New Ships - Enough is Enough?

[DirtyDawg]

You might be surprised to see how quickly a boom can turn into a bust. Whether it is houses for sale or cruise ship cabins to book, the fundamental pricing mechanism is the same. When there are as many, or more, buyers than sellers, prices are steady or rising - a very small drop in the number of buyers changes everything and prices plummet rapidly. Look at the housing market between 2007 and 2009.

 

The stock market is subject to similar fundamentals: one more buyer than seller means rising prices, while one more seller than buyer means falling prices -- no huge shift in attitude is required to turn boom into bust.

 

In addition, the downturn is worse when you combine a decline in demand with growing supply. You just have to look at the oil market over the past couple of years or the natural gas market over the past decade or so. A market is a market, whether it's houses, oil, natural gas, the stock market, or cruise ship cabins.

[iancal]

During the 2007/8/9 economic downturn we were buying balcony Celebrity Med cruises for $100. per diem. Not gtys either. A few times we booked 2 of the sweet sixteen balcony cabins.

 

Poor economy in Europe, crash in NA, low demand, too many ships in the Med.

 

It can happen in a heartbeat. Vacations are the first to get cut back during challenging times.

[chengkp75]

Excellent point. I agree completely.

But unless you are currently a teenager - or younger - you will probably not live long enough to see this inevitable downturn in the cruise industry.

 

Meanwhile, thank you for supporting my employer and my industry.

 

Well, certainly short term there will be an overcapacity. From CLIA's own statistics, passengers are expected to increase by 1.1 million in 2017, but the industry will be adding 30,000 new berths, or 37 pax/berth, which given the average cruise length of 7 days, means only a 70% utilization rate.

 

For the long term, by 2026, CLIA estimates capacity to increase by 230,000 berths over 2016, and using their historical passenger growth rate of 6.2% (2006-2016), and the 2016 capacity of 466,000 berths, that means capacity will increase (without scrapping any ships) by 49%, and demand to increase by 62%, but the 6.2%/year figure is already down from the 6.8% figure used the previous year, so the passenger demand can be a fairly fragile number. While the numbers of cruise passengers do not reflect downturns in the economy, as witnessed in the recent recession, prices will reflect those downturns, and with the capital intensive shipbuilding campaigns the cruise lines are contemplating, they will not have as much room to lower prices and still cover both operational and new construction costs, which could have a negative impact on the passenger demand.

[DirtyDawg]

Well, certainly short term there will be an overcapacity. From CLIA's own statistics, passengers are expected to increase by 1.1 million in 2017, but the industry will be adding 30,000 new berths, or 37 pax/berth, which given the average cruise length of 7 days, means only a 70% utilization rate.

 

For the long term, by 2026, CLIA estimates capacity to increase by 230,000 berths over 2016, and using their historical passenger growth rate of 6.2% (2006-2016), and the 2016 capacity of 466,000 berths, that means capacity will increase (without scrapping any ships) by 49%, and demand to increase by 62%, but the 6.2%/year figure is already down from the 6.8% figure used the previous year, so the passenger demand can be a fairly fragile number. While the numbers of cruise passengers do not reflect downturns in the economy, as witnessed in the recent recession, prices will reflect those downturns, and with the capital intensive shipbuilding campaigns the cruise lines are contemplating, they will not have as much room to lower prices and still cover both operational and new construction costs, which could have a negative impact on the passenger demand.

 

Thanks for the information. Do you have longer term growth numbers from CLIA, say twenty or thirty years?

[chengkp75]

Thanks for the information. Do you have longer term growth numbers from CLIA, say twenty or thirty years?

 

They don't have those that I'm aware of, but I assume they feel the demand will continue to increase by 6-7%. Capacity increases are really based on shipyard order books, and beyond 2026, there isn't anything on order yet that I'm aware of.

[navybankerteacher]

 

...

 

While the numbers of cruise passengers do not reflect downturns in the economy, as witnessed in the recent recession, prices will reflect those downturns, and with the capital intensive shipbuilding campaigns the cruise lines are contemplating, they will not have as much room to lower prices and still cover both operational and new construction costs, which could have a negative impact on the passenger demand.

 

Of course there are tremendous differences between the industries, but certain parallels remain between the cruise and airline businesses.

 

"... room to lower prices..." is a vague term. For decades the airlines operated at losses while growing in capacity. Of course virtually all "traditional" lines went through the bankruptcy wringer - wiping out equity investors, sometimes more than once. While there is not a real need for the cruise industry to exist as there is with airlines, many factors are parallel.

 

Just as airlines have continually cut quality of services and cranked up charges, we should anticipate ongoing comparable developments in the cruise industry.

[DirtyDawg]

They don't have those that I'm aware of, but I assume they feel the demand will continue to increase by 6-7%. Capacity increases are really based on shipyard order books, and beyond 2026, there isn't anything on order yet that I'm aware of.

 

Thanks again. The 6.-7% growth number surprised me a bit. That's about double the growth in World Real GDP over the past decade. WOW, if this industry ever reverts to the mean, :eek: and with all those new births coming. :eek::eek::eek:

[navybankerteacher]

 

...

 

:eek: and with all those new births coming. :eek::eek::eek:

 

By how much do you think the number of new births coming will exceed the number of new berths coming?

[DirtyDawg]

By how much do you think the number of new births coming will exceed the number of new berths coming?

 

It's hard to keep those births coming as fast as those berths. Don't count on me, I'm way past giving that the old college try.:D

 

(The result not the process ;))

Edited May 24, 2017 by DirtyDawg

[Aquahound]

Not really---not for those of us who are looking for better cruising, not cheaper cruising. There isn't a price low enough to get me to want to cruise on many of the the huge ships being built and outfitted now.

 

The days of small ship cruising on mass market lines are numbered. Forget the lower prices. Before too long, those who think small ship cruising is better, are going to have to pay the price of luxury lines.

[chengkp75]

Of course there are tremendous differences between the industries, but certain parallels remain between the cruise and airline businesses.

 

"... room to lower prices..." is a vague term. For decades the airlines operated at losses while growing in capacity. Of course virtually all "traditional" lines went through the bankruptcy wringer - wiping out equity investors, sometimes more than once. While there is not a real need for the cruise industry to exist as there is with airlines, many factors are parallel.

 

Just as airlines have continually cut quality of services and cranked up charges, we should anticipate ongoing comparable developments in the cruise industry.

 

Probably one of the largest differences between the two industries is the capital intensity of shipbuilding. Cruise lines attempting to operate at a loss will have a hard time attracting capital to finance further expansion of their fleets at a billion plus a copy.

[chengkp75]

The days of small ship cruising on mass market lines are numbered. Forget the lower prices. Before too long, those who think small ship cruising is better, are going to have to pay the price of luxury lines.

 

Yep. And I foresee where the upscale lines will buy these older, smaller ships, because even a major upgrade to the hotel (even a total gut) would be cheaper than building a new hull and machinery. And with the higher base fares they command, they can cover the higher operating expenses of an older hull.

[navybankerteacher]

Probably one of the largest differences between the two industries is the capital intensity of shipbuilding. Cruise lines attempting to operate at a loss will have a hard time attracting capital to finance further expansion of their fleets at a billion plus a copy.

 

"Equipment" costs impact both industries. Sure, one ship costs more than one plane - but at $300 million to $400 million a copy airlines face similar finance problems - usually resulting in their opting to lease, rather than own, but the impact of equipment costs between the enterprises is not that very different.

[iancal]

I suspect that the fixed costs such as capital/finance, mtce, and staffing are so high that the cruise lines have no alternative but to reduce prices in trying times just to offset some of those fixed costs. Similarly, they take the cream when demand exceeds supply. As they are now doing with the Asian market.

[C 2 C]

An unsinkable cruise industry?

 

We are only one crisis away from changing travel patterns.

 

A fire at sea, an attack at a port city or a Concordia type incident will quickly upset the traveling public.

 

Eventually a ship will be a target.....

 

We cruise many times a year and we don't care what ports we visit as long as the "tourists" disembark and provide us with a private yacht....

 

"If you build it, they will come."

 

Unless you have a circus... and people found other things to entertain them.

[SantaFeFan]

An unsinkable cruise industry?

 

We are only one crisis away from changing travel patterns.

 

A fire at sea, an attack at a port city or a Concordia type incident will quickly upset the traveling public.

.......

 

The Concordia incident resulted in barely a blip in the cruise market. People have a very short memory when it comes to wanting ways to indulge themselves. Less than a year after that incident, passenger bookings increased over the previous years.

 

With your "doom and gloom" attitude, why do you even cruise at all???

[waterlegs]

I dont mind new ones coming on scene if they add itineraries and ports. I am hoping it will open up competition and I do believe there is a new port due for development for cruise ships in the pipeline here in Ireland. Some cruisers come here but hoping we get more choice and wont need to fly to our ship in future. I would prefer if they werent all mega ships too. Midship must be nice. Have only sailed on Freedom of Seas and managed that size but wouldnt like bigger.

[C 2 C]

The Concordia incident resulted in barely a blip in the cruise market. People have a very short memory when it comes to wanting ways to indulge themselves. Less than a year after that incident, passenger bookings increased over the previous years.

 

With your "doom and gloom" attitude, why do you even cruise at all???

 

Take a look at what happened to the European cruise market.. Celebrity brought Equinox home, hoping that Americans would prefer to cruise from a home port.

 

I'm an optimistic pessimist. The worst may happen but only to others.;)

When it comes to my choice of travel... MYOB.

[SantaFeFan]

Take a look at what happened to the European cruise market.. Celebrity brought Equinox home, hoping that Americans would prefer to cruise from a home port.

 

I'm an optimistic pessimist. The worst may happen but only to others.;)

When it comes to my choice of travel... MYOB.

 

When you come here and complain about how bad cruising has become, it is no longer just your business, it is everyone's business who reads what you write. When you share your thoughts on public forums, you have give up the right to expect people to "MYOB".

 

Welcome to the modern social media world, where privacy is just an illusion! :D

[cadien]

There already have been attacks at port cities. That's why no one is stopping in Istanbul these days. But the rest of the Med is as popular as ever.

 

What impact on the industry did the Achille Lauro have at the time?

[calliopecruiser]

An unsinkable cruise industry?

 

 

 

We are only one crisis away from changing travel patterns.

 

 

 

A fire at sea, an attack at a port city or a Concordia type incident will quickly upset the traveling public.

 

 

 

Eventually a ship will be a target.....

 

 

 

We cruise many times a year and we don't care what ports we visit as long as the "tourists" disembark and provide us with a private yacht....

 

 

 

"If you build it, they will come."

 

 

 

Unless you have a circus... and people found other things to entertain them.

 

 

A cruise ship was a target, decades ago.....the ship was boarded and passengers held hostage, and one was shot and tossed overboard.

 

 

Sent from my iPhone using Forums

[navybankerteacher]

The biggest issue for the cruise lines isn't attracting new passengers, but attracting new employees for the increasing number of cruise ships now in place or coming in the future. That is one reason why service levels have slowly deteriorated in recent years - not enough service staff to go around, so they have to serve more tables with fewer waiters, or clean more staterooms with fewer room attendants. If you cruise a regular line often, you can usually see the drop in service levels whenever their newest ship goes online and begins cruising. The best from the fleet are moved to the new ship, leaving the remainder to try to keep up, all the while with the additional task of training any new employees that are found.

 

I fear that this situation is only going to get worse as some of the countries where typical service employees come from become more affluent, making working on a cruise ship less attractive.

 

Good points - of course, from many of the posts applauding the dropping of formality on cruises, there may be a wide acceptance of just cafeteria-style dining on cruise ships. One or two lounges could be converted to laundromats, and if people can make their own beds and pick up their rooms at home, why can't they while on a cruise? With the resultant staff cuts, cruise lines could just hire clean up crews to come aboard upon debarkation and sweep through. The crew berthing spaces thus freed up could then be sold to bargain-minded passengers.

 

Of course, to accommodate the traditionalists, there could be the "ship within a ship" Neptune Haven section where some of the old amenities could be provided.

 

After all, that is sort of the way things were on passenger ships in the early days of the twentieth century - when there was steerage, cabin class and first class; plus, there were no unwanted dress codes in steerage.

[C 2 C]

One crisis away from changing travel patterns??

 

 

When 9/11 happened I was sailing the new Norwegian Sun between Germany and New York City. NCL introduced "Homeland Cruising" the following week, and our bookings and profits increased to a new high for the company.

 

 

What happened to Renaissance Cruises, other than the ships going to Oceania, Azamara, princess.

Some companies do not have the finances to see them through a crisis.

 

We were on Millennium at the end of September 2001 and many cabins were empty because so many people were reluctant to fly.

 

Stuff happens and there is always a disruption from the norm just around the corner.

 

The 2008 financial disruption led to many great cruise bargains for those not affected.

 

If I remember NCL had a few problems for a while until new money was added from China.

 

One can crow about the price of their stock now but have forgotten that Royal stock was available for under $10.

 

The smart guys made a lot of money, but the sellers are abundant during any new crisis.

[SantaFeFan]

Good points - of course, from many of the posts applauding the dropping of formality on cruises, there may be a wide acceptance of just cafeteria-style dining on cruise ships. One or two lounges could be converted to laundromats, and if people can make their own beds and pick up their rooms at home, why can't they while on a cruise? With the resultant staff cuts, cruise lines could just hire clean up crews to come aboard upon debarkation and sweep through. The crew berthing spaces thus freed up could then be sold to bargain-minded passengers.....

 

I like your idea, but it needs to be taken a step further. If all the materials used in public areas and staterooms were water proofed, they could just hose down the entire ship, starting at the top decks and working down, flushing all the left over trash and debris into what used to the the MDR, which would have been converted into a huge holding tank. That should make cruises quite cost effective, allowing the quantity over quality cruisers super-cheepo cruises to take as often as they can stand.

[navybankerteacher]

I like your idea, but it needs to be taken a step further. If all the materials used in public areas and staterooms were water proofed, they could just hose down the entire ship, starting at the top decks and working down, flushing all the left over trash and debris into what used to the the MDR, which would have been converted into a huge holding tank. That should make cruises quite cost effective, allowing the quantity over quality cruisers super-cheepo cruises to take as often as they can stand.

 

Good thoughts - then too they could get rid of the staff monitoring drinks and inputting charges - by giving everyone "free" drinks the way NCL does for many

 

(serving them from vending machines much like the multiple flavor Coke machines now cropping up everywhere, thereby not having to pay bartenders)

 

who seem to believe that if they are included in the fare they pay that they must be "free" when ordered. Giving up individual charges for drinks would minimize record-keeping -and as long as sufficient emphasis was put on the "free" drinks, the cruising public would not notice the somewhat higher price.