Published on Wednesday, April 17, 2013

Comment: No such thing as bad publicity for cruises?

Michelle Grant, travel and tourism manager at Euromonitor International, examines the impact of recent negativity publicity on cruise lines.

"The Costa Concordia tragedy in January 2012 has been followed by other less severe incidents involving its sister brand, Carnival, in 2013. While the Concordia incident impacted the whole industry for most of 2012 because consumers were fearful of cruising, the troubles with Carnival ships have only had a short-term impact on that brand alone. Although the industry suffered in the short term, it is likely that these incidents have not deterred consumers from cruising in the long term.

Costa Concordia's sinking impacted the whole industry

The Costa Concordia incident occurred during the peak season for cruise bookings for 2012, and its severity caused bookings to fall significantly for all cruise lines during the three months afterwards. Given the greater media coverage in Europe than in the US, bookings declined more in Europe, although US bookings did suffer. The decline in bookings was felt throughout the year.

Carnival Corp and Royal Caribbean, which are the leading cruise companies, opted to hold prices steady after the tragedy, but, by April 2012, both companies lowered prices to try to fill their empty European ships. Carnival said that by the end of the year, Costa's ships were back to full occupancy. However, the discounted prices and lower occupancy contributed to its decline in revenue for 2012 and restrained the growth in Royal Caribbean's.

Although the impact of the incident had dissipated by the end of 2012, neither company is confident it can restore pricing to its previous levels as the economic uncertainty has caused weak demand for cruising regardless of recent events. While Royal Caribbean has cut European capacity by 10% for 2013, it predicts that capacity for the region will grow by nine ships with an average of 25,000 berths between 2013 and 2017. The additional supply, in conjunction with depressed demand, is likely to keep pressure on prices in European cruises in the medium term.

On 10 February 2013, a fire broke out in Carnival's Triumph's engine room while the ship was in the Gulf of Mexico. The ship listed and relied on emergency power for five days while it was towed back to the US. The media coverage of the poor conditions (overflowing toilets, long waits for food and no air conditioning) resulted in a double-digit drop in bookings for the Carnival brand in the weeks afterwards. Carnival Corp said the incident only had a marginal impact on other brands. To combat the bookings decline, the company rolled out price discounts almost immediately, with bookings rebounding quickly. Industry sources said that other companies have not lowered prices, and, in some cases, they have even raised them since consumers may be willing to pay a premium to avoid Carnival ships.

Overall, the negative impact was limited to the Carnival brand. The engine fire was followed by problems with three other Carnival ships in mid-March, which garnered more press attention than usual, given Triumph's woes. As a result, it is likely that Carnival will be running price discounts for that brand longer than usual and will see lower revenue growth for all of 2013. When compared to the impact of the Concordia incident however, these mechanical issues will have a much smaller impact.

Carnival to apply lessons learned from Triumph

Moving forward, Carnival plans to evaluate its redundancy systems, fire systems and its emergency power levels for its entire fleet even though all systems exceed safety guidelines. The work is beginning on Carnival's Triumph and Sunshine cruise liners since they are currently in dry dock. The company also expects to combat negative consumer sentiment through press relations and communication of its strong safety record.

Despite all of the negative press that Carnival Corp has had since January 2012, it is unlikely that there will be a long-term impact for the company, with a lesser risk for the entire industry. In the short term, companies have to resort to discounts to lure consumers back after these types of incidents and a weak economy can make it harder to regain pricing power, meaning that margins may decline during the months following an incident.

However, the impact is likely to only be short term; most consumers accept that there is always a risk for a mechanical issue with any type of mode of transport and return when incentivised with promotions. In the case of Carnival, its fleet-wide evaluation may lead to fewer mechanical issues, so the company may avoid these scenarios entirely in the mid to long term."

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