Friday, February 27, 2009

Missing the Bigger Picture

There are two types of articles being written about the cruise industry lately. One is consumer-oriented and talks about what good deals there are on cruises at the moment. The others have more of a business orientation and talk about how times are bad for the cruise industry.

The consumer-oriented articles point out how the good value of a cruise has become even better with lower prices being offered. But then they take a slightly darker turn when the writer interviews some other travel writer and that "expert" says how the prices are down because the business is down and indicates how "desperate" the cruise lines are to fill their cabins. That's usually followed by another article by the second writer who interviews the first writer, and that's how these articles proliferate.

The business-oriented articles are usually written by someone who really doesn't know much about the cruise industry. They take some piece of financial information they have picked up and for some authoritative-sounding quote, they go to one of the people who have been quoted in one of the consumer pieces, giving them some title like "industry-watcher." In the end, the article comes off talking about how cruise lines are "scrambling" to fill empty space and indicate that it's a tough time for the cruise industry.

Is it really that bad?

Not really. Yes, the articles are right that prices are generally way down, and there are excellent bargains for the consumer. Those prices do result in lower profits for cruise lines; that's only logical, but there are two important points that those articles are missing, if they'd only step back and look at the big picture.

One is that the lower prices are resulting in LOWER profits, not LOSSES. Sure it's disappointing for investors to be looking at profits that are a fraction of what they were a year earlier, but you don't have to look far to find other businesses - even in the travel industry - that are reporting huge losses.

The other thing that should be noticed is that while the prices are reduced, cruise ships are still being consistently filled. That can't be said for other segments of the hospitality industry.

The time to worry would be if cruise lines CAN'T fill those cabins no matter how low the pricing goes. But not only aren't we there yet, cruise lines have several things, other than price, in their arsenal that can stimulate sales. One is something that the rest of the hospitality industry can't do: relocate their inventory. If a ship isn't selling well one place, it can be moved to a destination people do want to buy.

Moving a ship to a different homeport can also create an "instant discount" of hundreds of dollars in a market for millions of potential customers, by eliminating their need for travel expenses (air fares). The best part for the cruise line is that "discount" on the total price doesn't really cost them anything.

Even when they pick up on one of these concepts, such as moving a ship's homeport to eliminate transportation costs for consumers, many of the writers of these articles are also missing the "big picture" concept. They don't seem to realize that cruise companies today are global operations, sourcing customers from all over the world. They often write about "pulling ships back from Europe," which they see as an expensive destination, but it escapes them that most of the passengers boarding a Southampton-based ship, for example, may be from the UK and have chosen that cruise because it is "local" to them and they can save transportation cost by driving to it.

Another "big picture" concept being missed is that not everyone is out of a job or worried that they may lose theirs tomorrow. Even if the jobless rate were to climb to 10%, it still means 90% of the population has jobs and it's business as normal in their households. The surveys continue to say people who have jobs still want to go on vacation, but they want to spend less doing it. And positioned to fill that desire is the cruise industry, ready with shorter cruises and their bargain rates that are such good values. How are so many of the "industry-watchers" missing this?

It's almost like they are rooting for the cruise industry to have trouble so it will make dramatic headlines for them. A few days ago Royal Caribbean filed a routine form with the SEC about their outlook for this year. In it they discussed how the credit market has changed and how they, when credit was easier to obtain, originally believed they had all their financing in place for Oasis of the Seas. They stated they are now faced with having ongoing negotiations to obtain all the financing they need. It was a routine statement of the situation, but many of the "industry-watchers" excerpted that portion of the lengthy report and created articles talking about how Oasis may be "sunk." With the ship on schedule for handover in November, and whatever economic impact it will have, either delivered or not, do any of these people really believe there is really much of a possibility it will come down to November and Royal Caribbean will just tell STX, "Sorry, we can't pay for it?" Yet there were at least a half dozen articles written with headlines implying that lack of financing could cancel the project.

Anyone who has sold anything for a living knows there are up cycles and down cycles, and good days and bad days. Cruise lines know better days will come. They are not canceling orders for new ships, and those in the pipeline are being built because they know that profit margins will again rise, and they want to be ready when they do.

In the meantime, continue to read the articles by the "industry-watchers," but just be sure when you finish, you step back and see the real picture.

Originally published in Cruise News Daily February 27, 2009. Copyright CND, all rights reserved. This article may not be legally posted elsewhere.

Thursday, February 26, 2009

AIDAluna Leaves Papenburg

Last weekend AIDAluna left Meyer Werft at Papenburg en route to its sea trials. Since the yard is inland at Papenburg (Germany), the ships must transit the Ems River to get to the sea. The 24-hour process involves towing the ships with tugs the complete distance backwards for safety reasons. As the ships have become larger, they just barely fit through the drawbridges.

It's an interesting sight, and local people come out to watch all along the way. There were quite a few videos uploaded, but we felt this amateur video captured the real mood of what the slow process is like and kind of gave you the real feeling of what it's like to be a spectator along the river.

This Deutsch Welle report covered the delivery process giving some background on the float out and shipbuilding in Papenburg. It proves interesting even if you don't speak German.