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Fuel Cost implications for Cruise pricing.

In a recent interview with Colin Veitch (NCL's President & CEO - Cruiseweek asked him "What do you see as the impact of fuel costs on the cruise business in the next year?.
Veitch's reply was "Significantly higher cost than has been historically, and it's difficult to pass it through. Nobody has added a fuel price supplement--yet--but it may come because with oil at $83 a barrel now, it's very difficult to cope with that. It is the one cost element that's moving significantly. All other costs are very much under control". 

Worldwide has been seeing signs of frustration with the rising cost of fuel amongst a number of cruise lines. The big two (Carnival & RCI) have mentioned this as the reason their profits are not higher and how this is impacting their share price.

We in our capacity as brokers have had to negotiate fuel surcharges added to standard charter contracts on several charters we have contracted for different clients.  There is no question that  the problem is out there and being massaged by the cruise lines to try and ease the pain of the seemingly ever increasing cost of a barrel of oil.

Almost without exception the bigger ships run on "heavy oil" this is basically an unrefined product which when heated on-board become viscous enough to be used as fuel to power marine diesel engines. The cost of this does not fluctuate in the same way as diesel or gasoline does as it is not so effected by the refineries supply and the demand for refined fuel from other sources (home heating, trucking and automobiles). Several of the cruise lines and indeed the airlines as well have been speculation in buying forward contracts thereby locking in their fuel cost to a figure they know sometime in advance thereby allowing them to set a cruise price which reflects a set of operating costs and a profit margin that is known.

However, we should be prepared to start to see the fuel cost being passed along to our clients and cruisers in general as there appears to be no top end to the rising costs of a barrel of oil and the situation of the cruise lines swallowing the increase cannot go on forever.

A lack of small ship availability is effecting the Corporate Charter market

For some time now Worldwide has been advising it's corporate clients not to hold back with their plans to charter or even book group space on the luxury small ships as this segment of the market is going gang buster and availability over the 12 - 18 month window of advance booking is showing - No Space Available!!

During recent meetings with Silversea's and Seabourn, Worldwide was advised that charter window bookings through 2008 where virtually non existent. The folks in the C&I departments of all the main luxury cruise lines report similar situations.  They are actively selling 2009 and just mopping up some odd space in 2008.

Once again - call us soon if you think your program is going to cruise. This is not a scare tactic as we have our share of bookings in the bag already - we just do not want to see our clients disappointed when they finally get a decision to go-ahead with a program at sea.

Is their a bottom to the fall in value of the dollar?

My stock answer is -"the only way to go to Europe at the moment is to go on a cruise". 

Even with the airlines dropping their rates for winter travel and the hotels offering "off-season" rates, Europe is still a very expensive place to visit for an American who is not on a company expense account.

Taking a cruise means you can experience a any number of different countries from the comfort of your ship, with like minded travelers. You can still enjoy your favorite beverages, foods and other homely amenities on-board your ship but at the same time be adventurous when ashore. 

You can pre-book your shore excursions hosted by an English speaking guide who will make you feel comfortable in a strange land while still being able to enjoy all the experience has to offer... and you have pre-paid for the tours in US Dollars before you left home.  The result being that you only need some "walk-about money" so the constantly fall value of the Dollar is really of minor significance to the enjoyment and cost of your vacation.

Our corporate clients have realized that this is the way to go and bookings for all areas of not just Europe but other overseas destinations that are considered safe cruising areas have seen a continuing growth of cruise based corporate business.

Of course, for our overseas clients the US and US Cruising has become just an unbelievable bargain for them and here at Worldwide we have had a unprecedented number of overseas programs booking into the US Dollar denominated cruise market.

I guess it's swings and roundabouts for the travel industry but for American travelers wanting to take a shore based vacation abroad the question continues to be - if and when when will the dollar turn around to make a European vacation affordable in US Dollar terms?

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