Your Cruise Your Way Cruise Blog

Being in the cruise business, I found this article goes a long way toward re-affirming the value of cruising as opposed to land based vacations. Now Americans can visit Europe, and still maximize the spending value of their leisure spend. Carnival and Royal Caribbean are numbers 1 and 2 in the cruise industry, and it’s apparent why. Read this article by Heather Burke in the International Herald Tribune.

Cruise liners cater to U.S. tourists dodging the rising euro
By Heather Burke Bloomberg NewsPublished: October 18, 2007

NEW YORK: Carnival and Royal Caribbean Cruises are increasingly catering to U.S. tourists who want to dodge the rising euro while visiting Europe. The trend should help reverse two years of share declines for both companies.

To capture the growing appetite for European cruises, Carnival increased capacity on North American lines going to the Continent by 16 percent this year and will raise it by another 20 percent next year to meet increased demand. Their fleets are growing more slowly in the Caribbean after softer demand drove down their stock prices.

The 7.3 percent gain in the euro against the dollar this year is pushing more people to see Europe by sea. Cruises allow travelers to pay for their vacation in dollars in advance to avoid currency fluctuations and are also up to 30 percent cheaper than comparable land vacations, according to Cruise Industry News. To meet demand and entice new clients, the companies, both based in Florida, are adding cruises from Finland to Croatia.

“A cruise ship is a mobile asset,” said Jason Lisiak, a fund manager at Manning & Napier Advisors in St. Petersburg, Florida. “You can allocate capacity according to the highest-yielding market, which right now is Europe. As Carnival builds up critical mass in Europe, profitability should rise.”

European growth will help lift Carnival and Royal Caribbean shares by 30 percent in the next year, according to Raymond James & Associates. Susquehanna Financial estimates that Carnival’s revenue will rise about 10 percent in each of the next two years, while Royal Caribbean sales will jump 15 percent in 2007, the fastest pace in five years.

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Carnival, which operates the Princess and Holland America lines, is also expanding its fleet. Carnival on Oct. 10 ordered a new Queen Elizabeth ship. The luxury liner will begin taking on travelers in 2010.

A July 2008 seven-night Royal Caribbean cruise in the western Mediterranean costs $1,721.89 per person for a cabin with an ocean view. In the western Caribbean, a Royal Caribbean cruise at the same time and duration costs $1,300, according to the travel company Just Cruises & Vacations.

“With the fixed costs basically equal and ticket prices higher, Europe is generally more profitable than the Caribbean,” said Robert LaFleur at Susquehanna Financial.

Profit at Carnival, the world’s largest cruise company, and Royal Caribbean began to suffer in 2005 because of higher fuel costs. Last year, lower-income consumers shunned the trips as the fuel prices ate into their incomes. Others were turned off after a spate of disease outbreaks and deaths. Carnival’s net income growth slowed to 1 percent in 2006 after rising 22 percent in 2005. Royal Caribbean’s net income fell 11 percent in 2006.

Grace Andary, 61, booked a 12-night British Isles cruise with her husband for June 2008, paying in U.S. dollars. Though they considered tours on land, they decided that sailing along the coast was the most frugal option.

“If we paid for the cruise in pounds, we’d definitely have to rethink the vacation because it’d cost twice as much,” said Andary, who lives in Michigan.

Carolyn Spencer Brown of CruiseCritic.com, a Web site dedicated to the industry, said: “With the currency of the U.S. in absolute freefall over the euro and pound, cruising is still - easily - the most affordable way to see Europe.”

Cruise lines are also lengthening the European season to increase revenue there. Royal Caribbean’s “Brilliance of the Seas” will become its first year-round Mediterranean ship in 2008. Carnival’s Princess line will sail to eight new European ports in 2008 and is introducing two of its ships to Europe.

Not everyone is convinced of the immediate effect of extra European capacity. The expansion may take time to increase the bottom line.

“European expansion is a long-term trend that will help lift the stocks over time, but not necessarily a short-term catalyst,” LaFleur said.

Carnival and Royal Caribbean are also focusing on Europeans for trips. Cruise vacations are not as popular in Europe as in the United States.

The number of European travelers will rise by two-thirds by 2009 from 2005, according to Cruise Industry News forecasts. Only 1 percent of Europeans have been on a cruise, compared with 3 percent of Americans, the group estimates.

More than half of the new ships Carnival plans to build by 2011 are for Europe. Last month, Carnival began operating Iberocruceros, a Spanish cruise line in which it holds a 75 percent stake. Royal Caribbean has also followed suit. Last year, it bought Pullmantur of Spain, its first European line.

That is winning investor confidence. Tim Fidler of Ariel Capital Management in Chicago said: “If the cruise lines can even partially replicate the success they’ve had in North America, you have a very long growth period ahead.”