Cruising to Cuba Won't Be Big Yet for Cruise Companies

Cruising to Cuba Won't Be Big Yet for Cruise Companies
ByBrian SozziFollow | 03/24/16 - 12:42 PM EDT

It has sure been quite the week for the cruise line industry. On
Monday, Carnival (CCL - Get Report) announced that Cuba has agreed to
let the company begin cruises to the island country starting May 1, the
first time in more than 50 years that an ocean liner from the U.S. has
been allowed there. President Obama said two years ago that the U.S.
would begin rebuilding diplomatic relations with Cuba, which collapsed
during the Cold War. The U.S. embassy there reopened in 2015.

So far, Carnival's key rivals such as Royal Caribbean (RCL - Get Report)
and Norwegian Cruise Line (NCLH - Get Report) continue to work on
getting approval from the Cuban government to sell directly to the region.

"There are a lot of reasons it's taking longer to get the approval, some
of which are way beyond the cruise industry," said Royal Caribbean
International president and COO Adam Goldstein. Chief among the reasons
is getting Cuban officials to trust Americans after years of being kept
at bay.

Goldstein said, "The consideration on how to engage with a U.S. economy
that is trying to be more approachable and active with the Cuban economy
presents the Cuban leadership with tremendous questions that they are
trying to work through."

Must Read: Can Biotech Stocks Outperform the Broader Market in 2016?

Even once Cuba opens up to the likes of Royal Caribbean and Norwegian
Cruise Line, investors shouldn't expect a meaningful lift to profits.

"There is literally not enough capacity in Cuba to host cruise ships to
make a meaningful economic difference in the performance of the public
cruise companies," said Goldstein, who pointed out that right now there
is only one pier in Havana Harbor that could host cruise ships.

Goldstein's assessment of the Cuban market was echoed by Carnival. "We
are very excited about Cuba -- it won't provide an immediate bottom-line
benefit, but what it does is increase interest in taking a cruise and
helps raise awareness," Carnival CEO Arnold Donald explained to TheStreet.

Donald added, "Over time, we will have other ships going to Cuba and
more ports will open up, which will drive interest in cruising to the
Caribbean -- we think it will be a major positive economic driver."

While the cruise companies are currently attempting to exploit a budding
opportunity in Cuba, they being forced to navigate a more uncertain
environment in Europe. Three explosions rocked the Belgian capital
Tuesday morning, killing at least 31 people and wounding 270 more in
apparent suicide bombings.

Based on the financial performance of consumer and travel companies in
Europe after the attacks in Paris last November, the latest bombings and
related security concerns probably will drive demand down again.

"We saw a relatively limited impact from the Paris attacks," said
Goldstein, who remained optimistic that demand would bounce back even if
the bombings change the vacation plans of those in the U.S. and Europe.

For the year, Royal Caribbean anticipates a low-single-digit decline in
the yield for its European itineraries.

Source: Cruising to Cuba Won't Be Big Yet for Cruise Companies -
TheStreet -
http://www.thestreet.com/story/13506804/1/cruising-to-cuba-wont-be-big-yet-for-cruise-companies.html?cm_ven=RSSFeed