Amid Escalating Challenges, Cruise Lines Have Great Expectations

The cruise lines just can´t seem to get a break in the bad-news department. Royal Caribbean top executive Adam Goldstein took to the airwaves to defend Royal Caribbean´s actions following the disappearance of Connecticut honeymooner George Smith.

The industry also was the focus of congressional hearings on cruise ship safety. A pirate attack on a Seabourn vessel raised concerns about terrorism at sea.

A recent fire aboard a Princess cruise killed one passenger and injured several others. And 12 passengers on a Celebrity ship died during an independent shore excursion in Chile.

Over the past 12 months, the cruise industry seems to have sailed straight into the perfect market storm: the most devastating hurricane season in modern times, soaring fuel costs, uncertain consumer confidence, a softening in demand for its bread-and-butter Caribbean products and a string of misfortunes ranging from missing passengers to a deadly fire and a pirate attack.

Yet, what was sometimes lost in all this bad news was the fact that despite the setbacks, the major cruise lines made a profit and continued to invest in bigger, fancier ships that will guarantee expanded inventory well into the next decade.

Royal Caribbean Cruise Lines´ first-quarter earnings report offered a welcome shot in the arm. Despite a 37 percent drop in quarterly net earnings, RCCL beat its own and analysts´ expectations in the first quarter.

However, the 2006 Wave season, the industry´s high period of cruise bookings, has been described as weaker than in years past. Jack Mannix, President and CEO of Ensemble, said that this is true even though some consortia, like his, will enjoy record sales years.

Perhaps the biggest overall threat is the cost of fuel, a theme analysts have focused on in their recent estimates.

The average cost of unleaded gas edged over $3 per gallon in the U.S. the same week that Royal Caribbean held its conference call. Crude oil traded above $73 a barrel last week, 45 percent higher than a year earlier.