January 18, 2012 / 5:13 AM / 7 years ago

Tragedy deals near-term blow to cruise industry

NEW YORK (Reuters) - Last week’s fatal Italian cruise accident could wipe out a good chunk of Carnival Corp & Plc’s (CCL.N) 2012 profits, and the cruise operator could risk more long-term damage if it doesn’t have a stronger public response to the crisis, Wall Street analysts and public relations experts said.

The event could also bruise a $30 billion global industry already grappling with an uncertain economy.

The captain of the ship, the Costa Concordia, is under house arrest, accused of multiple manslaughter, causing a shipwreck by sailing too close to shore and abandoning the ship while some passengers and crew remained.

“This affects the whole industry. If you see a cruise ship upside-down in the water, and you see people talking about their harrowing escape, that’s going to turn off a lot of people,” said Levin Stein, CEO of CruiseCompete.com, a website where travel agents compete to offer the best deal on cruises.

A drop in demand for cruise holidays would quickly lead to lower prices, Stein said, since operators hate to sail with empty cabins.

Barclays Capital analyst Felicia Hendrix lowered her 2012 earnings estimate for Carnival by 29 percent to $1.90 per share and her 2013 estimate by 26 percent to $2.25 per share.

Hendrix said it will be some time before Wall Street has any clarity on the financial impact of any resulting loss of demand, commensurate promotions, public relations efforts or future safety measures.

“In light of the uncertainty, we believe it is prudent to lower the bar,” Hendrix said.

Nomura analyst Harry Curtis lowered his 2012 estimate by 8 percent to $2.36 per share on Carnival, due to lower capacity, yields and higher expenses. He lowered his 2013 estimate by 3 percent to $3.06 per share.

Carnival’s shares tumbled 13.7 percent on Tuesday in their first trading session in New York since the ship struck rocks and capsized off the coast of Italy on Friday. Rival cruise company Royal Caribbean Cruises Ltd (RCL.N) fell 6.2 percent.

Susquehanna Financial cut its rating on both stocks to “neutral” from “positive” due to the potential impact of the tragedy on the sector.

Carnival Chief Executive Micky Arison, who also owns the Miami Heat NBA team, has expressed sadness over the event in two company press releases and said on Twitter that he has been focused on the response to the tragedy. Yet he has not offered an outright apology or countered the onslaught of harrowing photographs of a half-sunken luxury ship with any videos of his own.

To Gene Grabowski, a crisis communications expert with Levick Strategic Communications, that seems inadequate.

“You have to answer with pictures, you have to answer with actions and responsibility. Otherwise you’re losing the struggle for control of the story,” Grabowski said. He said companies in the midst of such crises need to apologize, explain clearly what they are doing to help the people affected, and what they are doing to prevent it from happening again.

They also need to show that real people are working on the problem, rather than anonymous committees.

“Companies that follow this pattern have fewer lawsuits, smaller lawsuits and when they settle, they settle for more reasonable amounts,” Grabowski said.


Experts agree that demand for cruise bookings could be dented by news of the tragedy, especially during the high-season winter months. But some travel agencies, including Orbitz Worldwide Inc OWW.N, have not yet seen any usual rise in cancellations or drops in cruise pricing.

Cruise Planners, a marketer of cruise holidays, has not seen any cancellations yet and its CEO, Michelle Fee, is hopeful the damage will be short-lived.

“My concern is not with the people who already buy cruises but with people who don’t,” Fee said. “This could add to an incorrect perception that cruises are not safe. But people have short memories.”

In the meantime, a survey of traditional offline travel agents, who book about 70 percent of all cruises, found that 36 percent of consumers with a cruise booked for 2012 have called their travel agents with concerns, according to Mark Murphy, CEO of Travalliance.com and travel news website Travelpulse.com.

Of those concerned customers, about 10 percent have asked to cancel their bookings, Murphy said. A number of factors, such as whether the consumers have travel insurance, will decide whether they can cancel or not, Murphy said.

The accident could also prevent new customers from ever taking a cruise, Murphy said.

“For the 80 percent who have yet to take a cruise, this is the kind of thing that puts doubts in their mind. That’s going to be the challenge - to get people who have never cruised to look past this incident in the short term and get on a ship.”

Additional reporting by Yinka Adegoke in New York; Editing by Bernard Orr

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