Carnival Corp has had little hesitation in seeking to pin the blame for the Costa Concordia disaster on the ship’s captain, Francesco Schettino.
“The captain decided to enter into water he did not know in advance,” said Pier Luigi Foschi, chief executive of the Carnival subsidiary Costa Crociere, at a Monday press conference in Genoa. Captain Schettino said immediately following the disaster that he was 300 metres offshore and hit a rock not marked on the charts.
For the cruise industry, with an estimated 2012 revenue of $30.2bn, an incident as grave and as high profile as the sinking of a 114,500-tonne vessel can cause lasting and material damage. As Wyn Ellis, analyst with Numis, points out, the cause of the incident could determine the scale of the financial damage the industry will face.
“The big problem there would be something structurally wrong with the design of the ship and something inherently unsafe,” says Mr Ellis. “But if it was the ship being steered on to uncharted rocks, you would look back and say, it was a tragic error – life goes on.”
There is little doubt that Carnival, the world’s largest cruise ship operator, with 101 vessels and brands including P&O, Cunard and Princess Cruises, faces at the very least short-term upheaval.
The London and Miami-based company, with listings in London and New York, acknowledged on Monday that the loss in earnings from being without the Costa Concordia was as much as $95m this year.
But that does not take into account other potential factors, including the permanent loss of the ship, which has 3,800 berths and cost €475m, the impact on consumer sentiment during a key booking period in the year, and possible tighter safety regulations for cruise ships.
The worst-case scenario, according to Morgan Stanley analyst Jamie Rollo in a note, is a continual period of review of cruise ship safety.
The Nautilus Union, which represents maritime professionals, has raised concerns about the size of cruise ships, the adequacy of life-saving equipment and the challenge of large-scale evacuations. The International Maritime Organisation said in response to the Costa Concordia disaster that it is prepared to review safety on large ships.
“It is likely that many passengers will be reluctant to go on a cruise until the situation is resolved and confidence restored. It might also mean some cruise ships are inactive for a while,” Mr Rollo says.
As well as Carnival, the other company with most to lose is rival Royal Caribbean Cruises, whose Allure of the Seas is the world’s biggest cruise liner. Between them, Carnival and Royal Caribbean comprise 74 per cent of the cruise industry market.
The size of their ships and variety of entertainment attracts families and other demographic groups younger than the traditional retired couples. According to Morgan Stanley, capacity has grown 30 per cent in the past five years, and Carnival expects to add a further 10 cruise ships by March 2016.
While their US markets have remained strong, there has been some weakening in Europe caused by the Arab Spring, although Mr Ellis says the UK and German markets have proved resilient.
“Trading has been pretty resilient, but they haven’t been able to pass on price rises caused by rises in fuel,” Mr Ellis says. While the cruise sector’s share of the holiday market is modest, it scores particularly highly on customer satisfaction ratings. “It is quite a big-ticket item, but a cruise trip is all-inclusive and offers relatively good value for money,” Mr Ellis says.
Cruise operators will be relieved at the measured reaction of some of their lenders. Hans Kjelsrud, head of shipping for Sweden’s Nordea Bank, one of the world’s largest shipping banks, said the cruise industry had regularly proved itself to be “very resilient.”
Cruise shipping has been one of the few bright spots in ship finance in the past few months, after the main shipping segments – container shipping, dry bulk and tankers – all suffered slumps in earnings because of overcapacity.
Dagfinn Lunde, head of shipping for Germany’s DVB, another significant shipping bank, said his bank would continue lending to build new vessels.
“There’s very good demand,” he said. “Accidents have happened over the years. It’s like an aeroplane going down – you don’t see people stopping flying.”
Like any consumer industry, cruise operators were already braced for a difficult year and a slowdown in bookings. “Market conditions are challenging, we battle on,” says Roger Allard of All Leisure, the UK-listed cruise operator that runs ships of a much smaller size, such as Discovery, which has capacity for 650 passengers..
“It’s very sad what has happened,” Mr Lunde adds. “It’s not going to affect cruising per se. If anything it will slow down new bookings, it might defer new cruisers to the market, but that happens in any unfortunate incident.”
Additional reporting by Guy Dinmore in Rome
Connection to the island
Giuseppe Tievoli, 82-year-old father of Antonello Tievoli, a head waiter working on the Costa Concordia, said his son called on Friday to tell him they would be passing the island of Giglio, where the cruise liner foundered, Giulia Segreti reports from Rome.
“Antonello called me when they left Civitavecchia on Friday and told me that around 9pm they would be passing by Giglio,” he told the Financial Times.
“The ship always passed by Giglio. Sometimes it sounded its horn in a sign of saluting, if it was during the day. In particular when there was the old commander, who was originally from the island and had his whole family living on it.”
“During the day it kept two or three miles away from the coast, maybe at night slightly less, but it was still a matter of miles.”
“It is an old thing …back in the times when smaller ships came from Sardinia, wives and children of the sailors waited to say hi.”
Investigators have been seeking to discover why the liner came so close to the island as it sailed up the Tuscan coast.
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