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Discounts dwindle as cruise line outlook improves - CEOs

Strong advance bookings so far this year

The world's biggest cruise lines have seen strong advance bookings so far this year and are paring away discounts that lured passengers aboard during the global economic crisis, their chief executive officers have said.

But none expected an immediate return to the revenue yields they enjoyed before the crash.

And while new ship orders have resumed after a record 20-month drought, the chief executive officers expected the pace of new shipbuilding to remain slow for the next couple of years.

The mood at the annual Cruise Shipping Miami Conference was decidedly brighter than it was in 2009, a year Norwegian Cruise Line chief executive officer Keven Sheehan described as "scary".

"We're seeing solid signs of recovery, albeit one that will play out over the next couple of years," said Sheehan, whose line is jointly owned by two US private equity firms, Apollo Management and TPG, and by Genting Hong Kong Ltd, which was formerly known as Star Cruises Limited.

Major lines cut ticket prices by 10 per cent to 20 per cent last year as consumers kept purse strings tight.

That lured vacationers aboard and filled the ships with 13.4 million passengers, up by 430,000 passengers from 2008, according to the Cruise Lines International Association.

But net yields, a measure of revenue generated per bed per day, were down 16 per cent during the first nine months of 2009, before starting to rebound at the end of the year.

Several CEOs said they had seen strong advance bookings during the crucial January-March "wave season", which is when many travellers start planning vacations and is traditionally the industry's busiest booking period.

Bookings were solid enough for some of the big players to raise rates. Carnival Cruise Lines, the flagship line for No.1 cruise company Carnival Corp. is raising rates by up to five per cent for summer sailings, effective March 22.

Norwegian, the No. 3 cruise company, is raising prices by up to seven per cent fleetwide, effective April 2. It said it had seen an unprecedented year-to-date increase in booking volume in January and February, driven in part by interest in its new mega-ship Norwegian Epic, which is due to debut in June.

"We think the market is going to recover pricing," said Carnival Cruise Lines chief executive officer Gerald Cahill.

Royal Caribbean Cruises Ltd, the No. 2 cruise company by market share, expects net yields to rise three per cent to six per cent this year compared with 2009.

But Richard Sasso, chief executive officer of Italian-based MSC Cruises, was the only one on the CEO panel who would go out on a limb to estimate when net yields might return to pre-meltdown levels. MSC expects that to happen in six months, he said.

Mr Sheehan said the stock market seemed to have regained confidence in cruising, noting that share prices were up by 100 per cent or more for his rivals, Carnival and Royal Caribbean, compared with a year ago.

"We should all feel a sense of cautious optimism that the industry is being looked upon so favourably," he added.

New ship orders have begun to trickle in again, although the CEOs expect their fleets to expand at a slower pace than in recent years as they struggle to absorb capacity now coming on line.

More than 20 new ships were ordered between 2006 and April 2008, when orders screeched to a halt.

The unprecedented 20-month drought ended in December when Carnival ordered a new ship, then signed memoranda for three more as the economy began to improve and European shipbuilders lowered rates.

But the ships ordered before the crash are still arriving, boosting supply as the cruise lines try to rebuild prices. Fourteen new ships were launched in 2009, boosting capacity by more than 20,000 berths.

"It probably means that we will expand our capacity at a little bit slower rate than we have historically," Mr Cahill said.

Carnival Corp., which averaged five to six new ships a year among its 11 lines for 2008 to 2010, expects to add only two to three a year for the next two years.

"Further new builds are going to continue and I think that's very important because new builds are where the new ideas in the industry come out, but they're going to be at a more measured pace," remarked Mr Cahill.

In the meantime, the CEOs said, look for older ships to be refurbished to better compete with newer ships that come decked out with amusements such as baseball batting cages, ice skating rinks, zip lines, bowling alleys and high-end spas.

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