Titanic-like tragedy of Costa ripples cruise industry

The news media splashed stunning images of the stricken Costa Concordia flipped on its side that could cause short-term and even long-lasting consequences in part because of its timing: right at the peak of the reservation season in an industry already facing stiff headwinds.

 "There will be a definite short-term impact because it’s a key booking period and many people will be put off cruising in the short term," Numis analyst Wyn Ellis told Reuters.

"Veterans of the cruise line industry can’t remember an accident more dramatic than the one that captivated the world’s attention," wrote the Miami Herald.

"Not only is it the 100th anniversary of the sinking of Titanic but some of the details are scarily similar: a 950-foot gash in the ship’s hull that looks like someone tried to open it with a can opener coupled with people jumping in the water, the crew unable to launch many of the ship’s lifeboats and utter panic," wrote Anne Campbell in ShipCriticBlog.

The first quarter is a critical booking period across the tourism industry and the striking images could influence holidaymakers already facing tough economic headwinds to rule out cruises, travel observers speculated  —  at least in the immediate aftermath of the media storm.

The ship’s owner, Carnival Cruise Lines, said the Costa Concordia is expected to be out of service for at least the remainder of its financial year. That will directly cost the ship line $90 million, according to estimates. But that does not account for possible further costs due to decreased business.

The Costa Concordia, with more than 4,000 people on board, flipped on its side after hitting a rock close to the island of Giglio off Italy’s west coast. At least six people died in the accident.

"This is a PR (public relations) nightmare for the Costa brand," Jaime Katz, an analyst with investment research company Morningstar, told Reuters. He raised the question of whether the fallout would continue long term.

The ship’s captain has been arrested, and is being charged with manslaughter. Early reports say he may have deviated the ship’s course to impress friends. Reports that the captain abandoned the ship long before passengers left did not help the cruise line’s image, either.

Whether or not that is the case, the accident came at a bad time with the global economic crisis already making potential cruise customers apprehensive about spending money for travel.

The timing of the accident was also viewed as bad for an industry that in recent years has thrived with bigger ships. Some analysts cite the chaos of Costa customers trying to get off the sinking ship as discouraging to future passengers who might feel safer in smaller ships.

That view is countered by experts who cite the industry’s past safety record, which is generally good.

On the other hand, the Miami Herald quoted travel agents who said they did not fear there would be dramatic slowdowns in cruise business, however.

The bottom line may be how the industry reacts and what safety measures are implemented in the wake of the accident.

The world cruise industry has had huge growth over the last 40 years. The number of people taking cruises rose from 500,000 in the early 1970s to about 5 million in 1990 and about 19 million in 2010, according to tourism think tank Risposte Turismo.

Some experts pointed out that strong growth in the industry should help minimize any long-term impacts particularly since most travelers have short memories. Said analyst Ellis:

 "This summer’s going to be awful but in terms of the long term valuations and the fundamentals of the industry I think the impact will be marginal."

Carnival’s Chairman and Chief Executive Micky Arison issued a statement:

"We are deeply saddened by this tragic event and our hearts go out to everyone affected by the grounding of the Costa Concordia and especially to the families and loved ones of those who lost their lives."

By David Wilkening

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