Disney Cruise Line to Set Sail for the West Coast

When Mickey Mouse took to the high seas six years ago, there were plenty of skeptics.

But Mickey and the Disney Cruise Line that bears his colors have emerged as respected players in the competitive cruise business. Now, encouraged by brisk business in Florida and an industrywide expansion, Walt Disney Co. is exploring ways to transport Mickey’s family-oriented cruises beyond the Sunshine State.

Disney Cruise Line will inaugurate its first West Coast cruises out of the Port of Los Angeles next year with the 2,600-passenger Disney Magic ship. Ostensibly, the weeklong voyages to Mexico, running May through August, are being offered to mark the 50th anniversary of Disneyland.

There’s another reason: to test the waters for regular land-to-sea packages tied to the Disneyland Resort. Disney also is contemplating cruises in the Mediterranean and Hong Kong, where the company is building a Disneyland theme park set to open in late 2005.

“You really have to look at the cruise business as a prototype of how we see our future growth,” said Disney parks and resorts chief Jay Rasulo. “Definitely, it’s an expansion vehicle for us.”

Some say Disney has no time to waste. It once cornered the market on family-friendly cruises. But industry leaders Carnival and Royal Caribbean have been making steady inroads into that lucrative niche and continue to add ships each year.

“They don’t have the same competitive advantage that they once did,” said Andy Vladimir, associate professor emeritus of hospitality management at Florida International University in Miami and co-author of a book on the cruise industry. “The big problem for Disney is this market in many ways is driven by new ships.”

Disney Cruise Line operates out of Port Canaveral, Fla., with two ships -- Disney Magic and Disney Wonder -- that offer three- and four-night cruises to the Bahamas as well as seven-day itineraries to the Caribbean.

Expanding that fleet wouldn’t be easy.

A ship takes about three years to build and can cost about $500 million -- or the equivalent of five major feature films. It’s unclear whether Disney, which is facing heavy pressure from shareholders to boost profit, has the appetite to take on such a huge investment alone or even with partners.

Disney hasn’t committed to building a third ship. President Bob Iger recently indicated that ship construction in Europe right now would be especially expensive given the weakness of the dollar against the euro.

That said, Disney sees cruising as ripe for growth.

Since 1980, the cruise industry has had an average annual passenger growth rate of 8%, according to the Cruise Lines International Assn. The group estimates that only 15% of the target cruise population in the U.S. has ever cruised.

Southern California in particular represents a potentially attractive market for Disney.

The company’s West Coast cruises already are more than 50% booked, and two Panama Canal cruises between Port Canaveral and Los Angeles virtually sold out within a few days.

“We’re particularly pleased with the West Coast demand,” Disney Cruise Line President Karl Holz said. “We think that the market is solid opportunity for us.”

As for mounting competition, Holz says: “We have something special that no one else has -- the Disney brand.”

Although Disney doesn’t break out numbers for its cruise line, analysts estimate that the business generates at least $100 million a year in operating income and has proved resilient during the travel slump that has pummeled the firm’s theme park division over the last three years.

Iger said recently that the Disney Cruise Line enjoyed the highest load levels in the business and that its bookings were running 65% over last year.

“This cruise business is a good business for us,” he said at a recent conference.

The line’s steady growth is welcome news for a company that has faced criticism this year from investors over struggles at its ABC broadcast network, where ratings are low, and conflicts with longtime business partners, including Pixar Animation Studios.

Analysts say cruise ships could play an increasingly important role in building Disney’s travel business around the world. “It plays into their knowledge of vacationing,” said Jill Krutick, an analyst at Citigroup Smith Barney.

Mickey’s ships devote nearly an entire deck to children’s activities. Rooms are toddler friendly with such amenities as Diaper Genies. There are Disney-themed restaurants and a 977-seat theater where Disney musicals and first-run films are screened. Of course, Mickey and his pals make frequent appearances on deck.

When Disney launched the business in the late 1990s -- hoping to draw more visitors to its theme parks in Florida -- the company promised that the ships would combine the grandeur of classic ocean liners with Disney theme park elements and would “raise the bar of the whole cruise industry.”

Disney’s inexperience in the business showed at first. Disputes with shipbuilders in Italy over design issues brought embarrassing publicity and costly delays. At one point, Italian shipyard workers jokingly dubbed the Disney ships the Tragic and the Blunder.

After Disney Magic’s maiden voyage in 1998, some passengers groused about poor service, mediocre food and a lack of Disney characters onboard.

By the time Disney Wonder set sail the following year, adjustments had been made and Disney had established a reputation as a premier cruise line for families.

“The sense when they started was, why are they doing this?” said Sanford C. Bernstein analyst Tom Wolzien. “But it’s turned out surprisingly well.”