Fallout from 9/11

The fallouts from Sept. 11 and subsequent events are many: First came the bankruptcies of Renaissance Cruises and American Classic Voyages, which may have happened anyway due to the softening of the economy.

Other cruise lines have cut staff or reorganized, including Royal Caribbean International, Celebrity Cruises, Norwegian Cruise Line, and Orient Lines, while Carnival Corporation has instituted hiring and salary freezes.

The rumor mill also suggests a possible merger between the two brands Royal Caribbean and Celebrity – especially since Celebrity president Rick Sasso is leaving the company.

Some of the big operators are also said to be considering outsourcing more services, even hotel and marine operations, if it makes financial sense.

Silversea Cruises is going back to its former part-owner for marine operations, V. Ships. But since V. Ships is also part owner of Radisson Seven Seas Cruises, it begets the question whether a merger is in the works?

The pricing environment is putting tremendous pressures on the smaller cruise lines that also face higher insurance and security costs. They can ill afford Carnival Cruise Lines’ pricing philosophy, which is “market based” – not “cost based.”

The big companies are suffering too: the combination of lower prices and higher commissions mean lower earnings. Cruise lines are offering 20 percent commission, saying they are helping travel agents. Instead, they should admit that they offer 20 percent so agents can make some money on cruises that start at $149.

Some cruise lines are comparing themselves to hotels, stating that hotels are operating at less occupancy. But the ships have to sail full. An empty ship does not offer much of a happy vacation atmosphere, and without passengers, a large part of the crew that depends on tips for earnings would quickly lose their motivation. (You can stay in a hotel and not know if it was half-full or 90 percent full.)

And 2002 will be tough with more ships in domestic summer markets that were already competitive in 2001. On top of that many of the cruise lines are foregoing the higher summer rates achieved in Europe for their domestic programs.

If people will not fly by the time the 02 summer season starts, programs out of San Juan and Vancouver may also suffer as will the percentage of passengers that typically arrive from European source markets.

Being a cruise line executive or a financial analyst trying to forecast 02 is a tough job. (Editor)

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