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Is the Price Right?

April 11, 2008 By: David Eisen Travel Agent

Opinions vary on the direction cruise pricing is heading as capacity shifts regionally

Fewer cruise ships will be maneuvering through Caribbean
waters in the foreseeable future. That’s a fact. What’s debatable is how less
capacity in the region will affect pricing.

In a supply-and-demand market, less ship supply bodes well
for operators who have the leeway to raise or keep rates steady since it’s
easier to sell cabins when there are fewer available. Conversely, when new
supply floods the market, predictably making it more difficult to keep ships
full, the pendulum shifts to the buyer, who doesn’t have to look hard for

Royal Caribbean's Brilliance in Europe

Royal Caribbean's Brilliance in Europe.

Okay, enough Econ 101. What does this mean for you and your
clients? According to the most current data announced at this past month’s
Seatrade Cruise Shipping Convention in Miami, the cruise industry plans to
reduce total passenger ship capacity in the Caribbean by about 5 percent, a
trend that has been in the making. The Caribbean’s total market share dropped
in 2007 to around 35 percent from 39 percent the year prior.

Now come fresh numbers from Carnival Corp., whose 11
brands and more than 80 ships make it the largest cruise operator around. The
company’s 2008 first-quarter numbers and outlook accurately frame the overall
cruise landscape—both with regard to current and impending economic hardships
(read: escalating fuel costs and housing market turmoil) and trends within the


Taking a look forward to the fourth quarter, company-wide,
Carnival’s cruise capacity will be up 8.7 percent over 2007, bolstered by the
deliveries of Carnival Splendor in
July and Holland America Line’s Eurodam,
too, in July. In North America, fourth-quarter capacity will be up 5 percent,
but overall Caribbean capacity will decrease to 42 percent, down 4 percent from
the year prior.

Carnival’s presence in the Caribbean—while still the biggest
by far in the industry—is nonetheless declining, while its presence in European
markets is on an upswing. So too, on an even higher plane, is Royal Caribbean International’s entrenchment in Europe. Carnival’s closest competitor
will have seven ships plying European waters this summer, with that number
reaching eight next year. Its sister line, Celebrity
, will have its biggest Europe season ever in 2009,
deploying five ships.

Still, notwithstanding the lackluster economy, most in the
cruise industry are heralding the return of the Caribbean
in terms of shored-up pricing. “All brands are performing well with Caribbean
pricing rebounding nicely from 2007,” said Howard Frank, vice chairman of
Carnival Corp., during the company’s 2008 first-quarter earnings call.
Furthermore, he said, “On a companywide basis, we are currently forecasting
yields in the second quarter to be in the 6.5 percent to 7.5 percent range. The
stronger yields are driven primarily by stronger Caribbean pricing.”

"Prices for the Caribbean are so low that we are back to post-9/11 pricing for this area." -Joan McCarty, owner of Specialty
in St. Petersburg, FL.

Carnival Chairman and CEO Micky Arison, also pointed to “the
continued recovery of Caribbean business.” But
it’s coming at a price for some Caribbean destinations and ports, which are
losing out on needed tourism dollars that cruise ship visits help spur.
Consider Jamaica. According to Pat Bellinfante of the Port Authority of
, 3,222 ships called in Jamaica in 2007, while that number should
dwindle to at or below 3,180 visits for 2008. “Ships are capitalizing on the
European market, which is more profitable,” Bellinfante says. Other Caribbean
ports, such as Grand Cayman and Cozumel, are also feeling the harmful effects
of tapering cruise capacity.

Yet fewer ships in the Caribbean,
if we submit to the logic of supply and demand, should result in better pricing
as many cruise lines say, right? Well, not so fast. Many travel agents aren’t
seeing any real pickup in pricing—in fact, Joan McCarty, owner of Specialty
in St. Petersburg, FL, notes the complete opposite. “Prices for the
Caribbean are so low that we are back to post-9/11 pricing for this area,” she

Sherry Laskin Kennedy, travel manager of AAA, in Melbourne, FL, is seeing
it shake out similarly in the Caribbean this
summer as friendlier prices have led to a paucity of space. “Availability is
becoming scarce as the prices are ridiculously lower than usual for summer
cruises,” she says. “Celebrity has no ships in the Caribbean this summer and
Carnival’s seven-night cruises are going for $50 per night on some sailings.
The fall is also looking like a bargain-basement value.”

Laskin Kennedy isn’t optimistic that pricing in the region
will pick up any time soon, either. “We will see
panic pricing and added discounts until the new ships begin to arrive, creating
excitement and demand—and, in turn, a price point worthy of a new build,” she
says, adding that she doesn’t recall ever seeing as many ships open to book
nearly two years in advance. Still, while the value message of a cruise has not
reached all non-cruisers, it’s loud and clear with repeaters. “I'm seeing
repeaters booking and rebooking onboard because they know the value of a cruise
and are taking advantage of the best pricing in several years,” Laskin Kennedy says.

Don’t for a moment think cruise
executives like this pricing curve. Though they all tout the value of a cruise,
they’d still like to push pricing up. Gerry Cahill, Carnival Cruise Lines’
newly crowned president and CEO, said as much at last month’s CLIA cruise3sixty
in Fort Lauderdale. “We would like to see pricing go up,” he said,
explaining it’s a necessity to meet the cost of building more ships. He pointed
to $250,000 per-berth prices as evidence and the rise in the euro against the
dollar. (All cruise ships are built in Europe.) “We need growth in pricing to
keep up.”

Carnival, however, is one line
that hasn’t drunk all of the European Kool-Aid. The vast majority of its fleet
is remaining in the Caribbean. “We are staying,” Cahill said, “while others are
moving.” Carol Marlow, president of Cunard, is in Cahill’s corner when it comes
to boosting pricing and not only because they work for the same parent company.
She recently voiced her aversion to discounting, saying that within an environment
where demand outpaces supply, discounting shouldn’t exist.


Is Europe Replacing the Caribbean?
Other travel agents are ­less
convinced one way or the other about the pricing situation in the Caribbean. “Cruise lines that are having trouble filling
their ships are offering some Caribbean discounts, but not many,” says Sylvia
, president of Post Haste Travel in Hollywood, FL. “The best discounts
are coming from cruise lines that had excellent deposits, but the passengers
are canceling before penalties set in.”

Carnival Cruise in Caribbean

Although still a major player, Carnival's presence in the Caribbean is declining.

Scott Davis, national director of
cruises for Altour-Classic Cruise & Travel in Woodland
, CA, isn’t inclined to think
there is a pricing storm in the Caribbean.
“[There’s] nothing dramatic either way in the Caribbean,” he says, though he
notes that capacity in the region has constricted.

Where it has inflated is in Europe. American-based cruise lines have zeroed in on
European waters with unprecedented gusto, redeploying ships there that might
regularly serve the Caribbean.

With a glut of new hardware in the water, discounts and
customer-friendly prices should be rampant, no? Well, to a point, the answer is
yes. “At the beginning of the year,” says Laskin Kennedy, “pricing among the premium lines was still on the high
side.”Celebrity Constellation, for example, she says, was averaging well
above $125 per night for a European cruise—and Holland America Line wasn’t
really discounting either. “Then about two weeks ago,” Laskin Kennedy goes on,
“there began not only a price drop for the cruise, but deeply discounted or
essentially free air to Europe, including the Baltics. Nearly hourly, I was receiving another
discount for a European cruise.”

These discounts also include
luxury lines such as Seabourn, which has been touting free airfare to Europe,
and Cunard Line’s Queen Mary 2, whose six-night transatlantic crossings this summer
can be had for under $1,000.

According to Specialty Travel’s
McCarty, 2009 might even be a better pricing year for Europe
than 2008, with the expectation of even more ships in the region. “Europe for
this year is pretty much holding with a few last-minute deals,” she says.
“However, Europe for 2009 is being priced less expensively than for the
identical trip and date for 2008.”

What do you think of this $type?

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