Royal Caribbean's Oasis of the Seas
Cruises Priced Right
The annual conference of cruise lines, called Seatrade - Miami, is currently in progress. Yesterday, the "State of the Industry" conference was held, in which CEOs or presidents of each major cruise line get a chance to comment on the current state of the cruise travel business. To no one's surprise, the topic this year was the effect of the economy. The message is that we are going to thrive, not only survive. But before I speak to that I want to mention another topic first.
AIRFARE: We have just gotten even more confirmation that this summer should have the cheapest airfare to Europe in decades. This IS the time to book a European cruise. The best staterooms are still available at remarkable prices. Add a strong dollar and the timing could not be better. We are already seeing cruise prices marginally higher but it's not too late. Like the stock market, when prices are low things look scary, but if you buy now you will be able to brag about the deal you got for the rest of your life.
Now, back to this year's Seatrade meeting. This is the most anticipated discussion since the post 9-11 conference. Naturally, everyone was waiting to hear what each cruise line had to say about the effects of the economy. Especially because there has been so much discussion from outside the industry on whether or not the cruise lines could survive.
Cruise lines have been known to brag that they can outshine other travel options during every recession for the following reasons;
- 1) Cruise lines have the ability to move ships to take advantage of changing destination preferences by customers and better economic conditions.
- 2) Cruise ships have a captive audience where the lines can make onboard revenue even if they have to lower their cruise fares.
- 3) Cruises represent one of the best values in the vacation market. For one price a guest gets his accomodations, meals, entertainment and transportation to exotic destinations.
All of this is true. When this current economic turndown hit us, almost like a terrorist attack, with the meltdown of the banking system on September 17, 2008, there was a period of time when no one in the country was willing to spend any money. Frankly, we were being scared to death by the constant use of the words "crisis" and "economic depression" in media and by our government.
For a few months the cruise lines did struggle with an almost instantaneous dropoff in new bookings. In the beginning travel agents were reporting far more phone calls to cancel cruises than people booking new cruises. Customers had seen their home values and their retirement funds shrink, and they just didn't know how low they would go.
Adding to the pain was stock market analysts noting how much cruise lines depend on credit to build their businesses. If there is any one aspect that dominates this recession more than previous ones it is the meltdown of the banking lending system. Most discussed was Royal Caribbean because of the need to raise almost five billion dollars over the next few years to finance the building of six new ships.
But in fact, four Celebrity ships already had 95% of the loans guaranteed, while the audacious, new Oasis of the Seas and Allure of the Seas were already 80% funding guaranteed. While Wall street was casting doubt on the ability of the company to raise the money here at CruiseMates we were already saying the cruise line will have no trouble getting the financing it needs. Those ships will arrive on time to a hearty welcome and the Industry CEOs confirmed that.
Five months into this instant recession we have seen the cruise lines accomplish what they brag about. They have adapted to the changing economy, implementing new fares and reasons for people to book cruises. They have cut cruise fares and added incentives like onboard credit, kids sail free and more.
Today, most of the cruise lines have reported that bookings are more robust than ever. First Princess Cruise Lines announced one of its busiest booking weeks in history. Then Carnival reported one of its single biggest days for new bookings in history. Earlier this week NCL reported that its bookings are up 15% year over year over 2008. Albeit, these are all at lower prices, but the point is, once again, that the cruise industry is very adaptable and can fill its ships.
Even the prospect of continued growth is not a challenge to the industry. Wall Street analysts were telling the cruise lines they should cancel new ship orders and put parts of their fleets in mothballs. The cruise lines did none of those things (for the record, NCL did scale back it new ship-building project called F3, but most of those decisions were made before the economy turned south).
Royal Caribbean is very bullish about its ability to add capacity to its fleet and the Celebrity fleet. And we agree. The new and beautiful ships, especially the ultra-invigorated Oasis of the Seas class arriving in November, are going to give this industry a shot in the arm and bring major media coverage to the overall cruise industry. Meanwhile, the scary words we have been hearing about the economy have abated a great deal. We have even seen a short-term rally in the stock market.
In the words of an old depression-era inspired song, "Hey, look me over" remember, whenever you're down and out the only way is up.
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