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The Love Boats Are Brawling

Industries: TRAVEL


When Joyce Landry began her cruise-booking business in 1982, a 1,200-passenger liner was considered enormous, seagoing spas were unheard of, and guests had just one place to dine: the main restaurant. Today's 2,600-passenger vessels boast dining choices ranging from pizzerias to sushi bars, ballroom-size spas, and seven-deck-high atriums glowing with neon. "In the late 1980s, cruise ships started mirroring resorts," says Landry, executive director of Landry & Kling Corporate Cruise Specialists in Coral Gables, Fla. "We've come a long way from the days of narrow corridors and low ceilings to palatial, high spaces with lots of glass and waterfalls. It's a whole new feel."

For cruise-ship operators, it's a very expensive feel. The colossal new liners, at $400 million or so apiece, are changing passengers' expectations about what a cruise should be. At the same time, they are dramatically adding to industry capacity when the outlook for market growth is uncertain.

"BIG MACHINES." The result: The big, well-capitalized cruise lines that can afford to build mega-liners are likely to elbow aside--or acquire--their poorer cousins. "Carnival, Royal Caribbean, and P&O [London-based Peninsular & Oriental Steam Navigation Co., parent of Princess Cruises] won't lose money. They're like big machines," says financial consultant Kenneth Trippe, president of Cruise Brokers Inc. in Coral Gables. "It's the smaller ones, the lines with the weakest finances, that feel the squeeze." Indeed, Carnival Corp., the biggest operator, has been able to acquire the smaller Holland America Line and Windstar Cruises, as well as pieces of Epirotiki Cruise Line and Seabourn Cruise Line.

Cruise armadas are in a kind of arms race. Each new ship tries to outdo the others with attention-getting features, such as the 18-hole miniature golf course on Royal Caribbean Cruises Ltd.'s Legend of the Seas, coming in May. In 1996, Carnival Cruise Lines' Carnival Destiny will be the biggest cruise ship ever built at 100,000 gross registered tons, a dozen decks, and a capacity of 3,350 passengers. A year later, Princess Cruises will surpass it with the 104,000-ton Grand Princess, offering three show lounges, a wedding chapel, a virtual-reality theater, and a wine-and-caviar bar.

Such glorious excess alarms executives such as John Olsen, chairman of midsize Cunard Line Ltd., whose ships include the Queen Elizabeth II. "For the first time in a decade, supply and demand are tilting out of balance and not in our favor," Olsen warned colleagues at a recent Miami conference. From now through 1998, an additional 48,000 berths will pour into the current floating inventory of 105,000 in North America. While an unknown number of smaller, older ships will be forced out of business in 1997 by new international safety regulations on matters such as sprinklers and lighting, Cruise Lines International Assn. estimates the annual net increase in berths at a hefty 7.5%.

The great unknown is passenger growth. After averaging 9% a year since 1980, it slowed to 2.2% in 1994. Cruise Lines International Chairman Albert C. Wollock blames bad press from a series of mishaps, including an mutbreak of Legionnaire's disease aboard a ship in his Celebrity Cruises fleet.

CASH COWS. Last year's downturn doesn't faze market leader Carnival. Robert H. Dickinson, president of its Carnival Cruise Lines unit, jets around the country preaching market expansion to travel agents. One of his mantras: "Only 7% of the American public has cruised before. Another 100 million to 150 million have the time and the money to take a cruise. This is an enormous untapped market." He adds: "This is not a time for our industry to panic."

Seventy percent of the new tonnage in the next four years is going to industry leaders Carnival, Royal Caribbean, and Princess. As they expand, the big guys can more easily defray the cost of national ads, reservations, legal affairs, and administration. High-volume lines can negotiate better prices for everything from beef to beer to bananas. And big ships offer more cash-generating bars, boutiques, and casinos.

While Carnival and Royal Caribbean have seen their margins slowly shrink, the real squeeze is on the smaller lines. Ship broker Trippe says at least four North American lines, consisting of a dozen ships, are seeking buyers or actively seeking outside equity. This is one rising tide that won't lift all boats.By Anne Kalosh in Coral Gables, Fla.

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