Yo-Ho, it's major dough: Disney makes, and spends, big money on pricey cruises.

Having successfully dipped its toe into the cruise ship business eaters, Walt Disney Co. is taking a $1.6 billion plunge by commissioning two huge liners.

The tourism industry is notoriously volatile and the cruise lines have been hurt recently by outbreaks of illness and reports of crimes, but few are betting against high seas success for Burbank-based Disney.

"Disney is very much separate from the rest of the cruise industry," said Mike Driscoll, editor of industry publication Cruise Week. "I don't think any other line nowadays would go and double their size--even the smaller ones."

Specific design plans and itineraries for the yet-unnamed ships are still in development, but it seems almost certain at least one of the ships will be based in Los Angeles.

"You can bet on it," said David Miller, an analyst with Sanders Morris Hams Inc. "Those Mexican Riviera cruises that they did (in 2005) were wildly successful."

In the nine years that it has operated its current two cruise ships, Disney has set itself apart from other lines by capitalizing on the family niche, a newer segment of a market that traditionally played to honeymooners and retirees.

The world's largest theme-park operator is expanding the Florida-based Disney Cruise Line as part of a growth strategy for the company's resort unit. The company doesn't break out the financials on its cruise lines, but the company reported $10 billion in sales from theme parks, resorts, cruises and time-share properties last year. Chief Executive Robert Iger said earlier this year that the cruise ships have generated high margins and double-digit returns on invested capital.

The new ships will be built by German shipyard Meyer Werft. and won't be delivered until 2011 and 2012. Each will have more capacity than the existing Disney Magic and Disney Wonder liners, with two additional decks compared to the current 83,000-ton ships. The 122,000-ton ships are scheduled to launch in 2011 and 2012, an each will have 1,250 staterooms.

Analysts estimate the two new ships will cost more than $800 million apiece to build--a hefty increase over the estimated $500 million to build the first two vessels more than a decade ago. Despite Disney's previous success with the cruises, that large an investment carries inherent risks.

"Building new ships is incredibly expensive and they won't even arrive for three or four years," Driscoll said. "Things can change drastically in the travel industry over that period."

Growing demand

Disney Cruise Line spokeswoman Rena Langley said the decision to expand the fleet was in discussion for many months before the letter of intent was signed with the German shipyard.

One factor sure to have made the decision to go forward easier was the high demand for the existing lines.

"With a larger fleet, we'll have greater flexibility to offer a variety of itineraries," said Walt Disney Parks and Resorts Chairman Jay Rasulo.

Company representatives said that Disney, which traditionally offers three-, four- and seven-night Caribbean cruises, has seen a sizeable demand for new itineraries. The summertime foray from Los Angeles into the Mexican Riviera in 2005--for the company's 50th anniversary celebration, an itinerary that will be offered in the summer of 2008 as well--set company booking records. On its Bahamas cruises, Disney generally commands rates twice as high as their competitors.

On a seven-night West Coast cruise, a deluxe stateroom, the second-lowest of nine room options available, goes for between $1,729 and $2,479 per passenger based on double occupancy, with additional charges of $999 to $2,699 for each additional guest between ages 3 and 13.

The company has been able to charge premium prices because of the family-friendly Disney brand, according to Driscoll.

"Disney has never been a price-sensitive buy," he said. "They really appeal to a different breed of traveler. There is a comfort factor that families feel when they go with Disney--the kids aren't going to see anything they shouldn't see."

Being family-oriented certainly helps when it comes to occupancy, too. Disney cites 150 percent occupancy, with more people per room than the average ocean liner. Most ships book two passengers to a cabin, while Disney typically books three.

It took a while for the Mouse House to find its cruise niche. It hit the high seas on its own in 1998, after partnering for years with the now-defunct Premier Cruises. When the decision was made to go it alone, and focus on the parents-and-kids market, things took off.

Troubled waters?

It hasn't been all smooth sailing.

Outbreaks of Legionnaire's disease and the Norwalk virus, which have sickened thousands of passengers, have brought some bad publicity to the sea travel industry.

In 2002, about 100 people on the Disney Magic contracted a flu-like illness even after the vessel was scrubbed because of an earlier outbreak; the illness prompted the cancellation of a Disney cruise. Other operators have been hit as well; about 1,500 people were sickened in two separate cruise ship outbreaks last fall. And as recently as January, a flu-like virus sickened hundreds of passengers during a worldwide voyage on the Queen Elizabeth 2.

Safety on liners is coming under increasing scrutiny by tourists and lawmakers. More significantly, the entire travel industry took a dive after the terrorist attacks of Sept. 11, 2001. The industry bounced back to nearly 10(I percent occupancy by January 2002.

"Cruises have done well at times that airline travel and tourism in general have faced challenges, because they allow travelers to escape increasing hassles of flying, especially for families," Driscoll said.

By Anne Riley-Katz Staff Reporter