How long a Company Keeps a Ship

How long does a Cruise company like a major one like NCL, RCL , Carnival, ETC keep their ships before they hand them down to a smaller company.

Also why do they do this?

Also do only the big companies such as one listed keep a ship as 1st owners? so many of the smaller cruise companies eg, Louis cruise lines etc, use "hand me down ships" etc.

Is that a normal trend?

Think about the cost of building a brand new ship VS. buying an older ship.

The Fantasy is Carnival's oldest ship and I believe she was built in 1992. She will be the next ship they sell. When she was in dry dock a year or two ago they decided to not to add Guy's Burgers, the Blue Iguana Bar or the Red Frog Rum Bar. This would have been a BIG expense for their oldest ship which will be the next they sell.

Thomas bought NCL's Majesty which was built by Dolphin Cruise line, the Royal Majesty - Dolphin Cruise lien no longer exists. It held 1200 passengers and was built in the late 80's.

Premier - also no longer existing- bought Dolphin's SeaBreeze and OceanBreeze. I think one of these became a casino ship. They used to sell older ships to the Orient because they didn't need to meet the standards we did.

The Dolphin was sold to Cape Canaveral Cruise line and was their only ship. We cruised her a lot and had dinner with three captains. All three told us she had been a freighter turned into a cruise ship, built in 1947, 1949 or 1952- (depending on the captain).

About 1993 she was sent to India. It was going to cost more than the 1.1 million they had to fix her engines, etc.. India is where they run ships, at full speed, up onto the beach. Then they cut ships up for scrap- maybe your beer can used to be a ship!

You are asking about tough business decisions made at the highest levels (and in the Boards) of cruise corporations. Some markets, like the Caribbean, have very intense competition so this is an area where most cruise lines put glanderous new ships. Meanwhile, there are some European and Asian markets where older ships seem to do quite well. For many years these markets have done quite well in the lower cost budget market and they have entire cruise lines that specialize in this kind of voyage. So we will often spot older ships (that we know well from our own past voyages) now moving around the Med and in Asia. A good example is the old Marco Polo (we loved this ship) which can still be found in Europe.

There are also different standards that are acceptable in certain markets. A vessel that might have difficulty getting a passing score on a USCG Inspection or EU inspection might have no problem passing muster in certain Asian markets.

Hank

How long does a Cruise company like a major one like NCL, RCL , Carnival, ETC keep their ships before they hand them down to a smaller company.

 

Also why do they do this?

 

Also do only the big companies such as one listed keep a ship as 1st owners? so many of the smaller cruise companies eg, Louis cruise lines etc, use "hand me down ships" etc.

 

Is that a normal trend?

Your question reminded me of the History Channel TV show called Ice Pilots NWT which is about an airline that operates out of Yellowknife in the North West Territories (NWT) here in Canada. The airline operates Douglas DC 3's and DC 4's which were built in the 1930's and 1940's! Those are old aircraft :eek: but they are still flying passengers in that market.

Mainline airlines could not fly those planes and be competitive. But as long as someone can make money with them, these old aircraft will continue to fly somewhere. Same thing with older cruise ships. They will continue to float if someone can make money with them. But once they are worth more as scrap than in operation, then it's off to the scrapyard.:(

Interesting fact, Air Canada flew the DC 3 as a passenger aircraft when they were new and modern. AC last flew a DC 3 in 1963!

We should have mentioned another issue which are the tax ramifications. Cruise lines are businesses who need to generate a profit for their stockholders. Cruise ships are huge capital investments with costs in the hundreds of millions of dollars (per ship) and even higher in the case of some of the Mega Ships. Capital Assets are subject to various tax treatments including depreciation. There is much to say for holding onto an asset until it is fully depreciated and then transferring it to another company (that can then reap additional tax benefits including depreciation). Since these are generally multi-national corporations the tax situation is incredibly complex and beyond the knowledge of most of us mere mortals. But it is also a driving force on executive suite decision making.

Hank

We should have mentioned another issue which are the tax ramifications. Cruise lines are businesses who need to generate a profit for their stockholders. Cruise ships are huge capital investments with costs in the hundreds of millions of dollars (per ship) and even higher in the case of some of the Mega Ships. Capital Assets are subject to various tax treatments including depreciation. There is much to say for holding onto an asset until it is fully depreciated and then transferring it to another company (that can then reap additional tax benefits including depreciation). Since these are generally multi-national corporations the tax situation is incredibly complex and beyond the knowledge of most of us mere mortals. But it is also a driving force on executive suite decision making.

 

Hank

Holding onto a fully depreciated ship would not have a significant effect of the Majors income tax situations as they pay minimal income taxes anyways.

Holding onto a fully depreciated ship would not have a significant effect of the Majors income tax situations as they pay minimal income taxes anyways.

But holding on to a fully depreciated ship will coincidentally result in dramatically escalating repair and maintenance costs. Like an ageing auto, a cruise ship older than 10 will require huge yearly cash infusions just to keep it running.

After a cruise ship hits age 10, major systems start to fail.

The A/C system is no longer efficient, and frequently fails in remote parts of the ship.

The water system has a lot of rust and other debris that can never be entirely removed.

The vacuum toilet system plugs up and fails more and more often.

Water pipes that have flexed a few times too often start to break and flood public areas.

All the renovations made over the years result in holes left in bulkheads here and there. When there is a flood on one deck, the water finds it's way to lower decks.

A ship that is fully depreciated will also run into fuel cost issues. Every ten years or so, fuel economy technology of new ship engines takes a major leap. Today's Oasis of the Seas, with 5,000+ passengers, burns far less fuel than older ships that are far smaller and carry far fewer passengers to pay the rapidly escalating fuel bill.

Most of the cruising public wants new ships, with all the latest bells and whistles. New ships with all the new "fun stuff" can charge much higher fares than older ships with the same old, same old.

The higher fares on the newer ships, along with all the extra onboard revenue opportunities, equals higher profits for the company.

Who wants to sail on those quaint older, smaller ships that are already paid for?

Mostly older people on fixed incomes.

How do cruise lines make profits today?

Only by selling things to passengers once they are onboard.

Do older passengers on fixed incomes spend much money on older ships that have very few revenue opportunities anyway?

No.

Only by selling things to passengers once they are onboard 51 % of income comes from

But holding on to a fully depreciated ship will coincidentally result in dramatically escalating repair and maintenance costs. Like an ageing auto, a cruise ship older than 10 will require huge yearly cash infusions just to keep it running.

 

After a cruise ship hits age 10, major systems start to fail.

The A/C system is no longer efficient, and frequently fails in remote parts of the ship.

The water system has a lot of rust and other debris that can never be entirely removed.

The vacuum toilet system plugs up and fails more and more often.

Water pipes that have flexed a few times too often start to break and flood public areas.

All the renovations made over the years result in holes left in bulkheads here and there. When there is a flood on one deck, the water finds it's way to lower decks.

 

A ship that is fully depreciated will also run into fuel cost issues. Every ten years or so, fuel economy technology of new ship engines takes a major leap. Today's Oasis of the Seas, with 5,000+ passengers, burns far less fuel than older ships that are far smaller and carry far fewer passengers to pay the rapidly escalating fuel bill.

 

Most of the cruising public wants new ships, with all the latest bells and whistles. New ships with all the new "fun stuff" can charge much higher fares than older ships with the same old, same old.

The higher fares on the newer ships, along with all the extra onboard revenue opportunities, equals higher profits for the company.

 

Who wants to sail on those quaint older, smaller ships that are already paid for?

Mostly older people on fixed incomes.

 

How do cruise lines make profits today?

Only by selling things to passengers once they are onboard.

 

Do older passengers on fixed incomes spend much money on older ships that have very few revenue opportunities anyway?

No.

Agreed, all those things make older ships more expensive to operate. But all that stuff happens way before the ship is fully depreciated. Most cruise ships are depreciated over 30 years.

But holding on to a fully depreciated ship will coincidentally result in dramatically escalating repair and maintenance costs. Like an ageing auto, a cruise ship older than 10 will require huge yearly cash infusions just to keep it running.

 

After a cruise ship hits age 10, major systems start to fail.

The A/C system is no longer efficient, and frequently fails in remote parts of the ship.

The water system has a lot of rust and other debris that can never be entirely removed.

The vacuum toilet system plugs up and fails more and more often.

Water pipes that have flexed a few times too often start to break and flood public areas.

All the renovations made over the years result in holes left in bulkheads here and there. When there is a flood on one deck, the water finds it's way to lower decks.

 

A ship that is fully depreciated will also run into fuel cost issues. Every ten years or so, fuel economy technology of new ship engines takes a major leap. Today's Oasis of the Seas, with 5,000+ passengers, burns far less fuel than older ships that are far smaller and carry far fewer passengers to pay the rapidly escalating fuel bill.

 

Most of the cruising public wants new ships, with all the latest bells and whistles. New ships with all the new "fun stuff" can charge much higher fares than older ships with the same old, same old.

The higher fares on the newer ships, along with all the extra onboard revenue opportunities, equals higher profits for the company.

 

Who wants to sail on those quaint older, smaller ships that are already paid for?

Mostly older people on fixed incomes.

 

How do cruise lines make profits today?

Only by selling things to passengers once they are onboard.

 

Do older passengers on fixed incomes spend much money on older ships that have very few revenue opportunities anyway?

No.

The bottom line than is probably, "As long as that ship continues to make money."

I'm reminded of the old QE2 which sailed for Cunard almost 40 years, but not without a major power plant replacement. Even without SOLAS 2010 the maintenance of her aluminum superstructure became a money pit. Her plumbing and A/C was troublesome and Cunard became increasingly worried of a PR nightmare due to a catastrophic failure.

QM2 has just hit that 10 year mark. If those who love her only sail on "smoking hot deals", remove staff gratuities, and their total on board spending equates to one bar order per voyage day, then she won't sail nearly as long as her predecessor.

The bottom line than is probably, "As long as that ship continues to make money."

 

I'm reminded of the old QE2 which sailed for Cunard almost 40 years, but not without a major power plant replacement. Even without SOLAS 2010 the maintenance of her aluminum superstructure became a money pit. Her plumbing and A/C was troublesome and Cunard became increasingly worried of a PR nightmare due to a catastrophic failure.

 

QM2 has just hit that 10 year mark. If those who love her only sail on "smoking hot deals", remove staff gratuities, and their total on board spending equates to one bar order per voyage day, then she won't sail nearly as long as her predecessor.

:confused::confused:

How does "remove staff gratuities" have anything to do with Cunard's ability to make money from the QM2 and keep her sailing for Cunard?

Agreed, all those things make older ships more expensive to operate. But all that stuff happens way before the ship is fully depreciated. Most cruise ships are depreciated over 30 years.

It is very rare for a cruise ship to have the same owner for 30 years.

Many of the 29 cruise ships I have managed were depreciated, sold off, used again, depreciated again, and scrapped before they reached 30.

It is very rare for a cruise ship to have the same owner for 30 years.

Many of the 29 cruise ships I have managed were depreciated, sold off, used again, depreciated again, and scrapped before they reached 30.

Interesting. Last time I looked at CCL's and RCL's financials they both use a 30 year depreciation schedule with a 15% assumed residual. From your experience would most mainline companies sell their ships at 20 years old? If so, I wonder what a 20 year old cruise ship would sell for as a percentage of the original price?

How does "remove staff gratuities" have anything to do with Cunard's ability to make money from the QM2 and keep her sailing for Cunard?

Directly, none. Indirectly, it indicates a client base that won't support the financial viability of a ship.

Those who remove staff gratuities tend to (but not always) sail only on deals. The best staff performers want to transfer off and the ship is left with the poor performers and the resulting negative reviews. Negative reviews mean that those who select a ship for service and itinerary look elsewhere. The ship is then left with only the bargain hunters who won't spend money once on board.

Directly, none. Indirectly, it indicates a client base that won't support the financial viability of a ship.

 

Those who remove staff gratuities tend to (but not always) sail only on deals. The best staff performers want to transfer off and the ship is left with the poor performers and the resulting negative reviews. Negative reviews mean that those who select a ship for service and itinerary look elsewhere. The ship is then left with only the bargain hunters who won't spend money once on board.

I see your point. But is removal of gratuities a big problem on Cunard? I just priced out the January Southampton to Dubai cruise and a club balcony was CDN $380 per night. Do cruisers on Cunard pay that kind of money and still stiff the crew?

I see your point. But is removal of gratuities a big problem on Cunard? I just priced out the January Southampton to Dubai cruise and a club balcony was CDN $380 per night. Do cruisers on Cunard pay that kind of money and still stiff the crew?

In general no, most who post on the Cunard board are aware of the behind the scenes crew in addition to the obvious stewards and waiters.

The board does however have its bargain hunters, and for me there's a disconnect between wanting a deal and then whining about cutbacks. Some are completely oblivious to Economics 101 where premium amenities and discounted prices don't co-exist for very long.

To return to the original topic, the old QE2 sailed for almost 40 years and showing her age by the time she was given a dignified retirement. She had very few balconies and only in the highest cabin grades. Her internal layout would have driven rats insane if put through such a maze.

Many have fond memories sailing and her and moan that Cunard took her out of service. In the end though her client base aged and those who did sail were very conservative in their discretionary spending. Even without SOLAS 2010 her revenue didn't keep up with her maintenance costs.

The last two major sales I'm aware of we're celebrity century and ocean princess both around the 20 year mark.

All the ships of the Fantasy class are showing their age and the number of rebuilds has made them even less desirable. They can and will continue to make money in the 3-4 day market for several more years.

We are starting to see major league rebuilds of sound hulls. Witness the proposed remodels of the two HAL ships that are going to P&O.

The last two major sales I'm aware of we're celebrity century and ocean princess both around the 20 year mark.

Ocean Princess (soon to be Sirena) was built in 1999

Ocean Princess (soon to be Sirena) was built in 1999

Yep so by the times she leaves Princess near enough 17 that's why I said they were both around 20, I am sure no company says 20 not a day older not a day younger. I believe she sold much quicker than they originally expected too.

I believe she sold much quicker than they originally expected too.

I have no idea how long she was on the market

It was not on my shopping list ;)

I have no idea how long she was on the market

It was not on my shopping list ;)

Well under a year.