Cruise industry booming despite rough seas
Passengers keep coming back, and efforts to tax and regulate making little headway.
Northwest travel guides
WASHINGTON — At first glance, the cruise industry’s public-relations disasters during the past two years would seem like enough to make almost any business take on water.
Since the Costa Concordia ran aground off Italy in January 2012, killing 32 people, the industry has been besieged by mechanical failures, disease outbreaks, congressional scrutiny and a recent class-action suit filed by passengers on the Carnival Triumph, which was adrift in the Gulf of Mexico for days.
Yet despite repeated images of stranded, frustrated passengers, business has been booming — and the trend is unlikely to stop anytime soon, industry watchers say.
Efforts in Congress to tighten regulation have stalled, and the twin pillars of the cruise economy — affordable prices and repeat customers — have stood as a bulwark against other problems.
“People just keep coming back,” said Andrea Stokes, who tracks the tourism industry for Ipsos, a global market-research company.
In the U.S., she said, recent efforts by the cruise industry to expand to ports in Baltimore and the New York City area have helped open the market to new vacationers.
“It makes cruising all the more accessible,” she said. And “once you’re in, you’re in.”
Florida ports, the foundation of the industry, are growing as well. Port Canaveral, for example, is building a new terminal and this month was named the new home for the Norwegian Spirit ship run by Norwegian Cruise Line.
About 21.3 million passengers booked cruises last year, and the 2014 numbers are expected to hit 21.7 million, according to industry estimates.
In a recent letter to shareholders, Arnold Donald, president and CEO of Carnival Corp., acknowledged the problems: 2013 was “clearly a challenging year for our company,” he wrote. But he added that several initiatives, including plans to expand into the Asian market and to launch eight new ships through 2016, had put the company on a good course.
The Costa Concordia belonged to a Carnival subsidiary, and another company ship, the Carnival Triumph, made headlines last year when it was stranded for days in the Gulf of Mexico, forcing passengers to deal with unsanitary conditions, including backed-up toilets.
That incident has led to several lawsuits, including the class-action case.
Despite the troubles, Carnival and other cruise lines are planning to launch an additional 16 cruise ships in 2015 and 2016, according to Cruise Market Watch.
The expansion comes even as the cruise industry is facing the threat of increased oversight from Congress and regulators.
Last year, lawmakers led by U.S. Sen. Jay Rockefeller, D-W.Va., introduced legislation that took aim at how cruise companies treat their passengers — as well as the industry’s limited U.S. tax obligations.
Cruise lines largely avoid U.S. taxes by organizing themselves as foreign corporations and by registering their ships overseas. This means market leaders Carnival and Royal Caribbean paid an “effective worldwide tax rate of only 1.3 percent on their profits” during the past seven years, according to a summary of the Rockefeller bill released last summer.
His bill would eliminate a tax exemption for the industry and target income derived from cruise passengers going through U.S. ports. The broader measure would make available more information about alleged crimes committed aboard cruise ships and give more oversight power to the U.S. Department of Transportation.
But neither bill has advanced far.
Meanwhile, critics of the cruise business said the industry — while generally opposing new regulations — has taken specific aim at one section of the overhaul package: a provision that would require the industry to separately disclose the number of crimes or alleged crimes committed against minors.
When asked about that provision, an official with the Cruise Lines International Association, the main industry booster group, said CLIA had not “stated publicly a position” on that section. But CLIA opposes the bill as a whole, he said, because it was already covered by steps the industry has taken to address concerns about crime, transparency and passenger rights.
“Generally speaking, we think there is a great deal of redundancy,” said Bud Darr, who handles technical and regulatory affairs at CLIA.
In particular, he pointed to efforts by the industry to post crime rates online, though those data do not include a breakdown of alleged crimes committed against minors.
Meanwhile, the cruise industry will return to the spotlight at the end of the month with a two-day hearing organized by the National Transportation Safety Board.
The review has come under fire, however, because some watchdog groups said they were not invited to participate.
“If they won’t give us a seat at the forum table, we have no way to be heard unless we speak out publicly,” said Ken Carver, chairman of the International Cruise Victims Association.