Cruise-onomics: Is the stock as cheap as the trip?

For those readers who have noticed, or even lamented, the absence of blog posts over the last few weeks, I have just returned from a two-week Caribbean cruise. This is not so much a comment on the generosity of Interactive Investor to its contributors as to the fact that cruise companies are slashing prices in the wake of the Costa Concordia disaster.

The point about cruise holidays is that while the ships may resemble, and indeed are, floating hotels, there is one big difference between hotels and boats. Once you are sea, you can't walk out the door.

What cruise companies want, therefore, is 100% occupancy at any price. Once on board, you are part of a captive market. Operators also carefully minimise the evenings when the boat is berthed in an attractive town. Why have passengers spending money in bars and restaurants ashore when they could do so on the boat?

In the entire two weeks I was away, the boat was in port until late evening on only one occasion, and then only on a Sunday evening when the entire population of a nondescript town was still hung over after a local carnival the preceding day. You get the picture.

For the same reason, UK operators who previously offered fly-cruise deals are now opting for cruises that leave from UK ports and then spend three days or more crossing the Atlantic or the Bay of Biscay with an entirely captive market of punters, as well as cutting out the cost of a subsidised long-haul flight.

Once on board, there is pressure to spend. As a non-drinker I am hardly ever going to be the best bar turn around. My wife, while not teetotal, is pretty abstemious too. The remaining passengers made up for any shortfall in takings we might have generated by quaffing enthusiastically from morning till night.

Internet charges (20p a minute) are unavoidable. I spent over £8 on one occasion on a long email I needed to send to my local council planning department. And don't get me started on that traditional staple of cruises, photographing passengers at every conceivable opportunity and then selling them the resulting snaps.

Then there are shore excursions. These are overpriced by any reasonable standard, usually around double what could be arranged individually by negotiating a deal with a local taxi driver, a system that is highly organised in the Caribbean. Given that a cruise line can organise such outings at an even lower cost than you could do, it's easy to see the sort of margins that can be earned by catering for the timid, unadventurous and security-obsessed.

And of course, the captive market of punters is a golden opportunity for selling future cruises, from heavily-discounted cabins on the immediately following voyage to cater for those who want to do two cruises back to back (£500 each would have bought you a two-week cruise down the Amazon on the boat that I was on, for example) to those inveterate cruisers who buy their cruises a year ahead so that they can have the same cabin they always have, and will pay through the nose to do so.

It's easy to scoff at these devices to part cruisers from their money and forget the central point, which is that occupancy is all. Revenue per berth is the key number, which is why popular destinations like the Caribbean are largely the preserve of the monoliths operated by the likes of Princess Cruises and Royal Caribbean (RCL), which can hold anything up to 4,000 passengers or more.

Though there are obvious economies of scale at work - unit revenue increases disproportionately more than costs compared to smaller boats - the impact of these mega-ships on the ports of call they travel to can be huge. In St Maarten, three large boats and one smaller one disgorged close to 15,000 people on one particular day on an island with a resident population of just 75,000.

Carnival (CCL), owners of the ill-fated Costa Concordia, and Royal Caribbean, which has warned of an adverse impact on its own bookings from the sinking, will of course recover their poise. Given their economics, their shares might even represent good value at current levels, though I am no expert on companies like this.

The reason is simple. Cruises offer, in effect, a fixed-price all-inclusive touring holiday, with one lot of packing and unpacking, and luggage handled invisibly at the beginning and end. The most hassle we had at the end of our trip was not the fault of the cruise operator, but of the rail network, namely cancelled trains from the airport due to a derailment.

The taxi home cost almost as much as I had spent on the boat in the preceding two weeks.