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Italy accident could hit cruise industry


The spectacular cruise liner accident off the coast of Italy is not just a disaster for the ship's owners, but could inflict wider damage on an industry already facing stiff headwinds. Turn for the worst: The Costa Concordia, with more than 4,000 people on board, flipped on its side after hitting a rock last Friday night close to the island of Giglio, off Italy's west coast, leaving six dead The Costa Concordia, with more than 4,000 people on board, flipped on its side after hitting a rock last Friday night close to the beautiful island of Giglio, off Italy's west coast. At least six people died in the accident.The luxury 114,500 tonne ship was operated by Costa Crociere, a unit of Carnival Corporation & Plc, the world's largest cruise company. The stricken vessel was one of the group's main assets in the lucrative European cruise market. 'This is a PR (public relations) nightmare for the Costa brand,' said Jaime Katz, equity analyst from investment research company Morningstar in Chicago. 'The question is, when that's been stripped out, whether the Carnival brand will be tarnished.' 'I think the important factors are that this adds insult to injury, with struggling economic markets in Europe and all the unrest you've seen in the Middle East,' Ms Katz said, noting that the accident came at the peak season for the industry. The company on Sunday said that the grounding will cost the company as much as US$95 million, or between 11 US cents and 12 US cents a share in fiscal 2012. The vessel will be out of service for at least the current financial year ending Nov 30, the company said in a statement. In addition, Carnival anticipated other costs to the business that are not possible to determine at this time. 'It seems that the commander made errors of judgement that had serious consequences,' said a statement from the liner's owner Costa Crociere, referring to Francesco Schettino.

The prosecutor leading the investigation, Francesco Verusio, told reporters that Capt Schettino, who was arrested Saturday, had left the stricken liner 'well before' the last passengers were evacuated. Coast guard officials also said that the captain ignored repeated requests from them to return to his ship as the rescue operation continued. Prosecutors have also said that the crew mishandled the emergency, delaying the start of the evacuation until an hour after the accident.Carnival's share price will react negatively and remain volatile while the commercial consequences remain unclear, said Wyn Ellis, an analyst at Numis Securities in London. Sharon Zackfia, a research analyst with William Blair & Co, a global investment services company, said that it was too early to know the full costs for Carnival but they would include passenger refunds, potential litigation and repairs. There is also the problem of consumer attitudes souring on the industry as a whole because of safety concerns - a mindset that, along with consumer fears over the sluggish US economy and the European Union debt crisis, could freeze some people's plans for overseas travel. Another potential problem for the shipowner and insurers is environmental damage. Local officials have expressed concern that the ship's fuel, a full load as it had just begun the cruise, could spill into the pristine waters off the island, which is in a marine reserve. However, by early Sunday, there was no sign of pollution. The world cruise industry has seen exponential growth over the last 40 years. According to the Italian Cruise Watch report of tourism think tank Risposte Turismo, the number of people taking cruises rose from 500,000 in the early 1970s to about five million in 1990 and about 19 million in 2010.To attract customers, the industry has changed face since the 1970s, offering liners with more space, comfort and entertainment, and creating scale economies in an effort to cut fares. As a result, ships have grown in size with swimming pools, restaurants, movie houses, discotheques and much more - floating cities such as the 290m long Costa Concordia, the biggest of the Costa Crociere fleet.

Date:January 19, 2012                                                                       Source : Reuters, Bloomberg


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