Cruise Lines Set New Sails in Rough Financial Seas

The newest ship in the Royal Caribbean Cruises (RCL) fleet will power out from Ft. Lauderdale on its maiden voyage on Nov. 23. The $750 million Celebrity Solstice has onboard features to wow even jaded cruise hounds—a half-acre lawn with real grass for picnics or putting, a two-story spa, and a wine-tasting cellar. Want to gaze at the sea in your bathrobe? By stacking more decks above the hull, 85% of its 1,425 rooms have private balconies, one-third more than other ships.
Royal Caribbean couldn't have picked a rougher time to set sail, however. The travel industry is in its worst slump since the September 11 terrorist attacks seven years ago. To lure customers, cruise lines are slashing prices, eliminating fuel surcharges, and redirecting ships from exotic locations to ports that don't require expensive air travel. "Our bookings held up well until mid-September," says Richard D. Fain, Royal Caribbean's longtime chairman and chief executive officer. "Then mid-September came with a crash."
Slumping demand isn't the only problem. With customers galore a few years ago, the industry ordered an armada of bigger, fancier vessels. Because they take so long to construct, the new ships are now just hitting the water. Royal Caribbean will add six ships by 2012 at a cost of $6 billion. Rival Carnival Cruise Lines (CUK) estimates the industry will launch 38 ships in North America and Europe over the next three years, adding 28% to capacity.

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