Impact of Europe’s Economy On Cruise Industry
Cruise Week

Even after another week of global upheaval, the cruise industry appears to be coming through mostly unscathed. But Europe’s struggling economy may present long term challenges. The euro has dwindled to an 18-month low versus the dollar, and the financial fixes being attempted by debt-ridden European
countries may cut into the discretionary spend of Europeans.

In the short term, the rising power of the loonie and the U.S. dollar should make more North Americans interested in visiting Europe. But one top Europe producer says rising airfares are getting in the way: "Even the cheapest fares to Europe are becoming expensive due to taxes and fuel surcharges."

Citigroup analyst Greg Badishkanian says the changing dollar/euro ratio is a slight negative for Carnival Corp. and RCCL. "The stronger dollar actually hurts North American companies doing business overseas," says Badishkanian. "It’s either going to come out of price or out of demand, and if the European economies are hurting there, then there is going to be less demand."

MSC Cruises USA President/CEO Richard Sasso Sasso says currency rates aren’t his biggest concern. “I worry more about the stock market, given that it tends to scare folks when there is a slide like the last two weeks."

Holland America Line prices Europe cruises in euros and pounds sterling in the U.K. "We maintain cross-border selling policies to protect the local pricing in each market," says Stein Kruse HAL President & CEO. "This helps stabilize pricing, especially in times of volatile currency fluctuations, reinforcing the value equation for our internationally sourced guests."

Just as in the early 1990s when the cruise industry in North America was at such a size that a volatile economic background didn’t derail growth, a similar pattern appears to be emerging in Europe.

"The European market is maturing rapidly for us and for many other brands," Kruse points out. "Cruising is becoming a very known and popular holiday option in markets such as Germany and Italy, where cruising still has a very low penetration rate relative to the U.S. and Canada. In many of these markets,
people have comparable average incomes and more time off than their American counterparts, and Europeans expect to take a vacation." They also don’t have to deal with surging trans-Atlantic airfares.

Both Sasso and Kruse emphasize that the changing euro situation doesn’t change the basic sales proposition. "The inherent value in cruise vacations continues to drive worldwide consumer behaviour — not only North American behaviour — with cruising a far superior value to comparable land-based options," says Kruse.

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