CRUISE LINES FILL NEW BERTHS
THE OLD-FASHIONED WAY

For years now, cruising has seemed to defy conventional shipping economics. The supply of passengers has always seemed to increase to meet the available capacity supplied by the cruise lines.
Ironically, the “if you build it, they will come” approach now faces its toughest challenge ever. With a recession under way and the events of Sept. 11 still fresh in the memory, more ships are slated to enter service in 2002 than in any other single year in the history of the cruise industry, according to CLIA (the Cruise Lines International Association). Sixteen ships, with capacities ranging from 49 to 2,600 guests, will join the CLIA fleet this year.

Too many berths to fill in these tough times? Probably not. Though cruising has taken a pounding following the attacks on the World Trade Center, signs are that a bounce back to the boom days could be closer than seemed likely only a few short weeks ago.

For one thing, new cruise ships are being ordered once again. Kvaerner last month signed a Memorandum of Understanding with the health resort company Canyon Ranch, Tucson, Ariz., to build two luxury spa/health resort cruise ships, for a total value of EUR 450 million. The two passenger vessels, each of about 37,000 gross tons, are to be built by Kvaerner Masa-Yards in Finland, and are due for delivery in 2004 and 2005, respectively.

A final contract is subject to the satisfactory completion of certain conditions, including financing by Canyon Ranch. What’s interesting in this regard is that Crescent Real Estate Equities Co. owns 30% of Canyon Ranch’s management company, CR License LLC, which develops and manages new Canyon Ranch properties globally, including Canyon Ranch SpaClub and Canyon Ranch at Sea, a division formed in 2000 to operate a line of luxury spa cruise vessels. At that time, agreements were signed with Societa Esercizio Cantieri shipyard in Viareggio, Italy, for construction of the first two vessels, Quest I and Quest II.

These plans called for two 25,000 grt ships. Each was to carry only 320 guests in 180 cabins. The ships to be built at Masa-Yards will be significantly larger at 37,000 grt each.
Most lines, though, are currently more concerned with selling the capacity they already have than with going back on the newbuilding trail.

RESERVATIONS RECORDS BROKEN
One pointer to better times ahead is that on Jan. 14, Carnival Cruise Lines set a single day reservations record, booking 28,061 individual guests. The new one-day reservations record eclipses the previous record set Jan. 22, 2001, when the company booked 27,389 individual guests.

“We saw indicators last week that we were moving into a solid booking wave and the reservations activity so far this week further supports that view,” says Bob Dickinson, Carnival president. “The heightened reservations volume we’re experiencing at this time is encouraging.”

The January “wave period” is traditionally the cruise lines’ busiest booking period. It’s as significant to cruising as the pre-Christmas period is to retailers.

As the wave rolled on, Carnival Cruise Lines has twice set new one-week reservations records. Jan. 7-13, 2002 the cruise line booked 140,392 individual guests, surpassing the previous one-week record set Jan. 22-28, 2001 when 133,555 guests booked Carnival cruises.

A new record was again established Jan. 14-20, when the company booked 144,342 people.
“We are particularly encouraged that some of the booking activity we’re seeing is for sailing dates well into the latter part of the year,” states Dickinson.

The good news is not coming from Carnival alone. Early last month, Royal Caribbean provided a “pre-wave” business update to analysts and investors. It noted that prior to Sept. 11, its booked ticket revenue for the first quarter of 2002 had been running 33% ahead of the equivalent bookings for the first quarter of 2001. Following Sept. 11, there was a substantial drop in bookings and an increase in cancellations. After the initial trauma, bookings gradually improved, prompted initially by substantial discounts. Starting in mid-November, pricing began to recover, says Royal Caribbean, and discounts have been falling.

New bookings over the last 10 weeks of 2001 were up 46% over the prior year and cancellations had returned to normal levels, says Royal Caribbean. Booking patterns, which shifted to closer-in sailing dates following Sept. 11, were also beginning to return to pre-Sept. 11 patterns.

Royal Caribbean also disclose that year-end weekly data shows booking volumes for the first quarter sailings running 33% ahead last year, with discount levels on new bookings about 7% higher.
As of Dec. 28, 2001, load factors were lower by 3, 8, 3 and 2 percentage points for the next four quarters, respectively, when compared to the prior year.

Royal Caribbean’s capacity is increasing 23.3% for the first quarter of 2002 and 15.3% for the full year.
Based upon recent booking trends, management estimates that net yields for the first quarter of 2002 will be down 10 to 15% from 2001 and improve in each quarter thereafter.

Chairman & CEO Richard Fain terms the ongoing recovery in booking trends “especially encouraging when coupled with the steady drop in discounting levels over the last two months.”

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