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Cruise lines rebounding in bad economy

Visitors still tight with a buck, but businesses hope for more ships

Posted: August 13, 2011 - 11:08pm
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Passengers aboard the Holland America cruise ship Volendam watch from the railings as their ship pulls into Juneau's harbor on Friday.   Michael Penn / Juneau Empire
Michael Penn / Juneau Empire
Passengers aboard the Holland America cruise ship Volendam watch from the railings as their ship pulls into Juneau's harbor on Friday.

More cruise lines are reporting rebounding profits for their crucial summer cruise season following the early summer report of industry leader Carnival Corp.

The increased profits have one analyst using the term “spectacular” to describe them, though profits are not growing equally in all areas. And one of those areas might indicate trouble for Juneau’s cruise-dependent businesses.

The state’s second- and third-largest cruise lines, Royal Caribbean and Norwegian, report earnings later in the year than does Carnival, but include more information from the profitable Alaska cruise season.

Royal Caribbean Cruises Ltd. saw profits rise 72 percent for the quarter ended June 30, compared to the same quarter in 2010. The company said the key reasons were stronger demand for tickets, with earlier bookings enabling the company to avoid the discounting of the last few years.

It had revenues of $1.77 billion for the quarter, with an operating profit of $168 million.

Rising ticket prices help out companies

Royal Caribbean Chairman and CEO Richard Fain said he was now expecting this year to be “one of the best years in our history.”

The state’s third largest cruise company, NCL Corp., parent of Norwegian Cruise Lines, saw a 36 percent increase in operating income, to $76 million, on revenues of $587 million. Norwegian has often lagged its more successful competitors, but its profit last quarter was even more impressive because it followed a loss for the same quarter last year.

Those two companies’ results follow similar strong results from Carnival earlier.

Cruise industry analyst Assia Georgieva of Infinity Research called Royal Caribbean’s results “spectacular,” and credited the strong numbers company-wide to its Alaskan and Caribbean operations.

The companies don’t provide specific numbers for Alaska.

Royal Caribbean executive Adam Goldstein said the strong performance in those two markets helped balance out the eastern Mediterranean, where political turmoil and fighting was hurting business.

Goldstein said the company’s “yields,” its profits per berth, were up about 9 percent in the Caribbean and in double digits in Alaska and northern Europe.

“The Baltic and Alaska are the clear stars this year,” he said.

That’s expected to continue through the summer, Goldstein said.

Goldstein said what’s particularly noteworthy about Royal Caribbean’s results is that the company did so well during a time of economic and political turmoil.

“When I step back and think about the economic mess we’re all reading about every day, and then I look at our yield performance in the bulk of our markets like the Caribbean, Alaska and Northern Europe, et cetera, I get very excited,” he said.

The company is planning further fleet additions and enhancements to continue to capitalize on that, he said.

Norwegian representatives declined comment, but in Securities and Exchange Commission filings attributed the company’s better performance during the quarter to the addition of a new ship, which helped hold costs down with economies of scale, as well as rising ticket prices.

It is the third largest player in the Alaska cruise business.

One area in which each company saw little or no improvement, however, was in the “onboard and other” revenue segment. Each company saw revenues up only slightly, which given fleet increases meant passenger spending on extras such as alcohol and tours was generally stagnant or even down.

Juneau’s business owners say they’ve been sensing that as well.

The number of people visiting Juneau on the ships is relatively unchanged, and even if they’ve been paying more for their tickets they haven’t been spending more in port, some are saying.

“People are conservative and cautious and it’s making for a very tough, incredibly tough year,” said Tanja Cadigan, owner of Caribou Crossings near the cruise ship docks.

Visitors limiting extra spending

“People are taking vacations, but they’re not spending while they’re on vacation,” she said.

Last year was tough, following the loss of about 140,000 passengers, down from about 1 million at the peak, and this year’s sales are about the same, she and others said.

“You see a lot of people in town, but I don’t get the feeling that they’re spending as much as they could,” said Temsco Helicopters’ Tim McDonnell.

Over the last few years of economic decline the helicopter tours has a noticeable decline in pre-sales aboard ship, but this year’s good weather has helped boost sales a bit compared to last year.

“I can make the sale, but if I don’t fly, it doesn’t matter,” McDonnell said.

Cycle Alaska’s bike tours keep going rain or shine, and owner John McConnochie said that given the economy and continued low level of cruise ship visitors he’s happy with the results so far this year.

“It’s okay, it’s not something you’d dance around the table about,” he said.

It was the first year of the cruise ship decline that was really painful, he said.

“It hit us hard, very hard. Imagine if we lost 14 percent of state government – every retailer in town would be hit,” he said.

That’s what the last few years have been like for those in the cruise industry, he said, and this year is only slightly better

The business owners say what Juneau really needs, and what the better ticket prices may portend, are more ship visits, back up to 2008 levels.

Cadigan said the city tourist infrastructure, from shop square footage to tour companies, is built around 1 million cruise passengers.

If the visitors who do come aren’t spending much, that’s not going to help, she said.

“Alaska has been insulated from this economic, squeeze, we really have, but the tourists who are coming up here are coming from the Lower 48 where things are sparse,” she said.

• Contact reporter Pat Forgey at 523-2250 or patrick.forgey@juneauempire.com.

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