace of Wave week-by-week: Its headlines: “Agents: Spotty Wave Season” (January 22, 2003) and “Slow February for Travel Agents” (February 26, 2003).

Analysts talked of price erosion, shrinking yields and poor performance.

Why all the glum news?

Cruise executives cite the primary reason being the prospect of war with Iraq leading up to ““ and continuing through – Wave. ”Uncertainty is the great enemy of our business,” said Norwegian Cruise Line President and CEO Colin Veitch.

As Carnival Corp.’s stock plunged to a 52-week low last month, execs accused the uncertainty of crushing theirs and other businesses. Cruise leaders feel some sort of resolution with Iraq will mean a rebound in business. “Get it over with, get it done or get out,” said Larry Pimentel, chairman and CEO of Seadream Yacht Club.

But perhaps Pimentel should have sent a similar message to the traveling public: “Get on with it.” Rather than wait for certainty to return, American travelers and businesses may just have to learn to live in a world that is a little more uncertain than was the case during the past couple of decades, when America was isolated from ““ or chose to ignore – world events.

A resolution with Iraq likely will not solve the persistent threat of terrorist attacks and the pervasive fear among some American travelers who still shun airplanes and trips abroad. A sense of certainty guarantees nothing anyway. As they set out on a ship thought to be unsinkable, those cruise passengers who left Southampton, England, April 10, 1912, had little to fear. Frozen water, not war, not a terrorist attack, not some biological or chemical agent, caused those ill-fated passengers to meet their icy demise.

There is an odd note of irony in this year’s dismal news. In 2003, CLIA member lines will introduce 14 new ships. And despite a disappointing Wave season for cruise lines, 2003 could prove to be yet another record year, thanks to the additional capacity and the drive to fill ships at any cost (Costa reportedly was offering seven-day cruises for $140 in February).

“By maintaining our current occupancy levels we will have the opportunity to welcome 1 million more guests on board in 2003 – a potential of 9.6 million passengers worldwide, including 8.3 million from North America,” said Bob Sharak, CLIA’s executive director and vice president of marketing.

There is hope that the coming tide will bring with it a new surge in business. “These are the toughest times we’ve seen as an industry,” said David Drier, CEO of Intrav Inc. and its subsidiary Clipper Cruise Line, “But I think we all agree that it’s temporary. It certainly will get better at some point in time.”

Sidebar: Ship-Building Blues
The somber mood among cruise executives gives shipyards little to cheer about. “Shipyards recognized some time ago the [building] frenzy was over,” said UBS Warburg Leisure Analyst Robin Farley. She noted that ship orders by North American cruise companies are down 70 percent from the peak years. In 1999, for example, 13 new ships were ordered; in 2001, only two ship orders were placed; and in 2002, four new ship orders made the books.

“We have an awful lot of capacity that we’re having to digest over the next few years,” said Carnival Corp. Vice Chairman and COO Howard Frank. “In my mind, we will see a slowdown with new capacity from the standpoint of shipyards. New ship orders will be at a much slower pace than in the past.”

Despite the current gloom, industry fundamentals remain strong, and the long-term outlook remains optimistic for shipyards. Tony Peisley, author of “Global Changes in the Cruise Industry 2003-2010,” cited strong pent-up demand that will drive worldwide cruise capacity from 241,000 to 400,000 berths between 2000 and 2009,

While he acknowledged that exchange rates between the Euro and the U.S. dollar were a stumbling block that made new orders less attractive than during times when the dollar was stronger, he noted that “slots are open, shipyards are anxious to build “¦ discounts already have been offered and accepted.”