The Homa Files

Takeaway: Recent passenger counts demonstrate that consumers are setting sail during the economic recovery. Though the cruise industry is rebounding nicely, it has been able to attract passengers through discount programs enabled by lower labor and fuel costs.

In the coming months, many cruise lines plan to test higher prices. Given the competitiveness of the travel and entertainment category, many marketers may be anxious to learn whether this pricing strategy sinks or swims.
 
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Excerpt from Wall Street Journal, “Can Cruise Industry Catch Pricing Wave” by Kelly Evans, March 23, 2010.

If any industry should have been a relic of the boom, cruise lines, with their tricked-out “floating malls” catering to the whims and indulgences of consumers, were a likely contender.

Yet after a difficult 18 months, the industry is seeing a fairly impressive rebound in demand, a telling sign of the mind-set of U.S. consumers. That is bolstering the top line for operators like Carnival, which analysts expect Tuesday to report that revenue for the three-month period ending in February rose to $3.1 billion, up 8% from a year earlier.

Now comes the hard part, regaining some pricing power. Carnival announced across-the-board price rises of about 5% that took effect Monday. Norwegian said it will raise fares as much as 7% beginning April 2.

Whether these increases stick will speak volumes about how willing consumers are to spend in the absence of deep discounts. It also will show if the cruise industry has found clear sailing, after battling its way through the ravages of the recession.

Carnival, the world’s largest operator with some 82 ships and 10 different brands, is one of several lines that reported record bookings during the winter, historically the busiest time of year for the industry.

While cruise lines have discounted to lure passengers, sharply lower fuel and labor costs have dulled some of the pain. As those costs begin to rebound, and a strengthening U.S. dollar hurts competitiveness, operators like Carnival will become more dependent on higher prices to prop up margins.

And even if consumers are looking more resilient, many still are value-driven and so may be turned off by higher fares.

If that turns out to be the case, Carnival’s stock, which has doubled over the past 16 months, could face rough sailing.

Edit by BHC
 
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Full Article:
http://online.wsj.com/article/SB10001424052748704841304575138161384844590.html?mod=WSJ_hps_MIDDLESecondNews

This entry was posted on March 24, 2010 at 7:41 am and is filed under Mktg - Pricing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.