Cruise industry will sail again

Jan 19, 2012

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Almost a week after the Costa Concordia cruise liner capsized just off the coast of Italy, the death toll has climbed above ten and more than 20 people remain missing. The London-listed shares in Carnival, the ship’s owner, slumped by more than 15%, wiping £1bn off its market value. Carnival’s brands include P&O and Princess Cruises. It accounts for almost half of the cruise market.

What the commentators said

This “could not have come at a worse time” for Carnival, said Alistair Osborne in The Daily Telegraph. This is peak booking season for trips in the summer, while “legal action could be long and nasty”. There is also the threat of new and expensive safety regulations “after such a chaotic evacuation”.

Even before this incident, the outlook wasn’t encouraging. Europeans comprise 40% of Carnival’s passengers and the crisis is hitting demand. Morgan Stanley has wiped 30% off this year’s earnings estimate for the group.

But the long-term impact on the industry is likely to be “marginal”, reckoned Wyn Ellis of Numis. Accidents happen more frequently in the rail and aviation industries, but this doesn’t stop people using them. The sector is on a steep upward trajectory.

Increasingly, large ships – many now basically floating resorts – have allowed operators to cut prices and make cruises more accessible. As the customer base “has both broadened and expanded”, passenger numbers have rocketed from 500,000 in the 1970s to 19 million in 2010, said Jorn Madslien on BBC.co.uk. The industry is “like a massive ship at sea. It may slow down from time to time, but it takes a lot to bring it to a standstill.”

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