Italy Disaster Could Hit Cruise Industry

MILAN (Reuters) - 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.

The Costa Concordia, with more than 4,000 people on board, flipped on its side after hitting a rock on Friday night close to the beautiful island of Giglio, off Italy's west coast.

At least five 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."

The accident could hardly have come at a worse time for the group, with the global economic crisis already making potential cruise customers nervous about their jobs and finances.

"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," Katz said, noting that the accident came at the peak season for the industry.

"Carnival still books a large portion of their bookings at this time of year. What company, in the middle of the busiest season for their business, wants to be weighed down with that sort of PR?" she asked.

Costa Crociere has been fully owned by Carnival since 2000, when the Miami-based company bought the half it didn't already own. At that time Carnival, which makes about 40 percent of its revenues in Europe, said Costa Crociere would be its primary platform for expanding in this part of the world.

In December Carnival, which accounts for about half of the global cruise line business, lowered its prices for 2012 voyages because of weaker demand in crisis-hit Europe.


Sharon Zackfia, a research analyst with William Blair & Co, a global investment services company, said 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 U.S. economy and the European Union debt crisis, could freeze some people's plans for overseas travel.

"Any time you have something like this happen, there is worry that it will have an impact on how the public views the safety of the industry in general," she said, adding, however, that the industry in general had a good safety record.

In a statement on Saturday, Carnival Corp said it was deeply saddened by the tragedy and was working to discover the causes.

The Costa Concordia was sailing on a Mediterranean cruise from Civitavecchia near Rome with scheduled calls at other Italian ports, Marseille, Barcelona and Palma de Mallorca.

Italian newspaper Il Sole 24 Ore, citing an insurance broker, said on Sunday the price of the cruise ship, about 450 million euros, was covered by insurance with further coverage of about $3 billion for liability to passengers and crew.

Assicurazioni Generali, Italy's biggest insurer, said on Sunday it was one of the insurers involved but added that due to its reinsurance policy any impact would be very marginal.