Despite Economy, Americans Still Getting on Board

The unsure economy may be an affront to our everyday way of life, but it doesn’t mean we are giving up our vacations. And why should we? Americans work hard for their time away from the office, and deserve a fun break.

These vacations are a boon to the hospitality industry, particularly during a time when internal costs are skyrocketing due to unstable fuel prices, higher energy costs and other overhead. Full ships and fully occupied hotels make executives (and shareholders) happy.

The cruise industry has been crushed by the weight of $150 barrels of fuel, which has cut through earnings and forced the lines to pass some of the cost onto consumers. No one likes that—neither passengers nor the cruise lines. Higher fuel costs have even forced many lines to alter itineraries in order to conserve fuel. This tack has a domino effect. Cruise-ship visits often make or break a port’s tourism economy. An Associated Press story cited that when a cruise ship pulls into Maine’s Bar Harbor, passengers spend an average of $105 while ashore.

With the way some ships are being built today (gigantic, elaborate, activity filled) is it a stretch to say that, one day, cruise ships will truly become the destination and itineraries secondary? A cruise ship merely powering out a short distance off the coast and staying there will save a lot of fuel. Hey, you never know.

The good news is that fuel prices have continued to tumble to just over $100 per barrel—great news for the cruise lines, as well as the drive-to-port market, which has become a trendy alternative to high airfares.

With dwindling fuel prices, we are still waiting to see if cruise lines will drop their fuel surcharges. We do know that the U.S. airlines have no intention of doing so—yet. Most carriers have imposed fuel surcharges of up to $170 roundtrip; of course, similar to the cruise industry, fuel accounts for up to 40 percent of most airline budgets.

Regardless, the cruise industry continues to move forward. According to Sean Smith, a
senior travel and leisure analyst with investment research outfit Zacks, “The cruise lines have been fortunate to this point in that top-line demand has remained relatively strong. Booking trends have remained favorable, and occupancy rates continue to be solid. Certainly, as the recession continues to impact consumer spending, the cruise lines may begin to see occupancy rates and pricing power soften. Thus far, however, it appears that many consumers would prefer to cut back on other day-to-day expenditures as opposed to foregoing an annual vacation. Additionally, the perceived value offered by the cruise lines remains high, relative to other potential vacation trips.”

In addition, cruise pricing in all the major markets (Caribbean, Europe, Alaska) appears to be strong or steady for the time being. As dire as the economic discussion is, the cruise industry seems to have steered through only slightly scathed. Customers are still sailing, dwindling fuel prices are helping pad bottom lines and—fingers crossed—the economy will make a turn for the better.

“They should be poised to benefit from increased pricing power once the economy improves,” Zacks’ Smith said. “If, however, demand starts to weaken, the impact of higher fuel expenses will be exacerbated.” Not to worry—Americans love their vacations and wouldn’t trade them for the world.

Suggested Articles:

From July to August, there was a sizable increase in the number of advisors who believe promotional offers would impact booking decisions.

If the pandemic suddenly ended tomorrow, nearly half of respondents said their first large discretionary purchase would be a trip. Learn more here.

Chris Conlin, president and CEO of Conlin Travel, sees a future for leisure travel—and it includes DIT (Domestic Independent Travel). Read more here.