But the industry’s response to the attacks went well beyond boosting security measures. Cruises were soon available at more “drive-up” domestic ports–from Galveston, Texas, to Portland, Maine–so travelers who wanted to avoid flying could drive directly to the cruise ship. Cruise-line operators also began offering deep discounts while maintaining–or even increasing–their commissions to travel agents who booked passengers onto their lines.
The work paid off. Record numbers of Americans booked cruises during the past year and cruise companies are reporting strong earnings, in spite of the sluggish U.S. economy and lingering concerns over terrorist attacks. “This is a very resilient industry,” says Tim Conder, an analyst with A.G. Edwards.
But the cruise ships now face a whole new threat. Some of the top cruise lines–including Carnival, Royal Caribbean and Disney–have come under attack by an insidious and invisible enemy: a highly contagious gastrointestinal virus that has now infected more than 1,200 passengers and forced the cancellation of at least two U.S. cruises. Though the number infected represents a tiny fraction of the more than 7 million North American passengers expected to take a cruise this year, the effects of the outbreak may be more profound.
The sight of sickly, stomach-clutching passengers stumbling off a ship is not an image the cruise lines want to broadcast–particularly right before peak cruising season, which runs from mid-December through early spring. Already, there have been dozens of passenger cancellations, refunded tickets and at least one class-action lawsuit.
Still, despite the media attention the outbreak has received, cruise-ship operators insist that their overall bookings have hardly been affected so far by the onboard outbreaks of the stomach virus. Most of the affected passengers appear to be have contracted a Norwalk-like virus, a contagious food-borne virus that causes vomiting, diarrhea and abdominal cramps. But according to the Center of Disease Control (CDC), about 23 million cases of the virus are reported each year–the vast majority of them not occurring on cruise ships, as the cruise companies have consistently stressed.
“Having outbreaks of gastrointestinal illness is not unusual. What is unusual is the high numbers in a relatively short period of time [on the ships],” says CDC spokesperson Bernadette Burden. “But the cruise lines are pretty good at following the standards set by the CDC.” As the cruise operators were quick to point out, all the ships that reported incidents of the stomach ailment had passed CDC vessel inspections. (Though the Royal Caribbean’s Monarch of the Seas, which recently reported 100 cases of a gastrointestinal illness during a recent seven-day cruise, scored only an 87 on its inspection last month–just 2 points above a failing grade. Some of its deductions were related to dirty food utensils, food handling and storage.)
Burden says there is no reason to believe that the recent outbreaks are the result of any deficiencies on the ships’ part. In fact, she says, most have gone “above the norm” in their response, with some even canceling cruises to do more thorough disinfections of the affected ships.
The cruise companies have also been quick to offer credits, discounts and other incentives to keep passengers happy. But even when given the option of a full refund, free airfare home and a coupon good for future travel, as in the case of the Carnival cruise ship Fascination–which set sail again on Monday night after returning from its last voyage with more than 200 sick passengers and crew members–few have cancelled their cruise. Only 45 cabin bookings were cancelled (about 4 percent of the ship’s cabins) on the Fascination’s current cruise to the Florida Keys and Mexico, said a Carnival Cruise Lines spokeswoman.
Carnival Corp., which owns Carnival Cruise Lines, Holland America and four other cruise lines operating a total of 44 ships, has been struck by a spate of bad luck lately that goes beyond stomach ailments. More than 500 people contracted the stomach virus on four separate cruises on the Holland America ship Amsterdam, resulting in the cancellation of one cruise as well as a class-action lawsuit, which seeks restitution for both sick passengers and for those who cared for them. Lawyer Jesse Norton of the firm Norton & Melnick in Encino, Calif., which filed the suit last week, alleges that Holland America (and parent company Carnival) failed to take “adequate precautions to avoid the outbreak.”
Carnival may have also lost one of its sail ships, Windstar Lines’ Wind Song, which caught fire last weekend and suffered significant damage during a cruise to Tahiti. Though the 219 passengers and crew members were safely evacuated, seven Tahiti cruises were cancelled. Carnival is offering booked passengers refunds or rebookings onto other Carnival cruises, plus a discount on future cruises. Meanwhile, another Carnival-owned ship, the Holiday, ran aground in Mexico last week. While it was eventually pulled back out to sea, Carnival had to charter flights for the 1,700 passengers to return to the port in New Orleans, and passengers on the next scheduled cruise were offered a full refund and significant discounts on future cruises because of the delays.
Still, despite the losses from the cruise cancellations and ship replacements, and the cost of offering deep discounts and refunds, UBS Warburg analyst Robin Farley says the impact on Carnival’s bottom line will likely be less than a penny per share in earnings this quarter. Wall Street analysts are still projecting Carnival’s earnings for the fourth quarter will be about 30 cents a share–a 50 percent increase from the same period a year ago, according to First Call. And analysts expect the second-largest cruise ship company, Royal Caribbean, to post earnings of 2 cents a share this quarter–a significant improvement from the company’s loss of 17 cents a share in the fourth quarter of 2001.
Investors seem as unfazed by the stomach-virus outbreak as passengers have been. Carnival’s stock has increased about 12.5 percent in the past two months, and Royal Caribbean’s stock price has climbed more than 25 percent. And passengers continue to book. “I think people recognize this virus is not a cruise-ship issue but merely a reflection of a virus going around. You see us being very aggressive about it because our future depends on it,” says Michael Crye, president of the International Council of Cruise Lines, a nonprofit trade group that represents 16 of the largest cruise lines (more than 90 percent of the North American market).
Conder, the A.G. Edwards analyst, says the industry has rebounded from much worse. A decade ago, in the midst of the Persian Gulf War and an economic recession, the number of cruise bookings actually increased more than normal. The number of North Americans taking cruises jumped 11.1 percent in 1991 and has grown about 8.4 percent annually since. A record 7.4 million people in the United States, Canada and Mexico are still expected to take a cruise this year, according to the International Council of Cruise Lines. “So far, this [outbreak] seems to be more of a short-term phenomenon than a long-term issue,” says Conder. “People still see cruises as a value-based proposition.”
At least for now. On Thursday, just as Disney was nearly done disinfecting its Magic ship in preparation for a weekend cruise, British-based P&O Cruises reported that 117 passengers had come down with a similar stomach virus on its new cruise ship, Oceana. Americans’ appetite for cruise vacations has so far remained healthy, even if some of the passengers have not. But major new cases of cruise-sickness could change this industry’s outlook, fast.
