Cheap Cruises Are Keeping Industry Afloat
1 May 2009
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved. Susquehanna Financial Group
THE RESULTS OF OUR cruise survey for March show a similar trend to that we have seen over the past few months. Cruise lines continue to lower ticket prices in an effort to stimulate demand. In our survey demand fell 4.9% in March, better than the 5.4% decline in February, and 5.9% decline in January. Prices fell 11.7% in March following a 10.5% decline in February and an 8.3% decline in January. The booking window continues to tighten, but recent commentary from Royal Caribbean International (ticker: RCL) suggest that while consumers are booking cruises closer-in, they are doing so with increased predictability, which gives cruise lines more confidence in their forecasting abilities in this challenging environment.
Strong price elasticity of demand and a scalable cost structure is allowing the industry to generate respectable earnings despite economic pressures. Fuel costs, which have been a challenge in recent years, are more benign now. However, just as industry fundamentals are beginning to stabilize, news of a potential swine flu pandemic may scare consumers away from cruising. Agents reported a 4.9% decline in booking volume in March, a sequential improvement from February's 5.4% decline. Our booking demand index fell slightly to 36.7 from 37.2, but is up from its October low of 19.4. This indicates that bookings contracted during March, but at a more moderate pace than late last year. Only 22% of our agents reported higher bookings, while 49% said bookings fell. Last month 49% of agents reported lower bookings. Given the widespread weakness in the economy, the ability of cruise companies to stimulate demand with lower prices speaks to the price elasticity of demand of the product. Prices fell 11.7% in February, compared to a decline of 10.5% in the prior survey. In March only 8% of our agents...
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