The Costa Cordia of cruise terminals?
by James A. Bacon
Bad news for the City of Norfolk: Carnival Cruise Lines has confirmed its intention to pull the Carnival Glory out of Norfolk, leaving the city-owned cruise terminal, the Half Moone Cruise and Celebration Center, virtually bereft of business.
Carnival, which has experienced declining bookings and revenue, attributed the decision to a new International Maritime Organization rule that will force it to burn lower-sulfur fuel beginning in 2015, according to the Virginian-Pilot. The regs “would significantly impact our fuel costs for operating cruises from Norfolk and many other ports around North America,” the Pilot quotes Carnival spokesman Vance Gulliksen as writing in an email. It was not clear from the Pilot article why the rule would impact Norfolk more than other ports.
Offering a ray of hope, Carnival said that its experience in Norfolk had been favorable and it will “evaluate all viable options to return to Norfolk in the future.”
Meanwhile, Carnival’s decision raises issues regarding the city’s continued support for Half Moone. The city issued $32.4 million in the facility, backed by an additional $5 million from the Virginia Port Authority. Since its opening in 2007, the city has spent $9.2 million to run the terminal and cover the annual debt service. Over the same time, the enterprise generated $7.7 million, leaving the city $1.5 million in the hole.
After the earlier loss of a Royal Caribbean vessel, the departure of Carnival will leave the facility with no revenue except that generated by occasional stop-overs by other cruise ships. At least two city council members have questioned whether the city should be in the cruise terminal business. Back during May budget hearings, says the Pilot, Councilman Andy Protogyrou called the terminal a “non-performing asset,” asking whether the city could sell it or convert it to another use. Councilman Tommy Smigiel told the Pilot that the build-it-and-they-will-come approach hasn’t worked.
But defenders of the cruise line contend that it has served well its function of stimulating economic activity. Cruiser passengers spend on average $135.50 each while in Norfolk. The total economic impact since 2007 has been estimated at $51.6 million.
Bacon’s bottom line: Past financial and economic performance is irrelevant. Norfolk officials need to ask themselves what are the odds of landing one or more cruise vessels in the future? This is no time for boosterism or wishful thinking.
I have two key questions. First, why is Norfolk more affected by the clean-fuel regs than other ports? Will that permanently put the port at a competitive disadvantage and deter cruise lines from home-porting there in the future? Second, was Carnival telling the whole story? What were the occupancy rates, revenues and profit margins for the Carnival Glory? Will the Norfolk market profitably fill the ship? Or will Carnival likely find other ports to be more lucrative?
If Norfolk officials decide there is a reasonable chance of snagging another cruise ship, they should probably hang tough. It’s hard to imagine that a terminal configured for a cruise line operation could be reconfigured for much of anything else. If the odds are grim, then City Council needs to bite the bullet and salvage whatever it can from a lousy business decision. In either case, citizens and taxpayers should insist that city officials act more prudently in the future.
