Shipwreck, fire harm Italy’s Costa brand
MILAN – Costa Crociere SpA, the largest cruise brand in Europe, is facing a legal and public relations nightmare after seeing two high-profile disasters on its ships barely six weeks apart.
Costa Crociere bookings already had dipped by an estimated one-third following the Jan. 13 wreck of its Concordia ocean liner off a Tuscan island that killed up to 32 passengers and crew. The company is blaming that shipwreck on its captain, who stands accused of abandoning ship as passengers struggled to escape.
Now, following an engine room fire this week that left its Allegra cruise ship drifting without power in the Indian Ocean, Costa faces an even more difficult future.
Industry experts said Costa’s survival after 60 years in the passenger ship business could depend on the company changing its name or getting a bailout from its parent, U.S.-based Carnival.
Magda Antonioli, the director of the tourism master’s program at Bocconi University in Milan, said Costa should think about re-branding itself after the back-to-back disasters.
“Certainly, images of the two accidents have been around the world,” Antonioli said.
But many in the cruise business don’t think the disasters will prove to be Costa’s death knell or even have a long-term impact on the wider cruise industry, which is experiencing phenomenal growth as the number of healthy elderly rises and more families choose cruises for intergenerational vacations.
“No, not the end for Costa, which has operated passenger ships for over 60 years,” Douglas Ward, author of the 2012 Berlitz Guide to Cruising & Cruise Ships, said in an email from a ship off the Australian coast. “But the relentless media spotlight may dilute the brand and perhaps the number of ships in fleet.”
Costa has more than doubled its fleet, from five to 14 ships, since being acquired by Carnival in 2000. Sales in 2010 rose 12 percent to $3.8 billion while the number of passengers increased 18 percent to 2.15 million.
Based in Genoa, Costa has a 7 percent global market share, the largest of Carnival’s subsidiaries. With two ships now disabled by accidents, two more are scheduled for launch before the heavy summer European cruise season opens, and another is expected on the water by 2014.
The global industry generates an estimated $30 billion in revenues globally, said Jaime Katz, an analyst at Morning Star.
Carnival, the parent company, has a strong cash flow, which would put them in a position to help out Costa if needed, Katz said. She noted that much of the liability that Costa faces from the Concordia tragedy will be covered by insurance – and that the industry as a whole can expect premiums to go up.
Ward said the real impact would be the lost jobs among people who work on the ships, many from developing nations whose families depend on those seafaring jobs.
In Italy alone, Costa contributed $3 billion to the economy in 2010 through tourism, shipbuilding, shipboard suppliers and other related spending, according to a study by Milan Polytechnic.
Bookings on Costa dropped some 30 percent after the Concordia, and are down around 22 to 25 percent in the wake of the Allegra’s generator fire on Feb. 27, said Roberto Corbella, president of Italy’s tour operator industry group.
But he said the early estimates are not reliable and can pick up at any time. The impact on Costa bookings during the critical first quarter – when most high-season cruises are booked – will only be known next week when Carnival releases its results.
“We have seen that longtime cruise-goers are unfazed, they continue to make reservations. It is the first-time cruise-goer who is waiting to reserve until they feel more confident,” Corbella said.
Two days after the Allegra fire, the ship’s 1,000 passengers and crew were facing a third night without lights, air conditioning or power. Passengers were sleeping outside and eating only cold foods. Canned food was being helicoptered onto the stricken ship, which was being towed and eventually reached the Seychelles’ main island on Thursday.
The financial damage to Costa is still unknown. The company said it can’t determine how long the Allegra will be out of service until it surveys the damage. The ship was just a week into a monthlong cruise from Mauritius to Savona in Italy when the engine fire hit. Its next cruise, beginning March 17 in the eastern Mediterranean, is sure not to sail.
The $605 million Concordia has been partially submerged since Jan. 13 but no decisions have been made yet on whether it can be salvaged. The company faces dozens of lawsuits, besides paying compensation to the 4,200 people who were on board the ship.
Shares of Carnival were up 0.9 percent, or 26 cents, at $30.27 on Wednesday in the U.S. after falling earlier this week on news of the Allegra fire. The shares were trading above $35 prior to the Costa Concordia incident in mid-January, when they dropped to a near five-month low of $29.22.
Costa’s real image issue is that the two accidents happened in such a short time span.
“I think the problem now for Costa is that it is too close to the Costa Concordia disaster, which is totally different from what happened to the Allegra. Engine room fires can happen. But usually they are more of an annoyance,” said Teijo Niemela, the Helsinki-based editor of Cruise Business Review.