Cruise Ship Wreck Costs Could Surpass $130 Million
Company faces ship salvage, loss of revenue, lawsuits, stock plunge.
Jan. 18, 2012— -- The capsizing of the Costa Concordia cruise ship will send a tidal wave of bills at the owners that could reach $130 million -- if the ship can be salvaged.
If it is determined that the $650 million luxury liner is too badly damaged and is little more than fancy scrap, the owners -- Costa Cruises and its parent company Carnival Cruises -- will have to absorb the loss of the ship.
"They just lose," said Jaime Katz, an equity analyst for Morningstar Inc., an independent investment research firm. "The ship is gone. They will have to start over or have one less ship in that market."
That determination has yet to be made, but even a bill that big would not sink the company, experts said.
Carnival Cruises is the largest company in the cruise industry with more than 100 ships in service and 11 global brands.
Nevertheless, the company is bracing for a tsunami of bills heading its way.
Already the disaster has affected Carnival's stock. On Tuesday shares of Carnival were down nearly 14 percent to $29.53. Bloomberg said it was the biggest drop for the company since April 2009.
Morningstar has estimated that the company will face $85 million to $95 million loss in revenue while the ship is out of service.
Carnival, which is based in Miami, has a $30 million insurance deductible for damage to the ship.
Lawsuits will poke a hole in the company's bottom line.
The company reportedly has a $10 million deductible on third-party personal injury liabilities and Italian laws regarding civil suits may protect Carnival and Costa from mega suits that are common in the U.S.
"Italy has a civil law system," said John H. "Jack" Hickey, a maritime lawyer in Miami who represented passengers who suffered severe injuries in July 2006, after the Crown Princess cruise ship tilted nearly 24 degrees.
"Italy's civil code has schedules of compensation for various injuries. There are many, many factors that go into that. There is compensation for death ... and [for passengers'] loss of vacation or opportunity to enjoy themselves for a week. Italian code allows for compensation for that," Hickey said.
He said that passengers seeking to bring claims against the Costa Concordia cruise company would have to do so in Genoa, Italy, where Costa is based. So far, a class action suit has reportedly been initiated by an Italian consumer defense group and 70 passengers have joined the suit.
Carlo Rienzi told the Agence France Presse that his group's objective was "to get each passenger at least $12,773 compensation for material damage and also for ... the fear suffered, the holidays ruined and the serious risks endured."
Carnival said it "further anticipates other costs to the business that are not possible to determine at this time," according to Bloomberg.
Despite the public relations nightmare, Katz said that passengers would continue to sail the high seas after a bit of assurance from the industry, especially Carnival and Costa.
"People are not going to be booking as quickly," she said. "[Carnival] is going to have to assure people this is a safe way to travel."
But she said the industry was ripe for growth.
