Tag Archives: recession

Cruise lines are not resorting to rock-bottom pricing

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Cruise Lines 2019 Q4 Breakdown: By the Numbers - Cruise Industry ...

By Johanna Jainchill

Cruise lines and Wall Street analysts report that cruise pricing, for the most part, has not gotten to the low levels seen after the fallout of the 9/11 attacks and the 2008 recession.

To be sure, there are deals out there, and some executives have said that Covid-era prices have fallen across the board — but not to the rock-bottom levels seen in prior crises. Execs, analysts and industry watchers have said this is primarily because demand is expected to exceed capacity, at least at first, because lines are likely to relaunch only a few ships at a time at reduced capacity.

“We note that since cruise lines are taking so much capacity out of service and not pricing to fill what is in service, they could potentially eliminate some of the lowest-margin demand that they might normally turn to when filling a ship,” UBS Analyst Robin Farley said in a recent note.

In discussing the strong pricing for 2021, Brad Tolkin, co-CEO of World Travel Holdings, agreed that reduced capacity was a big factor. “There will be a lot less of ships to top off within the last 90 days,” he said. But he also said that future cruise credits (FCC) the cruise lines have been using for cancelled 2020 sailings play a role.

“The cruise lines know they have these supersized FCCs out there; most are at least 25% more than the value of the cruise,” Tolkin said. “They have to keep pricing up to absorb that somehow.”

On top of that, he said that people who have the FCCs are upgrading.

“The people that took these FCCs said, ‘I love cruising, and I’m getting on a cruise; I’m taking the FCC,'” he said. “If they spent $3,000 on a cruise before, now they have $3,500, $3,600 to spend. They’re spending it and buying up.”

Vicki Freed, Royal Caribbean said that another reason why lines are holding the line on pricing is that they know that they will have lower occupancy and they don’t want to compromise quality.

“We know that initially, we’re not sailing at 100% occupancy and we’ll have to have lower load factors  I think all the cruise lines are planning that,” Freed said. “And we’re going to need to have more staff on board and still offer the quality people expect from Royal Caribbean. If suddenly we downgrade the product onboard people will say, ‘they’re not the same brand I thought they were ‘ So you do keep your price integrity up in order to fund what we need to fund.”

Freed also anticipated that people will pay more for experiences that include Royal Caribbean’s Perfect Day at CocoCay private island.

“It’s a safe, enclosed environment; it’s a private island, it’s got all the fun and thrill and chill that people want now,” she said. “I think itineraries with Perfect Day at CocoCay or our private island of Labadee will demand a better price.”

UBS’s Farley also said that, according to an executive from a privately-owned cruise line, he expects “only single-digit price declines” by keeping only the lowest-priced cabins empty.

“He believes that cruise lines will keep ships in various stages of warm and hot and cold layup so that they will be able to add ships into service without delay if there is demand,” Farley said.  “A month of notice is more than enough time to staff a ship and start operations. Airlift is not that much of an issue since the cruise lines can charter flights from the Philippines and Indonesia, for example, when they are ready to bring the crew back to a ship.”

Cruise chiefs talk expansion, recession

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Image result for norwegian encore"


Norwegian Encore after float-out from Meyer Werft.

Another year, another non-recession.

How long can this go on?

It has been a decade since the so-called Great Recession bottomed out in June 2009. Since then the U.S. economy has experienced a remarkable 125 months of uninterrupted growth, breaking the 120-month record set by the 1991-2001 expansion.

Ten years of steady climbing has had a predictable effect on cruise sales. According to executives of Royal Caribbean Cruises Ltd. and Norwegian Cruise Line Holdings, which recently reported third-quarter results, things couldn’t be better.

“I can’t stress enough the underlying strength of the business,” Frank Del Rio, CEO of NCLH said in a conference call with analysts.

Despite doing nothing strategically to extend the booking window, it expanded by 10% in the third quarter, Del Rio said, “underscoring consumers’ underlying appetite for cruising on our three brands.”

Cruise lines are at that happy point where, at least in North America, an abundance of bookings is creating scarcity, driving prices higher, and stampeding more consumers to book even earlier to lock-in early booking savings.

All good things come to an end, to be sure, but the chances of them coming to an end in 2020 aren’t that likely.

In its monthly survey of economists for November, the Wall Street Journal found that only 34.2% of economists expect the expansion to end in 2020, with another 29.3% saying it will end in 2021.

One of the main drivers of a classic recession, inflation, is expected to clock in at 1.9% in November, just below the Federal Reserve’s target. The unemployment rate next month is forecast at 3.6%, meaning most of the people who want a job have one, providing fuel for further consumer spending.

Economists used to talk about the Goldilocks economy – not too hot, not too cold – and without much fanfare, we may be in one. But one troubling footnote is that the growth in the current expansion – 25% since 2009 – has been only half as strong as the 42.6% growth in the 1991-2001 period.

“It’s been the slowest recovery in American history,” said RCCL chairman Richard Fain in a talk at Travel Weekly’s CruiseWorld event last week.

Fain said that expansions don’t die of old age; there has to be a trigger, which right now isn’t blindingly obvious to most observers. He said that when the recession does come, the cruise industry will do okay.

He recalled that the Oasis of the Seas, then the biggest cruise ship in the world with a startling capacity for 5,400 guests, was delivered in 2009 when the economy was flat on its back.

“The truth is it did beautifully even in 2009. Oasis was gangbusters, and it was because it met a need,” Fain said.
He added that it was important that Royal Caribbean’s cost-cutting during the last recession didn’t cut from the guest-facing functions.

“Lots of businesses say ‘Oh business is bad, we’re not selling so many shoes, so we’ll cut costs and lay off some people.’ If we fill our ships, we can’t let one customer feel like we’ve cut back in order to make our earnings look better,” Fain said.

“We’re going to continue to function, continue to operate, continue to market because it’s the right thing to do to be in business five years from now,” Fain added. “And everybody in this room will remember what we do.”

Fain: Cruise Industry Has Features That Make It Recession Resistant

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Navigator of the Seas

Royal Caribbean Cruises is well-prepared to adapt to a changing marketplace, according to Chairman and CEO Richard Fain, speaking on the company’s second-quarter earnings call.

“When circumstances change, we are prepared to adapt. While no one is recession-proof, looking forward, I think the industry has features that make it recession-resistant,” he said. “The growing appeal of our product, the relative price attractiveness, the fixed cost component, the portability of our assets, et cetera; all of these things make us better able to do well even in bad times.

“A good example of that would be China, where Spectrum of the Seas started operating just a few weeks ago,” Fain continued. “Conventional wisdom suggests that bringing a new ship into a market whose economy is weakening ain’t such a good idea. But Spectrum and our other ships there are doing very well, despite the softer economy.”

CFO Jason Liberty said that the company had plans and scenarios it would consider if the economy slowed down.

Liberty said the multi-brand cruise corporation operates a worldwide business that can source guests globally.

“We also have itineraries that go to a thousand different places,” Liberty said. “So what’s available to our guest is much more.

“We also have a much stronger balance sheet and a much stronger liquidity position,” he continued. “And I think we would evaluate our plans in case there was a change in the winds.”

That being said, Liberty said the company was not seeing any of those changes whether it’s booking levels, even daily, or onboard performance.

Looking back to the last recession, Liberty said there was regret that the company pulled back on its growth.

“We would all be talking about higher earnings numbers today, better return profile today, if we hadn’t slowed down our growth or our investment efforts in expanding our global footprint, investing in different projects that would have put us in an even stronger position than we are today.”