A cruise ship sailing along Italy's Tuscan coast is gashed against a massive rock. The outcome isn't pretty. Carnival's (NYSE: CCL) Costa Concordia tipped over on Friday night, sending at least a dozen passengers to watery graves.
It's a horrific tragedy, of course. Death isn't kind. Carnival is already paying the price. The world's largest cruise line saw its stock take a roughly 17% hit in overseas trading yesterday. Now the rest of the industry is about to pay.
The immediate costs to the cruise line may be covered by insurance, but now the industry as a whole needs to start thinking about how this accident will deal a blow to future bookings.
Cruising has grown in popularity as a vacation choice. The industry has responded with bigger boats, a wider choice of ports, and shorter itineraries to woo working families.
This should have been a good year for the cruise lines. Disney (NYSE: DIS) has scheduled a press event for Wednesday. Its fourth boat -- Disney Fantasy -- just left the shipyard. Reports indicate that Disney will add Miami as a departure port for seasonal cruises on the older Disney Wonder.
Norwegian Cruise Lines filed preliminary paperwork this past summer to go public later this year.
Royal Caribbean (NYSE: RCL) rolled out a new 2012 marketing campaign last week, connecting viewers to the joys of hitting the open seas. Suddenly the ad's "The Sea is Calling. Answer it Royally" tag line seems sorely out of place.
A fatal incident -- even one all the way in Italy -- won't help near-term bookings. Bulls will argue that airplane crashes don't dissuade air travelers, but that remains the most effective way to get around. Flyers don't really have much of a choice. A cruise is purely a leisure pursuit. Ships typically wind up at the original port after hitting several exotic ports of call. If vacationers begin to see cruising as unsafe, they'll simply opt for other getaways.
Cruise lines certainly took their lumps a decade ago when a Norwalk-like virus sickened passengers on a few different vessels. New reports of the Costa Concordia may linger longer, since this isn't as simple as scrubbing boats clean and installing hand sanitizer dispensers.
As a shareholder in Steiner Leisure (Nasdaq: STNR), I have no choice but to be glued to the aftermath. Steiner runs the spas in most of the large cruise ships. Steiner won't feel the pinch as badly as the actual cruise lines. The ships don't have a problem discounting berths aggressively to fill vacancies, so Steiner will still get an entire boat of passengers to pamper. The rub here is that they may be penny-pinching landlubbers that are there more for the unlimited dining than fancy spa treatments.
The industry was bent on inching rates higher to offset pesky fuel costs, but Friday night's tragedy may force the cruising giants to sacrifice margins and promote aggressively instead.
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