Minimum Capacity

[lee8553]

This is a really basic question of those who have cruised much more than I have, tho it is possible that the situation has never occurred before.

Is there a minimum number of passengers a cruise would need before it is financially viable for it to go ahead?

[d9704011]

9 minutes ago, lee8553 said:

This is a really basic question of those who have cruised much more than I have, tho it is possible that the situation has never occurred before.

Is there a minimum number of passengers a cruise would need before it is financially viable for it to go ahead?

Ha... lots of opinions on that but I’d hazard nearly 100% of cruisers don’t actually know the answer.  I fly a lot and have no idea what the economics/financials are for running an airline.

Edited September 26, 2020 by d9704011

[cruisemom42]

The commonly expressed formula -- pre-COVID -- was that mass market cruises needed to sail nearly 100% full in order to make a profit. Premium lines could work with some small level of vacancies aboard. 

 

Interestingly, since it has become increasingly clear that cruising will probably need to start up at somewhere around 60-75% capacity, the CEOs have been saying that it is possible to still be profitable at this level of occupancy. Not sure if they are lying now, lying earlier, or have just figured out a way to squeeze more money out of passengers once onboard....

 

To make a long post short, I don't know the exact number, and I am not aware of cruises that were canceled due to passenger load. It's more likely that they would either drop prices and offer a fire sale to get bodies on board. Or, if it were a chronically underselling area/region, they might move the ship to a different locale.

[BlueRiband]

Cruise lines would have a go/no go figure and would likely cancel and re-deploy a ship based on booking demand and historic  passenger cancellation numbers.   A few years ago I remember a Cunard sailing being cancelled about eight months out and  the ship redeployed with an entirely different itinerary.   The poster who was to sail was clearly disappointed but the accounting office probably determined that there just was not enough demand to justify the itinerary.

[Joebucks]

1 hour ago, cruisemom42 said:

The commonly expressed formula -- pre-COVID -- was that mass market cruises needed to sail nearly 100% full in order to make a profit.  

 

This is not true. The companies have even stated otherwise. In fact, that is the perfect recipe for a bankrupt company.

 

A giant corporation doesn't get 8 billion in cash in the bank by dancing on the edge. They seek to maximize revenue and profit in every way that they can.

[cruisemom42]

1 minute ago, Joebucks said:

 

This is not true. The companies have even stated otherwise. In fact, that is the perfect recipe for a bankrupt company.

 

A giant corporation doesn't get 8 billion in cash in the bank by dancing on the edge. They seek to maximize revenue and profit in every way that they can.

 

Suggest you watch this documentary:  https://www.imdb.com/title/tt2013215/

 

I have read it other places as well. They are not saying they don't make a profit. But selling the ship full basically only breaks even. It is all the onboard revenue maximization that makes their profit.

[chengkp75]

2 hours ago, cruisemom42 said:

The commonly expressed formula -- pre-COVID -- was that mass market cruises needed to sail nearly 100% full in order to make a profit. Premium lines could work with some small level of vacancies aboard. 

 

Interestingly, since it has become increasingly clear that cruising will probably need to start up at somewhere around 60-75% capacity, the CEOs have been saying that it is possible to still be profitable at this level of occupancy. Not sure if they are lying now, lying earlier, or have just figured out a way to squeeze more money out of passengers once onboard....

 

To make a long post short, I don't know the exact number, and I am not aware of cruises that were canceled due to passenger load. It's more likely that they would either drop prices and offer a fire sale to get bodies on board. Or, if it were a chronically underselling area/region, they might move the ship to a different locale.

What an RCI executive "actually" said was that their ships could be "sort of" break even at 35% capacity.  That "sort of" was referring to EBTIDA earnings.  These are "Earnings Before Taxes, Interest, Depreciation, and Amortization".  Meaning that if they take away the cost of the ship (interest, amortization), taxes, and depreciation (which cruise lines don't use, since they don't get tax breaks for depreciation), they could break even at reduced capacity.  That is like saying, that "my paycheck is sufficient to make ends meet, if I don't pay the mortgage or the IRS".

 

At what point would they cancel the cruise?  Don't know, and I don't think it has happened very many times, lots of the ship operating costs are fixed, and remain the same whether it moves with passengers, or sits at the dock.  Fuel, passenger food and beverage are the costs to be covered by passenger sales, but at what point does "losing less" bottom out, I can't say.

[clo]

52 minutes ago, cruisemom42 said:

It is all the onboard revenue maximization that makes their profit.

That's what I thought. And I've joked that they don't make much off of us for that reason 🙂

[lee8553]

I was thinking more of the current situation and the current travel restrictions really, but don't think there's been anything before, at least not in our memories, to use as a yardstick.  I have a cruise booked early Nov, which I'm trying to decide about & just wondered if there was any easy way of working out whether it will sail. Think I'll just have to hang on a few more weeks & see how it goes.

Thanks for all your input

[bigrednole]

There was a PR by RCL a little while ago that stated Oasis class ships can break even at 33% capacity. Older ships were 50-60%. It has been a while, but I can't remember the exact percentages. Those are close enough for ballpark numbers.

[SelectSys]

On 9/26/2020 at 8:21 AM, chengkp75 said:

...

At what point would they cancel the cruise?  Don't know, and I don't think it has happened very many times, lots of the ship operating costs are fixed, and remain the same whether it moves with passengers, or sits at the dock.  Fuel, passenger food and beverage are the costs to be covered by passenger sales, but at what point does "losing less" bottom out, I can't say.

 

From a purely economic standpoint, wouldn't cruise ships sail anytime the true operating revenues from the journey exceeded the true operating costs?  Of course this doesn't mean the line is making money but that they would be losing less when compared to not operating the cruise at all. 

 

I could see the lines operating at least initially where they aren't covering their operating expenses as there would be a hit to passenger confidence and business reputation if cruise lines cancelled journeys based on low load factors. 

[sfaaa]

Of course they will sail even if they lose money on a particular cruise. They sold a product and have to deliver on embarkation day. Do bear in mind cruising is seasonal business and breakeven point calculation is on an annual basis and not per cruise. So long as cruise lines can make up for their loss during peak season, it would still work out and the operation remains profitable.

[donaldsc]

The short answer to your question is "yes".  What you should have asked is whether anyone besides the cruise company knows the number.  I am sure that the answer to that one is "no".

 

DON

[chengkp75]

2 hours ago, SelectSys said:

 

From a purely economic standpoint, wouldn't cruise ships sail anytime the true operating revenues from the journey exceeded the true operating costs?  Of course this doesn't mean the line is making money but that they would be losing less when compared to not operating the cruise at all. 

 

I could see the lines operating at least initially where they aren't covering their operating expenses as there would be a hit to passenger confidence and business reputation if cruise lines cancelled journeys based on low load factors. 

Again, it depends on whether the ship is fully manned and has been operating, or whether they are planning to gear up and start, as the operating cost of a ship with reduced manning has lots less operating cost, so they would need a higher capacity level to pay for that start up, than a ship that just has one cruise with low demand.

[SelectSys]

49 minutes ago, chengkp75 said:

Again, it depends on whether the ship is fully manned and has been operating, or whether they are planning to gear up and start, as the operating cost of a ship with reduced manning has lots less operating cost, so they would need a higher capacity level to pay for that start up, than a ship that just has one cruise with low demand.

 

Are you referring to special startup costs associated with a ship being in some form of "lay up?"  Totally agree that these costs are part of the decision process to determine if a particular ship resumes cruising. Same with bring back crews, new certifications, etc.

[Joebucks]

8 hours ago, SelectSys said:

 

From a purely economic standpoint, wouldn't cruise ships sail anytime the true operating revenues from the journey exceeded the true operating costs?  Of course this doesn't mean the line is making money but that they would be losing less when compared to not operating the cruise at all. 

 

I could see the lines operating at least initially where they aren't covering their operating expenses as there would be a hit to passenger confidence and business reputation if cruise lines cancelled journeys based on low load factors. 

 

Lots of people like to deal in extremes. It is all or nothing. Losing less money is definitely a better thing than losing more. There are also moving pieces that can slide. You will use less food and less staff if there are less cruisers. Some staff, are there regardless.

 

That aside, the path to collecting revenue and strengthening consumer confidence are priceless. To throw up their arms and give up is not how executives become and stay executives.

[ldubs]

I think it goes well beyond the financials.   As cruises roll out a few bad experiences could have devastating consequences both with regulators and passenger confidence.  They really need to get it right.  If they do, then I think they will prosper.   

[getting older slowly]

3 hours ago, Joebucks said:

 

Lots of people like to deal in extremes. It is all or nothing. Losing less money is definitely a better thing than losing more.

Good Point..... some figures suggest a warm layup  cost about 50-60% on normal running cost....

 

So running at say 60% capacity could mean that fares could offset the standing costs

 

Thus meaning the money out of pocket could be half or less than a ship a warm layup ...

 

Ok not a profit, but reduced costs and they can get the systems in place for post Covid-19 cruising...

 

Cheers Don

 

[Roger88]

It doesnt matter whether there are 100 or a 1000 people on board. Its really hard to tell how many people will get sick if at least one of  the passangers is infected. The thing is that the company simply wants to avoid a situation when it has to deal with a very big number of passangers will file cases and demanding refunds. I see it as the only reason really 

[lee8553]

Thanks for all your replies, Think I'll just have to hang on a few more weeks & then decide, if it's still on the cards to sail, whether or not to cancel myself. I paid with FCC from a cruise cancelled in March, so the new Covid cancellation rules apply