A Crisis for Crusing?

March 29, 2006

Ship fires, stomach viruses, husbands overboard and high fuel costs. Can the high-flying cruise industry survive recent setbacks and return to the high seas and mega profits? Here are my comments from Monday’s CNBC interview on Squawk Box.

  1. With the raft of recent negative PR stories how should the industry and its two major players Carnival and Royal Caribbean respond?

The best thing for any strong brand to do when faced with these media stories is nothing. No advertising, no promotion. The best way to solve a PR crisis is give people time to forget about it. Running advertising saying our ships are clean and we put out all cigarettes will not help people feel safer about cruising. It will only reinforce the negative ideas in the mind.

When the reader sees an ad like that, he or she thinks Carnival must really be worried, and there must really be a problem if they are paying millions of dollars on advertising trying to convince me otherwise.

Almost every major airline company in the world has faced crashes and deaths. But we continue to fly on airplanes. Because over time people forget. They don’t want to remember. They want to fly, do business, see family and take vacations. The same is true of cruising.

  1. There seem to be several stories very year about illnesses on ships, why don’t they or can’t they stop it?

Just like airlines, cruise ships are self-contained systems where thousands of people are in very close quarters. As a result, disease can spread very quickly.

The cause of the problem is not the ships but the people themselves. The viruses are spread by people not washing there hands after using the bathroom. So it is not a cruise problem, but a people problem. “Super Sanitations” by the ships help, but only people can stop future outbreaks.

Because the ships are so large, the illness outbreaks attract media attention. 10 people in 100 hotels get sick in Mexico no one cares.

Tragedies will continue to strike all of the major brands and there is no way to avoid future problems. The best they can do is take good care of the people affected and being open and forthcoming with information. Freebies always help too.

  1. Has the cruise business really been hurt in recent years by the bad PR?

The cruise business has been booming. It is a highly attractive way to travel, plus all the food you can eat really appeals to the US consumer, 75% of the market in 2004.

Carnival is the world leader with 12 lines, 80 ships and 6.8 million passengers. They have had 1-year net income growth at 21.7%. Sales $8.7 billion. They are growing like mad, in 2003 they acquired UK-based rival P&O Princess. Placed orders for 15 additional ships. And a new $470 million ocean liners, Queen Victoria.

85% of Americans have never taken a cruise, so the market huge potential for growth.

  1. Which company is in a better position Carnival or Royal Caribbean?

Carnival by far is the world leader at almost twice the size of Royal Caribbean. Carnival has also followed a much more focused brand strategy. They have 12 different lines focused on different market segments.

Carnival: competitively priced cruises to popular destinations in the Caribbean, Alaska for families and retirees. (P&O does the same in Europe)

Holland America: Scenic getaways in New England, Canada, Pacific Coast.

Windstar, Seabourn: luxury, exotic.

Cunard: large luxury cruise ships, Queen Mary.

Royal Caribbean just has the namesake and Celebrity Cruises.

Carnival is in a much better brand position. Royal Caribbean needs more differentiated brands to compete. In order to beat a leader you need to narrow the focus not be all things for everyone with one (or two) brands.

New brands like Disney and Easy Group are also expanding their offerings. You will see cruise brands for all different kinds of passengers and all different sizes. (The boats, not the people. With the food they serve all cruisers are likely to get large.)

Tune in on Thursday morning to Squawk Box on CNBC at 7:20 when I’ll be discussing the latest PR crisis facing Ambien.