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Thank you for your post. You raise many interesting issues. It would take me a while to respond adequately to all your points, so I will just concentrate now on the overbuilding issue.
If you will check on the messages being posted here in the spring of 2000, you will see all the negative people harping about how "over capacity" is going to kill cruising. In their minds, even in the minds of many professional analysts, there was no way Carnival was going to fill all the ships it had ordered. Those people were proven wrong, and not just a little wrong. There is not a one of them that could claim they were anything other than 100% dead wrong. Carnival filled--and is filling all its ships--what is more, they are being filled at prices at or very near historical highs. I must admit that even my optimism was tinged with some skepticism at that time, probably a result of reading all the press warnings. I remained, however, heavily invested on the long side throughout the period.
Now, Carnival was undertaking this very heavy buiding program against a very unpromising backdrop. In 2001, the economy was weakening. We had Sept. 11. Corporate scandals were rocking the stock market. SARS was in all the international headlines. No one could be blamed for imagining ships sitting idle at the dock with thousands of empty cabins and staff with nothing to do. But it never happened. Occupancy still topped 100% in the worst year. Prices were weak for about a year and a half. Then they started rising and have not stopped as of this writing. That is what I mean by the naysayers being completely wrong.
Okay, that was then and this is now, you might say. What worked in the past might not work today. After all, the available capacity is much larger than it was at the turn of the century. You must note, however, that capacity isn't growing as quickly as it was then. Annual increases of 15% were the norm then, versus mid-single digits now. The program then was aggressive. Today's building is much more restrained. Add to that the fact that the economic backdrop is relatively benign.
You are correct to point out that overbuilding has been a problem in many industries, semi-conductors, hotels, airlines, are just some examples. However, in all the cases that I can think of, the industries were fragmented, composed of many players, with new entrants coming along willy-nilly all the time.
Now, look at cruising. The whole industry is essentially controlled by two players--with Carnival the very dominant player. In most industries with overcapacity, you fear to reign in your building because your competitors are not doing the same and will thus grab market share. Carnival has no such worry. Compeititors will always be constrained by lack of ships--that's right lack of ships--from grabbing market share. Ships take years to order and years more to build. By the time they arrive, the window of opportunity to grab share has almost certainly slammed shut.
In most industries with falling prices, the weaker players slash prices, hoping to hang on until better times and dragging the bigger boys with them. We saw that happen after Sept 11 as Norwegian and then RCL stooped to insanely low pricing for several months in 2002. Carnival's own pricing dipped for a time, but then recovered.
Thanks everybody for contributing to a great post.
Carnival as a company, I can't say enough good things about them. The one thing I noticed is that the entire staff seemed like they cared about what they were doing. I think the ships are very well run, the organization is also very well run.
Starting next year if you leave for Mexico and wish to come back, you will need a passport. I think this may be true of the Caribbean and other non-US destinations. This will have some effect on the ease of cruising. It's a Department of Homeland Security mandate. It also makes it harder to leave the US and bolsters the notion of keeping your vacation money here in the states. I'm sure this won't effect the retired segment as most of them probably have Passports, but the younger folks... I don't know.
My concern about the cost of oil is minimal for what it costs to run a ship as far as the pure oil consumption is concerned. I'm more concerned about food costs. The cost of energy is perhaps minimal to their food costs. Food and labor. Carnival has picked up a lot of labor from Asia, Europe and former Soviet block countries. The problem is, I don't think they can do much more than they have to cut labor without cutting staff and service. A rise in food cost would mean a very definite cut into the bottom line of operations, unless they did some radical changes to cut their food costs. How they can do this without affecting the cruise experience would be a neat trick. Food is very much an essential aspect of the experience.
There is no doubt that Carnival has the upper hand in the cruise industry. And as the baby boomers retire and want to spend their golden years on a ship floating around I can see how this would be profitable.
As the cost of energy goes up, the discretionary income of the average American goes down. If there isn't any money left over for vacations, it doesn't matter how much or little they charge, if you don't have the money, you aren't going. One thing that is kinda neat about the cruise industry that I haven't thought of is that the boats are moveable. If the Asain markets do better in a major world recession for example, it's easy to set up routes in Asia and cater to that market. Casinos in Vegas just can't quite do this.
The one other thing that is kinda neat about Carnival is that they build up portfolios on people. When I left the cruise I was presented with one master bill. I spent about $600 on the cruise, not much. If it was more like $6000 I'm sure that I would be getting all kinds of phone calls from booking agents from Carnival in the future offering me great future deals on cruise, discounts on airfare, etc. That's the beauty of an all inclusive place that you can't leave, they can profile the passengers spending habits. Carnival can cut deals, but most likely they will want to cut deals to the big spenders first. This is probably how they can avoid recessions and empty ships.
If times get rough in the cruising industry I really can see Carnival being able to sell off a few older ships to keep their cash flow going to ride out any storm. Carnival can ride out many storms. Baring a major terrorist attack, depression, or pandemic outbreak I can see it's a fairly good bet. Thanks for helping me come to these realizations.
Wow , sane comments regards cruising .... I am heading up a group of 81 passengers . We will be sailing soon on one of the spirits sister ships ... Interesting to note that most of the group has been on many cruises . Everyone is excited... Like las vegas ,people like new . Many cruisers book the new ships , many are loyal to certain lines , many go for the ports, and /or the food . Some don't even leave the ships... There are numerous reasons that people cruise , and , aprox 70 % of vacationers have never been on a cruise . We are already planing alaska in 2007 ...i, am a very happy cruiser and a happy carnival stock owner . 2008 will see europe ..a very affordable way to go...