CCL Slows Ship Construction

[jsglow]

I've been looking for a decent article to capture what might have been one of the more significant announcements from last week's earnings call.  Carnival Corporation expects to dramatically slow ship production over all their brands focusing their efforts in the next decade toward debt reduction and balance sheet repair.  My sense is that they will attempt to fill the always necessary 'Wow factor' with more Costa conversions and with various 'Sunshining' programs across the fleets.  It's an interesting but probably necessary contrast to RCCL's strategy.  But as we know, these ships cost a billion plus these days and with $34B in debt, something has to give. I have long believed that Jubilee would be the last new keel for awhile for Carnival Cruise Lines.  This seemingly confirms that. Discuss.

 

https://cruiseindustrynews.com/cruise-news/2022/12/carnival-corporation-to-trim-down-cruise-newbuilding-pace/?feed_id=35&_unique_id=63a990e6f184d&fbclid=IwAR0oU5z-oZGwahcuy3PoExrr13irUj1KrzgczWdvJj4PtchvGCDwCf2fIMQ

Edited December 26, 2022 by jsglow

[mz-s]

It will be tougher to compete with their competition's larger, better maintained, and newer ships. The only way Carnival can compete is on price, and the new CEO recently said they're too much of a value and has to raise prices. So I'm not sure what their new strategy is. Old, poorly maintained ships with poor amenities relative to the competition, for basically the same price? How is that a winning strategy.

[sanmarcosman]

No surprise.

[jsglow]

18 minutes ago, mz-s said:

It will be tougher to compete with their competition's larger, better maintained, and newer ships. The only way Carnival can compete is on price, and the new CEO recently said they're too much of a value and has to raise prices. So I'm not sure what their new strategy is. Old, poorly maintained ships with poor amenities relative to the competition, for basically the same price? How is that a winning strategy.

Your point is a good one but I will counter with the following. 1) Just because they want to raise prices doesn't mean they can. There's no way Carnival can charge for Glory what RCCL charges for Oasis no matter what spin one does for Wall Street. 2) I think your claim of inferior maintenance doesn't have to be true. Carnival simply MUST keep their ships looking top end even if they don't have all the features of the new builds.  Hence, my 'Sunshining' plan. 

Edited December 26, 2022 by jsglow

[tidecat]

13 minutes ago, mz-s said:

It will be tougher to compete with their competition's larger, better maintained, and newer ships. The only way Carnival can compete is on price, and the new CEO recently said they're too much of a value and has to raise prices. So I'm not sure what their new strategy is. Old, poorly maintained ships with poor amenities relative to the competition, for basically the same price? How is that a winning strategy.

Not spending $2-$3 Billion on newbuilds each year will make more money available for older ships. Carnival is still planning to spend $6.7 Billion over the next four fiscal years on non-newbuild capital expenditures per their latest SEC filing.

 

Although based on Weinstein's comments, it seems like 2026 is the only completely "off" year for newbuilds, followed by "one or two" in the years following that. I would not be surprised if Carnival gets two newbuilds between 2027-2029. If I had to forecast the newbuild schedule for 2027-2030, I expect it would look like this:

 

2027 - Carnival Cruise Line (Carnival Elation and Carnival Sunshine retired late 2027/early 2028)

2028 - Holland America Line (Volendam and Zaandam retired); Princess Cruises (Grand Princess retired)

2029 - Carnival Cruise Line (Carnival Paradise retired; Conquest-class ship to replace Pacific Explorer)

2030 - P&O Cruises [UK] (Aurora retired if not sold off in 2023; Arcadia retired)

 

The newbuild program after 2030 is going to have to be very aggressive company-wide given the sheer number of ships that were built between 1999-2005. Carnival's balance sheet is going to have to be healthy going into 2030.

 

 

 

[jsglow]

I know prices have certainly gone up but a good reference point is $250 million for a single Sunshining. I'd also peg any Costa conversion costs at $50 million max. Those numbers are drops in the bucket compared to new hulls.

 

The trick will be to get the cruising public excited about these things. No doubt the first effort along these lines is Venezia.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Edited December 26, 2022 by jsglow

[BlerkOne]

The article is Carnival Corporation, not just CCL, and Corporate has already disposed of a number of the less efficient ships. Carnival can charge whatever they want and some people will pay it. Not everyone bases cruises on the cheapest price they can find. Despite what some may think, the various Carnival brands do have a loyal base.

 

Now Carnival needs to work on getting rid of the less efficient customers. That will effectively raise revenue received without raising prices.

 

The Corp strategy of shifting ships between divisions to follow demand is a good one and ahead of the curve.

[mz-s]

2 hours ago, jsglow said:

Your point is a good one but I will counter with the following. 1) Just because they want to raise prices doesn't mean they can. There's no way Carnival can charge for Glory what RCCL charges for Oasis no matter what spin one does for Wall Street. 2) I think your claim of inferior maintenance doesn't have to be true. Carnival simply MUST keep their ships looking top end even if they don't have all the features of the new builds.  Hence, my 'Sunshining' plan. 

 

But does sinking $200M into a 20 year old hull get them higher prices? All other things equal, does a Sunshine cruise sell for more than a Destiny cruise did? Obviously onboard spend is higher with the added specialty restaurants, new bar concepts, etc. Tough for us to compare on the outside looking in.

[BlerkOne]

1 minute ago, mz-s said:

 

But does sinking $200M into a 20 year old hull get them higher prices? All other things equal, does a Sunshine cruise sell for more than a Destiny cruise did? Obviously onboard spend is higher with the added specialty restaurants, new bar concepts, etc. Tough for us to compare on the outside looking in.

Sunshine was an experiment and was sabotaged early on. Carnival Cruise Line has modified their thinking based on lessons learned but is still updating ships. Clearly Carnival is satisfied with the approach.

 

Which of the other Carnival brands have tried this approach?

[jsglow]

29 minutes ago, mz-s said:

 

But does sinking $200M into a 20 year old hull get them higher prices? All other things equal, does a Sunshine cruise sell for more than a Destiny cruise did? Obviously onboard spend is higher with the added specialty restaurants, new bar concepts, etc. Tough for us to compare on the outside looking in.

I don't think it gets them higher prices but I do think it materially extends the life of the ship as a viable earning asset, something they'll have to do in this business model.  And as @BlerkOnesaid, they successfully tweaked the architecture with Sunrise/Radiance (even though I like Sunshine save the weak Limelight lounge).

 

I fully believe they'll come up with a Sunshining of their very popular Spirit line including new branding, etc. 

[mz-s]

6 minutes ago, jsglow said:

I don't think it gets them higher prices but I do think it materially extends the life of the ship as a viable earning asset, something they'll have to do in this business model.  And as @BlerkOnesaid, they successfully tweaked the architecture with Sunrise/Radiance (even though I like Sunshine save the weak Limelight lounge).

 

I fully believe they'll come up with a Sunshining of their very popular Spirit line including new branding, etc. 

 

I'd say the Conquest class needs Sunshining first. Spirit class will need it as well if they will be around longer than say the Fantasy class, but Spirit class is mostly used in markets like Jacksonville or Alaska where offering a newer/updated ship is less important. Whereas the Conquest class is really the bread-and-butter for Carnival right now.

 

I love the Sunshine as well, although I wish they would have gone back and touched up the Lido buffet or Limelight lounge areas after it became apparent they were less than ideal.

[tidecat]

$200 Million over 10 years, even allowing for around 100 days out of service (drydocks, etc.) is only $19 per person per day. I think the window to do that to the Spirit class has largely passed, but a $50-$75 Million renovation may still be viable. It also really makes sense only if you're not currently selling a high number of third or fourth passengers in a cabin, although I don't see a way to add more than 36-40 cabins to the Spirit class vessels.

[jsglow]

13 minutes ago, tidecat said:

$200 Million over 10 years, even allowing for around 100 days out of service (drydocks, etc.) is only $19 per person per day. I think the window to do that to the Spirit class has largely passed, but a $50-$75 Million renovation may still be viable. It also really makes sense only if you're not currently selling a high number of third or fourth passengers in a cabin, although I don't see a way to add more than 36-40 cabins to the Spirit class vessels.

The problem @tidecatis that they simply don't have a viable replacement for the Spirits.  So maybe you're right that a sub $100M retrofit makes more sense.  I don't think they'll add cabins but I do think they need to pretty significantly increase the service life of those ships and a coat of varnish isn't going to do it. I can also see @mz-spoint on the Conquest ships.  They do form the backbone of the 3-6 day fleet for the next 10+ years.

[chengkp75]

6 minutes ago, jsglow said:

I don't think they'll add cabins but I do think they need to pretty significantly increase the service life of those ships and a coat of varnish isn't going to do it.

And, neither will a hotel renovation, in a situation where the older ships are going to start costing a lot more to maintain structurally and mechanically, and they are still bleeding money.  I see downsizing the entire fleet to reduce capacity across the industry and raise demand, and hence prices.

[jsglow]

33 minutes ago, chengkp75 said:

And, neither will a hotel renovation, in a situation where the older ships are going to start costing a lot more to maintain structurally and mechanically, and they are still bleeding money.  I see downsizing the entire fleet to reduce capacity across the industry and raise demand, and hence prices.

VERY interested in your take on all of this @chengkp75.  My only thought on the Spirits is that they need to maintain those ships to serve their 'bridge' markets.  Is it your view that some of those ports might be eventually abandoned?  Are the Conquests and the Spirits still 'new enough' that dropping 8-9 figures into each makes sense to get them well into the 2030s?  My gut tells me yes as they just studied the economics of 'Sunshining' three 1990s builds. (Granted they got more cabins onboard.)  That said, I totally 'get' the fleet reduction aspect.  That's why, in my view, Costa is largely going away over time with her ships scattered to other CCL brands, mostly Carnival.

[chengkp75]

I never got the idea of "sunshining" the old ships.  You can put lipstick on a pig, but an old pig just gets more and more expensive to keep.  The structural and mechanical costs to operate a ship start to go parabolic with regards to time, starting at the 15 year stage (which is when they no longer allow the underwater inspections in lieu of drydocking every 2.5 years).  At that age, there is far greater cost in dry docks, just for inspections (they start to do thousands of ultrasonic thickness tests to see whether the steel has corroded beyond acceptable limits), and then this leads to more and more structural steel renewal (not just the hull plating, but framing inside the hull and inside tanks.  This starts to get real costly at times.  The Conquest and Spirit class ships will reach their thirties in 2030, and that is where costs really take off, so I can't see them lasting "well into" the 2030's, but Carnival surprises me with keeping older tonnage operating.

[BlerkOne]

Royal has more ships over 20 years old than Carnival. What is their secret?

[chengkp75]

3 minutes ago, BlerkOne said:

Royal has more ships over 20 years old than Carnival. What is their secret?

Different business model.

[ontheweb]

2 hours ago, BlerkOne said:

Sunshine was an experiment and was sabotaged early on. Carnival Cruise Line has modified their thinking based on lessons learned but is still updating ships. Clearly Carnival is satisfied with the approach.

 

Which of the other Carnival brands have tried this approach?

Can you explain "Sunshine was an experiment and was sabotaged early on."?

[BlerkOne]

10 minutes ago, ontheweb said:

Can you explain "Sunshine was an experiment and was sabotaged early on."?

Easy enough to google. E.G.

https://www.travelweekly.com/Cruise-Travel/Carnival-Sunshine-was-set-back-by-vandalism-reveals-CEO

 

 

[tidecat]

1 hour ago, chengkp75 said:

 I see downsizing the entire fleet to reduce capacity across the industry and raise demand, and hence prices.

I think the fleet will downsize, but capacity isn't necessarily going to be reduced:

 

2027/2028: +Newbuild 1, -Paradise, -Sunshine

2029: +Newbuild 2, -Elation, -Sunrise

2031: + Newbuild 3, -Spirit, -Radiance

2033: +Newbuild 4, -Pride, -Conquest

2035: +Newbuild 5, -Legend, -Glory

2037: +Newbuild 6, -Miracle, -Valor

2039: +Newbuild 7, -Luminosa, -Liberty

2040: +Newbuild 8, -Freedom, -Splendor

 

Assuming the first seven are comparable to the Excellence class, total passenger capacity is going to be largely a push. Eventually Carnival will have to build 6,000+ passenger ships (lower berths; total capacity will likely push towards 8,000) or start replacing ships on a 1:1 basis.

[jsglow]

I'm going to disagree on one front Tide. Sunrise and Radiance outlive most if not all of the Conquests.

 

Oh, and I'm glad I'm gone before there's nothing but 7500 pax ships left. Dark day.

 

 

 

 

 

 

Edited December 26, 2022 by jsglow

[mz-s]

1 hour ago, chengkp75 said:

I never got the idea of "sunshining" the old ships.  You can put lipstick on a pig, but an old pig just gets more and more expensive to keep.  The structural and mechanical costs to operate a ship start to go parabolic with regards to time, starting at the 15 year stage (which is when they no longer allow the underwater inspections in lieu of drydocking every 2.5 years).  At that age, there is far greater cost in dry docks, just for inspections (they start to do thousands of ultrasonic thickness tests to see whether the steel has corroded beyond acceptable limits), and then this leads to more and more structural steel renewal (not just the hull plating, but framing inside the hull and inside tanks.  This starts to get real costly at times.  The Conquest and Spirit class ships will reach their thirties in 2030, and that is where costs really take off, so I can't see them lasting "well into" the 2030's, but Carnival surprises me with keeping older tonnage operating.

 

Is maintaining (not necessarily reinventing) their older ships more expensive than scrapping them and building all new ships though? It would seem that even though they are more expensive to maintain, it's cheaper to keep their old ships going as long as possible vs. scrapping them and ordering newbuilds.

[jsglow]

53 minutes ago, mz-s said:

 

Is maintaining (not necessarily reinventing) their older ships more expensive than scrapping them and building all new ships though? It would seem that even though they are more expensive to maintain, it's cheaper to keep their old ships going as long as possible vs. scrapping them and ordering newbuilds.

Can't possibly be.  Think of the navy.  WWII battleships (Wisconsin and Iowa) were in full combat service in the Gulf War 50 years after their keels were laid. The Wisconsin wasn't stricken until 2006; 65 years of proud service.  And trust me, they had been 'Sunshined' with cruise missiles and a hundred other weapons beyond their original 16in guns.

 

Sunrise's retrofit was $200MM. A new Excellence is over $1B.  That's a lot of steel plate welds and dry dock inspection costs.  Ships don't get cut up at 25 years because they're 'old'.  They get cut up because they're 'obsolete'.  See the old balcony-less Fantasy Class for reference. Heck, I think the old Holiday was sailing for someone until the pandemic.

 

I have incredibly high regard for chief.  But maritime engineers spent millions assessing the Sunshining initiative before a cutting torch ever touched any of those ships.

[shof515]

i think a big issue with older ships overall is the fuel consumption. Newer ships is more fuel efficient with using less fuel overall. with using less fuel there is some cost savings

 

its like having a car with 10 mpg replacing it with a new car with that gets 15-18 mpg