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Can the Cruise Industry Alleviate Puerto Rico's Economic Woes?

It sounds like a movie plot: A band of down-but-not-out survivors come together during a crisis. In a world where Puerto Rico staggers under $70 billion in debt, Americans are emerging from the icy grip of a record-setting winter, and cruise lines like Royal Caribbean Cruises  (NYSE: RCL  ) have hit choppy waters, can they find sunny sailing?

Royal Caribbean's megaship Quantum of the Seas debuts in late 2014. Photo: Royal Caribbean.

That's what investors, travel agents, and Puerto Rico's business community want to know. Royal Caribbean reported this month that first-quarter net yields dropped and net non-fuel cruise costs rose slightly. Competitor and industry leader Carnival Corporation  (NYSE: CCL  ) reported similar yield drops and cost increases for its first quarter. A March oil spill in the Houston Ship Channel interrupted several cruises, contributing to the poor numbers.

More travel, more Caribbean cruise deals
Despite the lackluster first-quarter figures, Royal Caribbean's outlook for 2014 is positive, with full-year net yields expected to rise 2% to 3% and adjusted earnings per share in the neighborhood of $3.35, with new ships on the way.

Rising spending among U.S. travelers is helping boost leisure trips overall, and with airfares and hotel rates going up, too, cruising is looking more appealing. To put some wind in their sails, Royal Caribbean and competitor Norwegian Cruise Line (NASDAQ: NCLH  ) have just launched buy-one get-one deals on selected cruises.

All of this is good news for sun-seeking families. According to TripAdvisor's TripBarometer global report released earlier this month, beach vacations are among the top five choices for families, who are generally the most price-sensitive travelers.

The Caribbean cruise deals could be good for Puerto Rico's economy, too. The territory's popularity as a destination has been growing, with more than 940,000 cruise visitors from July to March -- a year-to-year increase of nearly 125,000 people, according to the local port authority.

A report from the Florida-Caribbean Cruise Association trade group says cruise passengers and crew spent $186 million in Puerto Rico during the 2011-2012 season and supported nearly 5,000 local jobs. More cruise ship passengers are expected in San Juan over the next two years.

More Puerto Rico port calls on the horizon
Royal Caribbean's new megaship (Quantum of the Seas) will dock in San Juan this December. It will bring up to 4,180 passengers into port, assuming passengers leave on-board indoor skydiving and surfing long enough to touch land.

A pier expansion is under way to accommodate that ship and its sister vessel, Anthem of the Seas. Anthem will start cruises to San Juan and other Caribbean locales in 2015 from its home port in New Jersey -- an ideal location for Northeast corridor residents looking for a break from snow days.

2015 is also when Carnival will start new one-way sailings between Galveston and San Juan that make a 21-day loop through the Caribbean with no repeated stops. Walt Disney  (NYSE: DIS  ) subsidiary Disney Cruise Line, meanwhile, is home-porting a ship in San Juan for the first time this fall as a base for four late-2014 cruises to southern Caribbean ports including Grenada.

A happy ending for Puerto Rico's economic woes?
All of this extra cruise business should be a boon to Puerto Rico's struggling economy -- and a confidence booster for U.S. investors, who've been reluctant to put money into the industry. If enough travelers take advantage of the cruise lines' competitive pricing and new itineraries, Puerto Rico (and the cruise companies that dock there) may emerge as a crack team of leisure-travel heroes.

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Read/Post Comments (6) | Recommend This Article (4)

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  • Report this Comment On May 07, 2014, at 3:50 PM, CommonJoe wrote:

    I'm not sure the cruise industry can. The biggest problem is the port taxes. Currently Royal Caribbean stays in PR about a half day. The reason being is they don't want to pay for a full days port tax. This doesn't give passengers nearly enough time to visit the island and thus not contribute to the economy. As a US territory how is it the PR can set the port tax so high? I think there would be some US regulatory group that would overseer that. They are only hurting themsleves

  • Report this Comment On May 07, 2014, at 5:33 PM, ctoro23 wrote:

    The Government of Puerto Rico pays the FCCA an incentive of about $12 million/year in exchange for the cruise ships to stop there. The justification is most likely the $186,000,000/yr economic impact. This translates to a little bit over $200/passenger (186M/815,000 passengers/yr). (Crewmembers tend to spend very little). This sounds very high considering the passengers aren't even spending a full day in the island. But assuming it's correct and assuming a 25% increase in economic impact up to $231M/yr, one could argue that the Government may be able to collect on 50% of that amount, which turns out to be $115.5M/per year. The 50% comes from a guesstimate of municipal gross sales tax, state gross sales tax, inventory tax, and income tax trickling down through all the businesses the passengers spend. The $115.5M/yr less the $12M/yr from the subsidy nets out at $103.5M/yr. It seems extremely low to make a significant dent on the $70B in debt. I would also argue the $200/passenger spent while visiting seems high considering that passengers are typically visiting 5 to 7 places on a 7-day cruise. Can you imagine a family of 4 spending $4,000 ($800/day x 5 stops) above what they have already paid to go on a cruise? It really seems like a stretch.

  • Report this Comment On May 07, 2014, at 9:28 PM, pepelepew wrote:

    After having been stationed in Puerto Rico for several years and then having returned on ships

    several times, I do not know what anyone is thinking. Puerto Rico itself is beautiful, however,

    between the gangs, the filth you encounter in the

    main streets, the armed militia required to keep

    citizens safe in their own homes, I do not think

    there is any hope. You can not walk the streets

    in San Juan which is where the ships dock.

    There are heavily armed guards in every parking

    lot of every apartment building, every restaurant,

    and shopping center. This is not for show, this

    is serious. There are no taxes in Puerto Rico, so

    everything is more expensive. You can spend

    upwards of $25 for two hamburgers.$18 For a

    dozen donuts. OUCH and get killed going to get

    them. I do not think that passengers from cruise

    lines are going to help anything, especially when

    several of them will get mugged or killed while

    on shore.

  • Report this Comment On May 16, 2014, at 12:26 PM, dacsmom wrote:

    I am sailing out of Puerto Rico because I want more than the half day that the cruise ship will dock there. Puerto Rico is becoming a popular embarkation port for those of us who want an extra day or two in San Juan.

  • Report this Comment On May 16, 2014, at 2:19 PM, albertogarmit wrote:

    The biggest problem that Puerto Rico have is their "status". Once the status is resolve then Puerto Rico will be able to deal with their economical problems. Puerto Rico have the option to become the 51 state of our Nation and now it is up to the 3.5 American citizens living their.

  • Report this Comment On January 09, 2015, at 9:12 AM, thefonse wrote:

    Pepelepew, your are absolutely out of your mind. Never heard so much rubbish. You have to be more careful in most U.S. cities then in San Juan.

    If you don't like Puerto Rico stay away. But don't be such a big liar !!! God !!!!!!!!!!!!!!

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Casey Kelly-Barton

Casey is a writer and journalist who follows the consumer goods, travel, and tech industries for The Motley Fool.

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