Wednesday, March 9, 2011

Cruise lines reluctant to bring back fuel surcharges

USA TODAY - written by Johanna Jainchill,.

With oil prices soaring this week due to unrest in the Middle East, North American cruise passengers can't help but wonder if fuel surcharges are soon to come. Cruise lines have made no indication that they are considering it, and have so far resisted implementing the fees despite oil's steady price climb over the last year.

However, light sweet crude oil, which most cruise lines use, is hovering at the $100 per barrel range, according to the New York Mercantile Exchange Index. When the cruise lines eliminated their fuel supplements, they established fuel price thresholds at which they reserved the right to reinstate the surcharges. For Norwegian Cruise Line and the brands of Royal Caribbean Cruises Ltd., it was $65 per barrel. For the Carnival Corp. lines, it was $70.

Current prices are still low compared to 2008, when cruise lines were among many companies that collected supplements as crude oil reached record prices of $145 per barrel.

But those fees were controversial and negatively perceived from the start. The Florida Attorney General's Office opened an investigation into possible cruise line collusion and whether it was legal to assess the charges retroactively, and both Carnival Corp. and Royal Caribbean Cruises Ltd. eventually refunded millions of dollars for the retroactive charges.

Wall Street analysts this week are saying that cruise lines are hesitant to reinstate the fees for various reasons - especially while oil prices are still so volatile.

"We believe cruise line managements have been hesitant to reinstate a surcharge in an environment where prices were not rising rapidly," said Robin Farley, UBS leisure analyst, in a note to investors. "If recent spikes in oil prices continue at the same velocity a fuel surcharge is possible, but we continue to believe the companies would all prefer not to implement any sort of fuel surcharge."

"We believe the industry will be patient before implementing fuel surcharges given the very volatile nature of oil and fuel pricing over the last several weeks," he wrote. "While demand and pricing fundamentals remain very solid, the industry is well aware that consumers to a large degree view ticket pricing and fuel charges as fungible focusing on the total cost of a cruise vacation in our view."

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