Swine Flu Likely A Temporary Concern For Cruise Lines
April 29 2009 - 4:48PM
Dow Jones News
The swine flu outbreak has prompted cruise line companies
Carnival Corp. (CCL) and Royal Caribbean Cruises Ltd. (RCL) to
alter routes, a small disruption now that could hurt earnings
should conditions get worse.
For their part, both companies said it's too early to assess the
impact on demand, although Royal Caribbean noted it hasn't seen an
increase in cancellations.
Both companies have temporarily suspended visits to Mexican
ports for some brands as a precautionary measure. These ports
represent about 17% of each company's 2009 itineraries, according
to UBS.
Of course, the outbreak's ultimate impact depends on how much
the swine flu spreads. The disruption is just the latest setback
for an industry already forced to discount trips to lure
increasingly cost-conscious consumers.
"It's not helpful, but it's not cataclysmic," Susquehanna
Financial Group analyst Robert LaFleur said.
Since the end of last summer, and before Wednesday, Carnival
shares had fallen 36% and Royal Caribbean had lost 52%, each
outpacing the S&P 500. Monday both stocks fell by double-digit
percentages on swine-flu concerns. The shares rebounded Wednesday -
Royal Caribbean gained 12% to $14.01, while Carnival added 3.8% to
$26.53 - but remain lower for the week.
Mexican destinations represent about 17% of each company's 2009
deployments, UBS said, but that number goes down to 5% to 6% when
easily reroutable cruises stopping at East Coast ports are taken
out.
The concern is that the outbreak could reduce the number of
passengers or force the cruise companies to lower ticket prices
further. Either way, that could hurt passenger yields, a measure of
ticket prices and onboard spending.
UBS estimates that it would take a 20% reduction in full-year
passenger yields for the 5%-6% of the Mexican itineraries affected
to impact company-wide yields on an annual basis by about 1%.
Cruise lines do have an advantage over other types of travel
companies because they operate moveable and flexible assets.
Similar to when a hurricane strikes, cruise lines are able to shift
their itineraries to suit changing needs.
In the case of swine flu, ships previously scheduled to visit
Mexico will go to another location, or in some instances, spend an
extra day at sea, both companies said.
-By Kelly Nolan; Dow Jones Newswires; 201-938-4049;
kelly.nolan@dowjones.com