The reputation of Costa Cruises is likely in more danger than the cruise line's financial status.
[Note - looking for the Allegra article? it is here]
Costa Cruises is very concerned about what has been termed the "Media Massacre" happening in Europe currently over the Costa Concordia tragedy. Apparently, the story of the disaster and the accompanying graphic pictures just won't go away. Making matters even worse is speculation that the company will not survive the onslaught of class action lawsuits arising from the incident.
The theory the European media is bandying about is that the exposure to class action lawsuits being filed in Italy and the U.S. will cost the company so much money that it will go bankrupt. Making matters even worse is the fact that all of this media speculation is becoming a self-fulfilling prophecy. Costa Cruise bookings are currently down 35% – and the more that gets reported the more the company suffers an image problem.
But the media is glossing over a few important aspects of the situation – mainly that Costa is insured against such lawsuits and most likely will not be paying out at all; the insurance company will have that obligation. Furthermore, although anything can happen in a courtroom there are limits in place to how much a family can recover after a death at sea.
The Athens Convention, for example, is specifically cited in the Costa cruise passenger agreement which is essentially a contract everyone signs when they book a cruise. The Athens Convention, in international treaty, limits the amount of liability by a cruise line for a death onboard to about $525,000 maximum per case. Right now the death toll stands at 32 people.
Some people may also be aware of the Death on the High Seas Act which limits the financial liability to what a person might have earned throughout the remainder of his lifetime, but that is a United States law that does not apply in the Concordia incident.
Still… the perception being propagated by the European media that bookings are down and that Costa will have to pay out huge sums of money is provoking many commentators to predict Costa might not survive this event, which only makes potential customers far less likely to book a cruise right now – because no one wants to risk buying a cruise on a cruise line that might not exist in the near future.
But – in fact, Costa is a very healthy company with the full financial support of its parent company, Carnival Corp. The loss of the ship, which cost the company about $570-million, is actually a much bigger financial challenge for the cruise line than exposure to lawsuits, but once again the ship is covered by insurance, and Concordia was just one of 16 ships in the Costa fleet, so there are still plenty of cruises for the cruise line to sell. The biggest real problem is the loss of income that ship would have provided.
More Media Hits
In addition to the financial questions being sounded in the media, suggestions that the crew was not properly trained and that the existing evacuation procedures were not adequate are also a problem. However, the media is overlooking the fact that even with the Concordia, the cruise industry still has the best safety record in the travel business. In terms of loss of life per customer, flying and car travel have far worse safety statistics, even if compared on an equal footing "per one-thousand travelers" basis.
Also complicating the media problem is the fact that 2012 is the Centennial year for the Titanic tragedy, which will very likely result in Concordia coverage remaining in the public eye for at least another seven weeks until the centennial is over. The Titanic sank on April 15, 1912.
So far Costa has suffered the worst downturn in bookings, although other cruise lines are also feeling the heat – especially in Europe. This is largely due to the fact that experienced cruisers have not been scared away by the Concordia incident, but many non-experienced cruise travelers are now having second thoughts about booking their first cruise. While the U.S. has a much higher percentage of experienced cruisers in its population (roughly 16 to 20%), the penetration of cruise experience in Europe ranges from only as high as 5% in Britain to as low as 1% in France and even lower in less economically viable European states.
Time has a way of healing all wounds, and most likely the Concordia effect will disappear within a year or two, but right now the pendulum is swinging towards the worst possible scenario, and until it swings back things will remain grim for Costa Cruises, especially, and other cruise lines as well – especially for ships sailing in Europe.