January 18, 2012 / 4:48 PM / 6 years ago

Tragedy deals near-term blow to cruise industry

6 Min Read

NEW YORK (Reuters) - Last week's fatal Italian cruise accident could wipe out a good chunk of Carnival Corp & Plc's 2012 profits, and the cruise operator could risk more long-term damage without 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 during its biggest booking month of the year.

The captain of the ship, the Costa Concordia, is under house arrest, accused of multiple manslaughter, causing a shipwreck and abandoning the ship.

"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 vacations 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 and yields and higher expenses. He lowered his 2013 estimate by 3 percent to $3.06 per share.

Carnival's shares were up more than 2.5 percent on Wednesday morning, after tumbling 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. Shares of rival cruise company Royal Caribbean Cruises Ltd were up just less than 2.5 percent, after falling 6.2 percent on Tuesday.

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 National Basketball Association 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 and to explain clearly what they are doing to help the people affected, and what they are doing to prevent such a thing 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.

To Cancel or Not?

Experts agree that demand for cruise bookings could be dented by news of the tragedy, especially during January, known as "Cruise Wave Month," since it is the biggest booking month of the year for cruises.

In a survey of 1,500 traditional travel agents, who book about 70 percent of all cruises, about one in five said the incident has hurt their bookings, while 68 percent said it had no noticeable impact.

The survey, conducted by Mark Muphy, chief executive officer of Travalliance.com and travel news website Travelpulse.com, also found that 36 percent of consumers with cruises booked for 2012 have called their travel agents with concerns.

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

About 42 percent of travel agents rated the cruise industry's response to the incident as "fair to poor," while 30 percent rated it as "excellent."

The accident could 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."

Some other travel agencies, including Orbitz Worldwide Inc, have not yet seen any usual rise in cancellations or drops in cruise pricing.

Cruise Planners, a marketer of cruise vacations, 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."

Additional reporting by Yinka Adegoke in New York; Editing by Bernard Orr and Gerald E. McCormick

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