Carnival suffers after two Costa disasters

In answer to the question my colleague Nikki Sein posed, “Can things get worse for the cruise ship industry?” If Costa Cruises’ most recent debacle  is any indication, the answer is yes.

The company’s cruise ship Costa Allegra suffered an engine room fire and lost power in the Indian ocean, in a part of the world plagued by pirate attacks. The cruise ship was safely towed to the Seychelles, but Costa itself has landed in stormy seas. The Costa Allegra mishap came only a month after the foundering and sinking of the Costa Concordia off the coast of Italy, in which more than 30 people were lost.

Costa Cruises is owned by Carnival, the largest cruise ship operator in the world. Carnival has already tallied some of the losses involved in the Costa Concordia sinking. In the company’s most recent 10k filing it said,

Following the tragic accident, we announced a comprehensive audit and review of all safety and emergency response procedures across all of our brands to identify lessons learned and best practices to further ensure the safety of all of our passengers and crew. Additionally, the Health, Environment, Safety & Security Committees of the Boards of Directors (“HESS Committees”) are engaging outside industry-leading experts in the fields of emergency response, organization, training and implementation to conduct an audit of all of our emergency response and safety procedures and to conduct a thorough review of the accident.

The  Concordia was insured for around $510 million, with a deductible of about $40 million for damage to the ship and third-party personal injury liability. If it can’t be salvaged and repaired, the company writes,

We self-insure for loss of use of the ship, which we expect to impact the 2012 full year net income by approximately $85 million to $95 million. Furthermore, we anticipate approximately $30 million to $40 million of other incident related costs.

This is only a portion of the costs of the disaster and doesn’t include the lawsuits and loss of business that have occurred since. The fallout from the Costa Allegra will also have financial consequences, though not as drastic as those from the Costa Concordia. However, the impact on the industry as a whole will likely be deep. Although my fellow authors Rachel Gallo and Rebecca Mallet have noted that the Concordia accident may not deter seasoned cruise vacationers, these two accidents taken together might put a damper on the industry. Vacationers have a choice where to spend their discretionary income, and they may be thinking, “anything but water.”

In a few months Carnival will come out with its quarterly report that will have more up-to-date data from its disastrous winter cruise season. It will be interesting to see how it steers its craft past these treacherous shoals and safely through even more dangerous financial waters.

Patrice Sarath

Patrice Sarath is a writer and editor for First Research, covering the health care, insurance, and construction industries.

Read more articles by Patrice Sarath.

Comments

  1. Nikki Sein Nikki Sein says:

    Nice article, Patrice. This incident could also bring into question large cruise lines’ practice of continuing to journey through the waters east of Africa, which have been infested by Somali pirates for years.

  2. I’ve read that there has not been a pirate attack on a cruise ship, but it seems to me that as the pirates get bolder (and they continue to get financial backing as it appears they do) it’s just a matter of time. So yes, I agree — what are the cruise lines thinking?

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