State of the Industry: 2000

In light of falling stock prices, cruise line executives speaking at last week’s cruise conference in Miami said that the industry’s fundamentals are strong and that the new capacity coming on line this year will be absorbed.

Bob Dickinson, president of Carnival Cruise Lines, said that of 26 analysts that follow the cruise industry, all 26 had ”buy” recommendations on Carnival Corporation and 24 had “buy” recommendations for Royal Caribbean International (RCI).

Richard Fain, chairman of RCI, said that RCI will see an 18 percent increase in capacity in 2000 and expects to fill all of its beds and to do so at higher prices.

Dickinson added that the supply-and-demand situation fluctuates as “we tend to bring in capacity in large chunks.” But, he underlined, “we fill the ships; Carnival ships always sail full.”

Dickinson also explained that the booking pattern is changing, with the so-called “wave season” now going into the month of May. Passengers are booking closer in, he said.

Peter Ratcliffe, president of Princess Cruises, agreed and said that he suspected investment advisers were concerned about the large number of new ships entering service. However, the new tonnage will be absorbed, he said, because these are new ships and also because ”we are appealing to everybody in the United States.” Furthermore, the cruise industry is poised for global expansion, Ratcliffe noted, which means passenger sourcing worldwide.

Colin Veitch, newly appointed president of Norwegian Cruise Line, also said he saw nothing at all that justifies the drop in stock prices. “This is the time to buy,” he said.

Phil Calian, CEO of American Classic Voyages, saw things slightly different when he said that “although the cruise industry has shown steady annual growth of 10 percent, that is not nearly as exciting as growth elsewhere (high-tech stocks) ranging from 30 to 190 percent.”

“The market will have its ups and downs,” concluded Larry Pimentel, CEO of Cunard Line.

But the executives seemed relieved to get off the subject of stock prices, as was the audience, and after that touched on relatively few issues of substance, according to other cruise-line executives and industry association executives in the audience.

Fain said be was focused on the long term. “My main focus is not the short-term price of shares,” be said, “but on running the business. In the long run, the share price will reflect how well we run the business,” he added.

On the future outlook, Dickinson said the cruise industry provides a superior vacation and has been the fastest growing segment of the travel industry for the past 28 years. Still, the cruise industry has only captured two percent of the vacation market, he said.

According to Dickinson, 20 million people visit Las Vegas and 40 million go to Orlando annually, while only 5.9 million cruised on ships last year. On that comparative basis, the cruise industry should attract many more millions of passengers, according to Dickinson, who added that 60 percent of the world is covered by water (where ships theoretically can sail).

Meanwhile, cruise stocks have continued to decline (as have many other blue-chip stocks) and at press time Carnival traded at a new low of about $22 as did RCI at about $26.

The course for stock prices for the rest of the year may be set this Friday, March 17, when Carnival is scheduled to announce first quarter results and is expected to comment on the outlook for the year.

Upbeat Program

Vicki Freed, senior vice president of marketing and sales for Carnival, said that 1999 yield was up slightly over 1998 and that capacity utilization industry­ wide was around 88 percent.

Freed also said that in the past, the industry has proved to be “recession proof” and, in her view, the cruise lines will absorb all the new capacity in 2000. She said the industry expects to carry 6.5 million passengers this year, up nine percent over last year.

So far only 13 percent of the United States’ population has taken a cruise, according to Freed, who cited research by the Cruise Lines International Association (CLIA) that 75 million Americans said they would like to cruise in the next five years, while 41 million said they will “definitely” cruise in the next five years.

Moreover, cruises are now presented regularly in television sitcoms, in dozens of newsletters, in thousands of web pages, and on entire shelves in book stores, according to Freed. In addition, the price (for a cruise) has remained literally unchanged from 20 years ago, Freed pointed out.

Changing Markets

Dickinson said that in 2000, 50 percent of Carnival’s passengers will sail on cruises of five-day duration or less.

Fain noted that 85 percent of RCI’s passengers are from North America and that barriers to increasing passenger sourcing elsewhere include languages and cultures.

As the global cruise market expands, Ratcliffe said he sees “tremendous market potential in every country I look at.”

Freed also noted she would not be surprised to see cruise companies buying other vacation products.

“We have been in the vacation industry since 1976,” Dickinson said. “We will find other entities to bring in whether through alliances or acquisitions.” But he added that there are still five cruise lines that it would be “intriguing” to acquire.

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