1993 will not be a “great” year for the cruise industry, but analysts and cruise line executives are optimistic that 1993 will be a “notch” better than 1992. It is expected that the cruise lines will be able to exercise little price flexibility, however, and that the deep discounting will continue. More consolidation is also expected.
Analysts said that while early booking discounts are helping to fill ships and generate early cash flow, the programs are unlikely to improve revenues and bottom line. More importantly, analysts expect that the early booking programs do not draw new passengers. In addition, they said that the prevalence of such programs and discounts may not give the cruise lines flexibility to raise prices later on.
Jim Parker, First Vice President of the Robinson-Humphrey Company, said he was optimistic about 1993 because capacity growth will not be as great as in 1992 and because the American economy is recovering and there seems to be increasing consumer confidence.
“I am optimistic about the cruise industry for the next few years,” Parker said, “but 1993 will not be a great year.” He also said that while the industry will see less capacity in 1993, it is still absorbing capacity from 1992.
According to Valerie Feigen, Gaming and Lodging Analyst at Shearson Lehmans Brothers, new capacity will do best in 1992 relative to older ships. Feigen said that the only way to increase revenue was by new capacity and cost control.
Feigen also noted that the consumer expects discounts and promotions. “In today’s low-inflation environment, people are accustomed not to pay more,” she said. “This makes it hard for companies to pass on rising costs,” Feigen added. “It may take several years before the cruise lines get pricing flexibility back. Once a value is set, it is hard to change; Feigen said.
Rick James, Senior Vice President of Sales and Marketing at Princess Cruises, said that he believes the consumer confidence will last through the first four months of 1993. “Then reality will set in and determine the market,” James said.
Analysts noted that the main risk is lack of follow-through in job growth and personal in come. Such a turn of events could derail the recovery now underway. Economic indicators, however, point to a moderate, sustainable economic recovery.
James said that Princess Cruises was seeing a good booking trend for the first quarter and that he was confident that bookings would hold up for the first six months.
Jay Lewis, President of Market Scope, said that he expected record high bookings for the leading cruise lines at the start of the year based on the pick-up in consumer confidence.
James also noted that the consumer has learned to wait close in for the best deal, and the industry now has to “retrain” the consumer to book further out. “The consumer knows that price comes in valleys and peaks,” James said. “We have to make agents and consumers confident to book early.” In an effort to accomplish that, Princess has introduced a price protection guarantee entitling passengers to a lower fare, should one be introduced.
Peter McMullin, Senior Vice President of Southeast Research partners, said the early booking programs were a step in the right direction to get people to refrain from last minute bookings. He also said that it was encouraging that there was less discounting for the newer ships.
While the economic recovery bodes well for the industry, the American economy is still far from robust. In addition, in 1993 the cruise industry has to absorb additional new capacity and generate improved yields while selling cruises at rates that in many cases may be the lowest in recent memory. While bookings are holding up, analysts point out that pricing is still very difficult.
