James Dennin, Kapitall: With high profile cruises that have gone awry, Carnival is looking for ways to boost customer demand.
It's nearly two years later, and they're still pulling Carnival's (CCL) Costa Concordia out of the water. And you can bet your top dollar that patrons of the now infamous Triumph - the ship whose engine fire left customers without air conditioning and bathrooms for days - want their money back. This of course came after another cruise in 2010 when a power outage forced operators to feed their customers with provisions from the US Navy.
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My only question is this: who on earth is booking a berth on a cruise ship these days?The answer is the Chinese. China has become the most valuable out-bound travel market in the world, and cruise ship developers are paying attention. Royal Caribbean (RCL) has added new routes in South East Asia, despite testy relations between cruise operators and some of the Chinese companies that own the boats. Local governments in China are also trying to get in on the action – putting $2 billion toward coastal infrastructure in Shanghai and Tianjin alone. A single cruise ship can be one of the most lucrative investments in the world – some of them bring in hundreds of millions each year. But a luxury ship can also cost up to a billion dollars, meaning they need to be on the water for at least a few years before they can even turn a profit. And that's the problem plaguing one of the largest cruise providers, Carnival, which operated not one but three of the ships that experienced high profile breakdowns since 2010. Understandably, Carnival had already gone into crisis mode. It downgraded its profit forecasts for the year. The company also lowered its cruise pricing by $81 million. Sensing that might not be enough, the company has also offered an extensive new rebate plan. While rebates are usually a marketing gimmick – people are unlikely to jump through many hoops just for a few bucks – Carnival is offering a 110% refund if customers are not fully satisfied. So will Carnival's rebates help restore their customers' sea legs?