Cruise industry expects to prosper, barring war

The Carnival Legend, Miami-based Carnival Cruise Lines' new $375 million, 960-foot-long cruise ship, passes under the Verrazano Narrows Bridge in New York on Sept. 22.

The Associated Press
Published: Sunday, December 1, 2002 at 6:01 a.m.
Last Modified: Saturday, November 30, 2002 at 10:58 p.m.
MIAMI - The cruise industry rebounded in 2002 after a weak economy and fears of terrorist attacks leveled the tourism business following Sept. 11, 2001. But the stormy ride may not be over.
Top executives and industry observers forecast a generally positive 2003, but the industry is awaiting the outcome of two major questions: Will a merger between No. 1 Carnival Corp. and No. 3 P&O Princess Cruises PLC be approved? And will the United States go to war with Iraq?
On the latter, it's anybody's guess. On the former, the parties aren't saying much, other than P&O shareholders are expected to have the final say during a Feb. 14 meeting scheduled Feb. 14.
The first signs of how the industry will fare overall in 2003 will come in the upcoming "wave season," the period between Jan. 1 and March when, traditionally, most cruisegoers book summer cruises.
"The cruise industry has shown considerable resiliency over the last 12 months, and barring geopolitical events that could set the industry back again, we see a gradual recovery in bookings," said Jill Krutick, a leisure analyst with Salomon Smith Barney.
Cruise lines have responded to the terrorist attacks by moving ships closer to home and to ports of call in secondary markets such as New Orleans, Baltimore, and Corpus Christi, Texas, successfully tapping drive markets.
Cruisegoers can expect more of the same in 2003.
"I see it in fact as the next great growth wave of this industry, bringing high quality ships into all kinds of different ports with large populations," said Colin Veitch, president and chief executive of Norwegian Cruise Line.
More than 90 percent of NCL's cruises depart from North American ports. The cruise line recently announced it was adding cruise departures from Baltimore, Houston and New Orleans, for a total of 12 U.S. ports.
Miami-based Royal Caribbean Cruises Ltd. expanded new sailings in 2002 from six U.S. cities.
"We probably would have gone there eventually anyhow, but 9-11 gave us an impetus to accelerate," said Richard Fein, Royal Caribbean's chairman and chief executive.
The strategy is in line with some analyst outlooks for next year, which favor cruises in the Caribbean and Alaska over Europe, whether or not there's a war in Iraq.
"It can never be a positive if we're involved in a conflict anywhere in the world, even if it's very far from home," said Colin Veitch, president and chief executive of Norwegian Cruise Line. "But in that circumstance, I would rather have the ships here in the homeland than sailing around the Eastern Mediterranean or the Pacific Ocean."
Cruise lines have cut costs and prices to fill ships, adjusting to consumers' changing attitudes, namely the practice of buying cruise vacations much closer to the sailing date than before.
Cruise prices have slowly crept up over the year, although prices for some December cruises have declined. Prices for cruises departing in January and beyond appear flat to up, according to a survey by Raymond James & Associates Inc.
"They're having no problems filling ships as long as a consumer feels somewhat confident within a 30-day period," said Paul Keung, an analyst with CIBC World Markets Corp.
If Carnival's $5.4 billion takeover of P&O Princess Cruises is approved, it is not expected to have much impact on consumers, at least initially, said Joseph Hovorka, an entertainment and leisure analyst for Raymond James.
The Carnival-P&O merger would create a powerful new company with a fleet of 64 ships listed and market share approaching 50 percent by 2005. No. 2 Royal Caribbean's 24 percent market share could decline to near 20 percent by 2005, Krutick said.
Royal Caribbean would remain "a powerful number two player, and its young, high-amenity fleet should enable it to compete effectively," she said.

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