Posted on 18 Jan 2012
The capsizing of the Costa Concordia could not have come at a worse time for the cruise industry — right at the start of the peak booking season. Even if passengers aren’t scared away, the accident will cost hundreds of millions of dollars.
It’s too early to tell exactly how much insurance firms will have to pay out to cover the damage to the ship and loss of life, but analysts have estimated that claims could total at least $500 million. One went as far as to say the total bill for insurers could reach $1 billion.
“We would be surprised if any single player had more than 5 percent-10 percent of the risk,” Numis analyst Nicholas Johnson wrote in a note. He said the risk is similar to that of the Deepwater Horizon oil spill, where no one company had more than 2 percent of the total insurance liability.
Costa’s parent company, Miami-based Carnival Corp., which operates 101 ships under several brands including Carnival, Cunard, Holland America, Princess and Seabourn, did not respond to requests for an interview about its insurance coverage. But the company is responsible for at least $40 million in insurance deductibles.
At least 11 people died in the accident with nearly two dozen others still missing.
The capsizing of the Concordia in the waters off Italy comes at the start of a three-month period that is the busiest time of year for bookings, known in the industry as wave season. Sales now set the tone for the rest of the year, which could be affected if passengers are frightened off by the chilling images of the stricken vessel.
Although the industry has been slowly recovering from the Great Recession, this incident could further damage bookings.
“The publicity is just going to kill them,” said Blake Fleetwood, president of Cook Travel. “They’ll stay quiet for a week or two. Then Carnival will have a blitz of sales. So for the consumer, it’s going to be a great time to buy a cruise.”
Other cruise lines will follow, slashing prices, Fleetwood said.
“The baby boomer crowd, which the cruise lines are counting on to fill their cabins, is going to be especially spooked by this incident,” he added.
But some experts doubt the tragedy, which was extremely rare, will scare off travelers.
Stewart Chiron, CEO of CruiseGuy.com, a cruise marketing company, thinks the only group turned off by the accident would be first-time cruisers who were already on the fence about booking. Roughly 19 million people took a cruise last year he said without incident.
“People understand that this is an accident,” Chiron said. “I don’t think there will even be a hiccup.”
Gauging cruise demand is tricky. Unlike airplane tickets or hotel rooms which are mostly booked online by vacationers themselves, a large bulk of cruises are sold through travel agents who are paid a commission for each stateroom sold. Tour companies also book large blocks of rooms in advance from the lines and then resell them at a profit.
Chiron notes that the only real way to judge demand is to see if cruise lines slash prices.