Costa Concordia disaster may affect cruise industry

Costa Concordia

Costa Concordia in 2009

There are many unanswered questions surrounding the recent cruise ship accident off Italy’s Tuscan coast. The Costa Concordia, owned by Miami-based Carnival Corporation, capsized after allegedly going off course and getting too close to the rocky shore. The Costa Concordia carried about 4,200 passengers and crew members. As of January 19, 2011, 11 people were announced dead and 22 more were still missing. The incident will be investigated, likely answering many questions regarding the circumstances of the disaster.

What may take some time to answer is how the fatal accident will affect the cruise industry, which is already vulnerable to the shaky economy. The shipwreck occurred at the start of the “wave season,” the peak cruise booking season for the industry. There is some speculation that the accident could be off-putting to consumers. Weaker demand for cruises could force the industry to slash prices, cutting into quarterly “wave” profits and perhaps derailing sales for all of 2012. Then again, if prices go low enough, consumers may get over their fears rather quickly and the industry may be able to avoid a significant dip in profits.

Some predict rival cruise lines such as Royal Caribbean and Norwegian Cruise Line could be impacted, but Carnival Corporation will no doubt bear the brunt of the disaster’s effects. Carnival is the world’s #1 cruise operator and offers excursions worldwide. Costa is one of Carnival’s popular European brands. It could be that the accident’s impact on consumer demand is largely isolated to European travelers, but even this scenario is damaging for Carnival. Europe accounted for nearly 40 percent of the company’s $14.5 billion in sales in 2010.

Some financial analysts are already adjusting their revenue predictions for the company. According to The Chicago Tribune, an analyst from Barclays Capital lowered Carnival’s 2012 earnings estimate by 29 percent. Another analyst, from Nomura, was not quite as pessimistic, reporting an 8 percent lower 2012 earnings estimate to The Chicago Tribune.

Carnival said the capsizing of the Costa Concordia could initially cost the company about $90 million in lost revenue for the rest of 2012. The Concordia, which first launched in 2006, is one of Costa’s newer ships. However, the company knows it has more to worry about long-term than a damaged ship or lower passenger revenue. Carnival expects to pay about $30 million in insurance deductibles for the Concordia and about $10 million in personal injury and property claims and cleanup costs, according to The New York Times.

The Concordia was insured for $500 million. Total insured losses could be between $500 million and $1 billion, making the Costa Concordia disaster the biggest loss in marine history, according to analysts. However, until the environmental impact can be assessed and liability claims are filed for those injured or killed in the accident, the total cost to the marine insurance industry, Carnival Corporation, and the cruise industry are anybody’s guess.

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Photo by Cyril F., used under a Creative Commons license.

 

Rebecca Mallett

Rebecca Mallett has been researching and writing about companies, industries, and executives as a member of the Hoover’s editorial team since 2007. For the past 5 years, she has focused on the agriculture and food manufacturing, business services, and mining and energy industries as a member of the First Research team. Follow her on Twitter.

Read more articles by Rebecca Mallett.

Comments

  1. Catherine Colbert Catherine Colbert says:

    Becca — You helped to answer HOW this disaster will impact Carnival and the cruise industry. From covering the company and other big liners, I know that Carnival is counting on Europe, as well as Australia, New Zealand, Asia, and South America, for growth. It believes these markets are relatively untapped. It has been offsetting slow sales in the US with growth in Europe.

    It’s possible that as a result of this tragic disaster behemoth Carnival will be placed on more of a level playing field with rival Royal Caribbean. And Carnival was already in the process of building fewer ships than in previous years. It’s expected that it will slow its development pace even more as it works to clean up this mess.

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