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Royal Caribbean Most Likely Will Not Build Smaller

GregD

By GregD,
in Royal Caribbean International

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gtalum

gtalum

Posted
Posted

I suspect Goldstein will be eating his words in a year or two. Even assuming Oasis and Allure are huge long-term assets top the company, they'll soon be needing new Panamax ships to replace the Vision and Radiance classes. Legend is 15 years old and Radiance is 8 years old.

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rubrrick

rubrrick

Posted
Posted
I suspect Goldstein will be eating his words in a year or two. Even assuming Oasis and Allure are huge long-term assets top the company, they'll soon be needing new Panamax ships to replace the Vision and Radiance classes. Legend is 15 years old and Radiance is 8 years old.

 

I second the above statement!;)

 

Rick

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temple1

temple1

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Posted

I think it would be a shame for them to not take what they've learned over the years with the Radiance Class and the stretched Enchantment and put that into a new class of ship. They are missing so many ports now with the Freedom Class and now the Oasis they are going to start losing the folks who cruise to get somewhere besides the ship.

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Clarea

Clarea

Posted
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I read the blog entry and found it interesting that the question was not really answered. The question was "Would RCCL build smaller ships", which I took to mean would they build Freedom, Voyager, Radiance class ships. The blog answer talked about Azamara, different brands, etc. In the end, the statement was made that Royal would not build small ships. Maybe I'm reading too much into it, but I was looking to hear if they would build any more Freedom class ships, as they had planned to do before the downturn in the economy, and I don't think that was the question that was answered.

 

Bob

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NordicPrince

NordicPrince

Posted
Posted
I suspect Goldstein will be eating his words in a year or two. Even assuming Oasis and Allure are huge long-term assets top the company, they'll soon be needing new Panamax ships to replace the Vision and Radiance classes. Legend is 15 years old and Radiance is 8 years old.

 

From a company financial point of view, one would think that you would

operate a ship at least until its asset value has been fully depreciated (sp?). Not being a shipping accounting expert, I have no idea how many years the depreciation schedule would be set for.

 

In addition, it takes an incredibly large amount of capital to finance the building of any new ship. One might assume that the building of the Oasis-class ships has stressed the capital raising ability of the company. It may take several years to recover the building costs of these vessels. Before that it might worry the shareholders (to whom Mr. Goldstein ultimately must report to) that the debt-to-equity ratio is being comprimised (sp?), thus constraining the price of the company's shares.

 

Third, can one assume that a ship 15 and 8 years of age, given the nature

of modern construction materials and methods, is "old" ? The largest expense for these ships is the construction of the hull. As long as the

ship is placed in dry dock on a regular schedule for ongoing hull

maintenance there is no reason why the ship cannot last 30 years at a minimum. These ships can be continually refitted with new interiors to refresh their appeal. Pool areas can be restructured and amenities added. Propulsion can be updated to achieve higher efficiencies.

 

Fourth, in addition to the Royal Caribbean brand RCI is also financing new

construction for its Celebrity brand with the new Solstice class of ships.

 

Fifth, RCI is establishing the Azamara brand for its smaller and more upscale ships (approx. 30,000 tons, 1000 passengers). Presently there are only 2 ships in that fleet. The odds are that any new smaller builds would be added here.

 

In sum, it needs a very large cash flow to finance new construction, and at the present time Mr. Goldstein is biting off a very large chunk. It has yet to be established that the Oasis-class will be a financial success

or the biggest white elephant to ever float since the S.S. France was

built just as the age of TranAtlantic air travel was becoming popular.

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negc

negc

Posted
Posted
I suspect Goldstein will be eating his words in a year or two. Even assuming Oasis and Allure are huge long-term assets top the company, they'll soon be needing new Panamax ships to replace the Vision and Radiance classes. Legend is 15 years old and Radiance is 8 years old.

By that time, the new Panama Canal locks should be in operation and according the the Captain of the Jewel of the Seas, the Canal will then be accessible to ships as large as Oasis and Allure. Unless they can find a way to build smaller ships that are as profitable to operate as the megaships currently in their fleet, I'm afraid that Mr. Goldstein's statement will continue to be the way in which RCI and the other mass market ships will order more new builds. I think that most of us wish that the economics were better and that more Radiance-style ships could be added to the fleet, but"if wishes were horses, beggars would ride".:) The life expectancy of most cruise ships is more than twenty years so it will be a while before this becomes a pressing problem for them.

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negc

negc

Posted
Posted
Simple answer...

 

If global and U.S. economies do not turn around RCCL will not be building any new ships, large or small.

 

Most of us are seeing signs of the start of a turnaround in the US economy, although unfortunately that is not yet evident in the employment sector. In the leisure travel industry, cruises seem to be weathering the storm better than other sectors. The lead time required to construct new ships means that any new builds ordered next year will not be delivered until 2013, so the more optimistic in the industry may at least begin to explore the possibility of designing and building new ships by this time next year. When we see cruise prices begin to rise and fire sale prices are phased out, we may have a better idea of when and if, new construction contracts will be executed. As with many complex issues, simple answers may sound good, but may be more simplistic than simple.:rolleyes:

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gtalum

gtalum

Posted
Posted
From a company financial point of view, one would think that you would

operate a ship at least until its asset value has been fully depreciated (sp?). Not being a shipping accounting expert, I have no idea how many years the depreciation schedule would be set for.

 

In addition, it takes an incredibly large amount of capital to finance the building of any new ship. One might assume that the building of the Oasis-class ships has stressed the capital raising ability of the company. It may take several years to recover the building costs of these vessels. Before that it might worry the shareholders (to whom Mr. Goldstein ultimately must report to) that the debt-to-equity ratio is being comprimised (sp?), thus constraining the price of the company's shares.

 

Third, can one assume that a ship 15 and 8 years of age, given the nature

of modern construction materials and methods, is "old" ? The largest expense for these ships is the construction of the hull.

 

I understand all of this, but to a business like the cruise industry public perception is everything. Look at everyone scrambling for the newest ships one EVERY cruise line. There is a massive fare premium to sail on the newest ships out there. At some point the cruise line has a net loss of potential revenue by sailing older ships.

 

I could be wrong, but I stand by my prediction that Goldstein will eat his words. Most likely he'll reframe the comment when Royal announces some smaller new-builds in the next few years.

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gtalum

gtalum

Posted
Posted
BUnless they can find a way to build smaller ships that are as profitable to operate as the megaships currently in their fleet, I'm afraid that Mr. Goldstein's statement will continue to be the way in which RCI and the other mass market ships will order more new builds.

 

If you study RCI's financials, you'll find the mega-ships have not been particularly profitable for the corporation. As has been noted above, construction costs dwarf any other costs in the business, and the construction costs of the ships goes up exponentially with increased gross register tonnage. Oasis (and probably Allure) is going to have the added baggage of unusually expensive financing. That financing nut is tough to overcome.

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djneph

djneph

Posted
Posted

I re-read the blog entry. It doesn't say they wont't build any ships smaller than Oasis Class. If you read the entry it points out that they will require ships of all sizes to diversify their fleet. I think they ment the will probably not build any ships smaller than their current smallest ships (Soverign Class/Vision Class).

 

I do not think they will continue to only build Oasis and bigger. I could see them doing a bigger version of the Radiance Class, kinda like how the Freedom is a bigger version of the Voyager Class.

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negc

negc

Posted
Posted
If you study RCI's financials, you'll find the mega-ships have not been particularly profitable for the corporation. As has been noted above, construction costs dwarf any other costs in the business, and the construction costs of the ships goes up exponentially with increased gross register tonnage. Oasis (and probably Allure) is going to have the added baggage of unusually expensive financing. That financing nut is tough to overcome.

I haven't studied RCI's financials in any depth, but I have to assume that both Richard Fain and Adam Goldstein are intimately familiar with them and their position on the likelihood that they will build any more Radiance-sized ships, has been unchanged for several years now. They claim, and I would hope that they have some expertise in this area, that it is more cost-efficient and more profitable to operate the larger, Voyager, Freedom, and ultimately Oasis class ships and have been unequivocal in their negative response to suggestions that more Radiance class ships should be built. Their success to date has certainly been better than that of NCL's former CEO, Colin Firth, whose decisions re deploying too many ships to Hawaii, and ordering multiple Epic type ships cost them dearly when they had to cancel the second ship and were unsuccessful in attempting to sell the ship, now destined to be the NCL Epic.:rolleyes:

Time will tell whose predictions are on target but at the present time, my money is on Goldstein and company.:)

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gtalum

gtalum

Posted
Posted
Their success to date has certainly been better than that of NCL's former CEO, Colin Firth, whose decisions re deploying too many ships to Hawaii, and ordering multiple Epic type ships cost them dearly when they had to cancel the second ship and were unsuccessful in attempting to sell the ship, now destined to be the NCL Epic.

 

Agreed, Colin Veitch and NCL made some bad decisions a few years back. They seem to be putting their ship in order, so to speak, these days. ;)

 

It will be interesting to watch what happens to the fleet (not just RCI, but everybody) over the next few years, though. But then I'm a bit of a pessimist and I'm of the opinion that the current "recovery' will be both shallow and short-lived and the coming decline will be worse than the last. Let's hope I'm wrong.

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BroncosFan2010

BroncosFan2010

Posted
Posted
I am sorry if that is the case. I prefer the smaller ships over the new huge ones. I'm sure others feel as I do.

 

 

Count me in! I prefer Radiance class ships. They have the best itinerary, and I prefer to avoid sailing on the large ships with lots of families and children. I prefer to cruise for the itinerary, not the ship. Big ships equal the same islands over and over again, and lots of sea days. NO THANKS!

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bionicman97

bionicman97

Posted
Posted

When we were on the Liberty last month, someone asked the captain about the smaller ships at the Platinum/Diamond/Diamond+ event. The captain said there were no present plans to build another small ship.

 

I took that to mean that they wouldn't build anymore as long as the bigger ones turned a bigger profit. (personal opinion)

 

The captain also said that in a good economy, they can make back the cost of a brand new ship in 2 to 3 years. (I found that hard to believe, but I don't work for the cruise line either.

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GregD

GregD

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What?

 

:D

LOL

Agreed, Colin Veitch and NCL made some bad decisions a few years back. They seem to be putting their ship in order, so to speak, these days. ;)

 

It will be interesting to watch what happens to the fleet (not just RCI, but everybody) over the next few years, though. But then I'm a bit of a pessimist and I'm of the opinion that the current "recovery' will be both shallow and short-lived and the coming decline will be worse than the last. Let's hope I'm wrong.

 

I think it will be interesting to see how the industry reacts to the rebounding economy. People will want to cruise again and in 2 years, there will be no new ships.

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EVALUATOR

EVALUATOR

Posted
Posted
From a company financial point of view, one would think that you would

operate a ship at least until its asset value has been fully depreciated (sp?). Not being a shipping accounting expert, I have no idea how many years the depreciation schedule would be set for.

 

They Straight line depreciate the ships over 30 years assuming a 15% residual value.

 

The Radiance class and the Celebrity M class are built on a shared hull.

 

IMHO, RCCL will adopt the Celebrity Solstice class hull for the successors to the Radiance class. 128,000 GRT

 

The Solstice class costs more per berth, more per Gross Registered Ton, and has a smaller passenger to crew ratio than the Oasis.

 

I think it will be interesting to see how the industry reacts to the rebounding economy. People will want to cruise again and in 2 years, there will be no new ships.
There are lots of new ships due out from now into 2012.

http://www.cruisecritic.com/articles.cfm?ID=167

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