Future of Carnival fleet - 2027 and beyond.

[tidecat]

4 hours ago, kwokpot said:

My point was filling the Spirit and Miracle to 100% isn't going to be more profitable to Carnival than if the Jubilee sailed with the same amount of passengers at a 60% load factor. That's all I'm saying.

Agreed, if the market softens it will be the older and smaller ships that get offloaded first. In Carnival's case it may not necessarily be the oldest (Sunshine) or smallest (Elation/Paradise)

 

18 minutes ago, JMAE said:

Using your example if a mega ship sails at 60% cap the cruise line would not produce an income to cover the expense for that sailing.  For a cruise line to make their projected 15% profit it must be filled to their 100% cap.  In your example the 40% passenger loss on a sailing would reduce their projected income from reduced fares and onboard spending by that percentage.  If a cruise line invested in new smaller ships with similar technology of the mega ships, the smaller ships would be cheaper to sail due to the size (less fuel), less maintenance and operation costs due to reduced activities, dining options, etc. and far fewer staff (Carnival Excel class crew size 1,735, Carnival Spirit class crew size 930).  I know one thing; the market will be the driving force and if the numbers show large number of seasoned cruises moving to other non-mainstream cruise lines, changes will occur. No cruise line can survive with new guest only, that is why loyalty programs exist. 

 

This is just my guess, but based on your example of 60% cap, I would bet the current Fantasy and Spirit classes would have a lower percentage of loss vs a mega ship.  Since they are over 20 years old, they probably bought and paid for many years ago.  I understand they may be considered an asset for securing loans.          

Carnival uses a 30-year deprecation schedule for their ships and keeps a 15% residual value  While the ships were paid for decades ago, Carnival still has to take a charge on its P&L when it sells the ship (either for scrap or to another operator).

 

Obviously any secured debt can make a ship sale more complicated, but generally speaking it would be possible to substitute a comparable or more valuable vessel without a lien on it with the consent of the lender. Carnival has paid off some secured debt which has removed the lien from some vessels.

 

Larger ships will always be more fuel efficient. Royal's Oasis-class actually uses less fuel in total, not just per passenger, than some of their older ships.

 

The break even point on larger ships is also much lower than it is on older ships. Since Carnival Corporation doesn't publish financial results by brand, any figures you see include everything from Carnival Cruise Line to Seabourn. Royal has stated the break even point on the Oasis-class is actually around 35%, while older ships run closer to 50% (https://cruiseindustrynews.com/cruise-news/2021/08/new-royal-caribbean-ships-break-even-at-35-percent-occupancy/#:~:text=What occupancy does Royal Caribbean,executive vice president and CFO.) - I would expect Carnival sees a similar spread, even if the starting point is higher.

 

About 10-12% of the cost of your cruise is the cost of the ship itself. The Excel class is around $183,000 per lower berth (2020 dollars). The Fantasy class, adjusted for inflation, is around $296,000. Even if all other costs are the same on a per-passenger basis, the Fantasy class ship might eke out a 5% profit instead of a 15% profit given the same fare. Except we know the costs likely aren't going to be the same; even if the captain on Mardi Gras makes considerably more than the Elation, a vacant lower berth on Mardi Gras means you're only missing 1/5300 of the Captain's salary instead of 1/2100 like you would on Elation or Paradise. Now consider that for every static position like an engineer, cruise director, HR director, etc.

 

Then the passenger on the larger ship spends more because there are more places onboard for them to part with their money. The bigger ship wins every time.

[kwokpot]

10 minutes ago, tidecat said:

Agreed, if the market softens it will be the older and smaller ships that get offloaded first. In Carnival's case it may not necessarily be the oldest (Sunshine) or smallest (Elation/Paradise)

 

Carnival uses a 30-year deprecation schedule for their ships and keeps a 15% residual value  While the ships were paid for decades ago, Carnival still has to take a charge on its P&L when it sells the ship (either for scrap or to another operator).

 

Obviously any secured debt can make a ship sale more complicated, but generally speaking it would be possible to substitute a comparable or more valuable vessel without a lien on it with the consent of the lender. Carnival has paid off some secured debt which has removed the lien from some vessels.

 

Larger ships will always be more fuel efficient. Royal's Oasis-class actually uses less fuel in total, not just per passenger, than some of their older ships.

 

The break even point on larger ships is also much lower than it is on older ships. Since Carnival Corporation doesn't publish financial results by brand, any figures you see include everything from Carnival Cruise Line to Seabourn. Royal has stated the break even point on the Oasis-class is actually around 35%, while older ships run closer to 50% (https://cruiseindustrynews.com/cruise-news/2021/08/new-royal-caribbean-ships-break-even-at-35-percent-occupancy/#:~:text=What occupancy does Royal Caribbean,executive vice president and CFO.) - I would expect Carnival sees a similar spread, even if the starting point is higher.

 

About 10-12% of the cost of your cruise is the cost of the ship itself. The Excel class is around $183,000 per lower berth (2020 dollars). The Fantasy class, adjusted for inflation, is around $296,000. Even if all other costs are the same on a per-passenger basis, the Fantasy class ship might eke out a 5% profit instead of a 15% profit given the same fare. Except we know the costs likely aren't going to be the same; even if the captain on Mardi Gras makes considerably more than the Elation, a vacant lower berth on Mardi Gras means you're only missing 1/5300 of the Captain's salary instead of 1/2100 like you would on Elation or Paradise. Now consider that for every static position like an engineer, cruise director, HR director, etc.

 

Then the passenger on the larger ship spends more because there are more places onboard for them to part with their money. The bigger ship wins every time.

Thank you for additional information. We're on the same page. 

[JMAE]

9 hours ago, tidecat said:

Agreed, if the market softens it will be the older and smaller ships that get offloaded first. In Carnival's case it may not necessarily be the oldest (Sunshine) or smallest (Elation/Paradise)

 

Carnival uses a 30-year deprecation schedule for their ships and keeps a 15% residual value  While the ships were paid for decades ago, Carnival still has to take a charge on its P&L when it sells the ship (either for scrap or to another operator).

 

Obviously any secured debt can make a ship sale more complicated, but generally speaking it would be possible to substitute a comparable or more valuable vessel without a lien on it with the consent of the lender. Carnival has paid off some secured debt which has removed the lien from some vessels.

 

Larger ships will always be more fuel efficient. Royal's Oasis-class actually uses less fuel in total, not just per passenger, than some of their older ships.

 

The break even point on larger ships is also much lower than it is on older ships. Since Carnival Corporation doesn't publish financial results by brand, any figures you see include everything from Carnival Cruise Line to Seabourn. Royal has stated the break even point on the Oasis-class is actually around 35%, while older ships run closer to 50% (https://cruiseindustrynews.com/cruise-news/2021/08/new-royal-caribbean-ships-break-even-at-35-percent-occupancy/#:~:text=What occupancy does Royal Caribbean,executive vice president and CFO.) - I would expect Carnival sees a similar spread, even if the starting point is higher.

 

About 10-12% of the cost of your cruise is the cost of the ship itself. The Excel class is around $183,000 per lower berth (2020 dollars). The Fantasy class, adjusted for inflation, is around $296,000. Even if all other costs are the same on a per-passenger basis, the Fantasy class ship might eke out a 5% profit instead of a 15% profit given the same fare. Except we know the costs likely aren't going to be the same; even if the captain on Mardi Gras makes considerably more than the Elation, a vacant lower berth on Mardi Gras means you're only missing 1/5300 of the Captain's salary instead of 1/2100 like you would on Elation or Paradise. Now consider that for every static position like an engineer, cruise director, HR director, etc.

 

Then the passenger on the larger ship spends more because there are more places onboard for them to part with their money. The bigger ship wins every time.

Since this thread was discussing future fleet.  I think newer smaller ships should be part of the plan.  As I stated, if any cruise line added smaller ships with the technology of the mega ships the smaller ships would be less expensive to operate in a soft market.  Because they would be easier fill closer to capacity compared to a mega ship and have a higher occupancy rate and margin.  Yes, the mega ships make a larger "profit" in the current booming market, but when a market softening occurs, unless they can fill the mega ship, they will be expensive for a cruise line to maintain compared to a smaller ship with the same technology.        

[mz-s]

There will not be anything smaller than say Vista class built again for Carnival and I doubt they'll ever go smaller than Excel class to be honest. So you might as well quit hoping and pontificating. It's not going to happen.

 

If the market does soften which I doubt, Carnival will simply have fewer large ships rather than a bunch of smaller ships. (they'll sell off the older/smaller of the fleet). And yes, that means they'll pull out of JAX and TPA if they must.

Edited April 15 by mz-s

[kwokpot]

15 minutes ago, JMAE said:

Since this thread was discussing future fleet.  I think newer smaller ships should be part of the plan.  As I stated, if any cruise line added smaller ships with the technology of the mega ships the smaller ships would be less expensive to operate in a soft market.  Because they would be easier fill closer to capacity compared to a mega ship and have a higher occupancy rate and margin.  Yes, the mega ships make a larger "profit" in the current booming market, but when a market softening occurs, unless they can fill the mega ship, they will be expensive for a cruise line to maintain compared to a smaller ship with the same technology.        

You're stilli missing the point that it costs more to build two 2,500 passenger ship than one 5,000 passenger ship which means the cost per passenger to make money will be more with two smaller ships than one bigger ship. That is the major fallacy to your position and is why no mainstream cruiseline is doing that. Again that's not to say that no one is building smaller ships,but it's the 5* cruiselines that can charge a higher per passenger fare to recoup and make a profit with building smaller ships. 

[BlerkOne]

On 4/14/2024 at 2:59 PM, kwokpot said:

As a RCL stockholder for 16 years paying $9.99/share and having it recently reached it's all time high of $141.66 (currently down to $127.70) and it's considered a BUY with all analysts with a target of $154 it's obviously doing something right.

CCL is also considered a BUY with a higher percentage upside. I guess CCL is doing something righter.

[BlerkOne]

On 4/9/2024 at 10:49 AM, toad455 said:

 

Paradise and Elation will be 30 years old in 2028. I wonder if any of the Costa ships might bounce over to Carnival by then. Costa seems to be slowly disappearing.

Some cruise ships are still sailing at 100+ years old. Cheaper to retrofit a paid for ship than to build new, although the option is still there.

[BlerkOne]

17 hours ago, tidecat said:

About 10-12% of the cost of your cruise is the cost of the ship itself. The Excel class is around $183,000 per lower berth (2020 dollars). The Fantasy class, adjusted for inflation, is around $296,000. Even if all other costs are the same on a per-passenger basis, the Fantasy class ship might eke out a 5% profit instead of a 15% profit given the same fare.

 

 

The Fantasy class are paid for, the Excel, not so much. I think a fallacy is trying to compare beth costs from ships several generations apart.

 

Looking at a Royal 2028 delivery - $1,450,000,000 for 5714 pax vs Carnival 2028 delivery $950,000,000 for 5400 pax, I think we see the clear winner. And Carnival's ship at 183,900 tons is a tiny ship compared to Royal's 231,000 tons.

 

I think Carnival could build a small ship and easily beat the $4k per person of an all-inclusive luxury line. No white glove service needed or expensive furnishings required. I don't think they will attempt to construct a new Fantasy or Spirit class, but could easily come up with a niche small ship experience, Carnival style.

 

Itineraries for mega-ships is limited and boring. They will burn themselves out.

[BlerkOne]

On 4/14/2024 at 1:26 PM, kwokpot said:

Here's a brand new article that puts it in perspective with regard to Carnival. IT can't AFFORD to build alot of new, bigger ships. Carnival's CEO admitted it as so and also conceded that his competitors aren't WRONG for placing such large advanced orders for new builds. 

 

https://www.seatrade-cruise.com/people-opinions/buoyant-state-industry-outlook-cruisings-top-leaders

My interpretation differs.

 

Carnival is being fiscally responsible, instead of reckless. Interest rates aren't dropping. Oil prices aren't dropping. There is still a chance for a recession. The Middle East is on the verge of a major war. The US is still divided. US Credit Card and Household debt are at record levels. There will be a reckoning. The current industry dynamics aren't going to hold for the next 15 years. But to add numbers for NCL - their 2028 delivery is almost as expensive as Royal's - 1.3 billion vs 1.45, for a lot fewer passengers - 3650 vs 5714. Carnival looks even better against NCL.

 

Carnival still has credit - they could build more ships, IF THEY WANTED TO.

[tidecat]

36 minutes ago, BlerkOne said:

The Fantasy class are paid for, the Excel, not so much. I think a fallacy is trying to compare beth costs from ships several generations apart.

The Fantasy class may be paid for, but Carnival Corporation will still be recognizing depreciation expense on them until 2028.

 

To use your own words against you, the depreciation on the Fantasy class ships is based on the original purchase price of $300 Million, it is not adjusted for inflation. So you really can't compare the paper costs of the ships themselves. The older ship is less fuel efficient. The port taxes based on time at the port and length of the ship may ultimately be pass-throughs, but they aren't going to be 40% of what an Excel ship pays - and if the cruise doesn't sell out you're stuck with the expense. The crew complement also doesn't scale in a linear fashion; Fantasy class ships carry 920 crew, Excel class has 1735; if it was linear, Mardi Gras would have more than 630 extra crew members.

 

Now if Carnival wants to build another Fantasy class ship today, they would have to pay the inflated price for that ship (approximately $600 Million). That's going to be significantly more per lower berth than the newer ships. New engineering work is probably going to have to be done anyway because I'm sure SOLAS has been updated a few times, so that may add even more costs.

 

A smaller ship will never be more cost efficient.

[BlerkOne]

6 minutes ago, tidecat said:

The Fantasy class may be paid for, but Carnival Corporation will still be recognizing depreciation expense on them until 2028.

Accounting and a write off.

 

 

6 minutes ago, tidecat said:

To use your own words against you, the depreciation on the Fantasy class ships is based on the original purchase price of $300 Million, it is not adjusted for inflation. So you really can't compare the paper costs of the ships themselves. The older ship is less fuel efficient. The port taxes based on time at the port and length of the ship may ultimately be pass-throughs, but they aren't going to be 40% of what an Excel ship pays - and if the cruise doesn't sell out you're stuck with the expense. The crew complement also doesn't scale in a linear fashion; Fantasy class ships carry 920 crew, Excel class has 1735; if it was linear, Mardi Gras would have more than 630 extra crew members.

 

Let's talk expense. There is a lot of outsourcing on cruise ships, the bigger the ship, the more is outsourced. The price paid is based on the ship sailing full. If not, Carnival has to rebate money to the merchant. It adds up. A small ship sailing full? No extra expense. A large ship sailing half full? A lot of expense.

 

6 minutes ago, tidecat said:

Now if Carnival wants to build another Fantasy class ship today, they would have to pay the inflated price for that ship (approximately $600 Million). That's going to be significantly more per lower berth than the newer ships. New engineering work is probably going to have to be done anyway because I'm sure SOLAS has been updated a few times, so that may add even more costs.

 

A smaller ship will never be more cost efficient.

It might be more per lower berth compared with a larger Carnival ship. Compared with a larger competitor ship, not so much. As I mentioned, I doubt Carnival would build another ship of an existing smaller class. A new design would mitigate at least some of the inefficiencies on an old design, including more efficient engines, lighting, HVAC, etc. New construction techniques and materials, etc.

 

Carnival could build a smaller ship and compete with other cruise lines on price AND offer a better selection of itineraries. Not everyone cruises for ice rinks and such.

[tidecat]

1 hour ago, BlerkOne said:

Carnival could build a smaller ship and compete with other cruise lines on price AND offer a better selection of itineraries. Not everyone cruises for ice rinks and such.

Anyone can beat Royal Caribbean on price - I mean there's a 7-day Celebrity Beyond Western Caribbean sailing in November that is half the price of an Icon of the Seas Western Caribbean itinerary the same week. You could even do Alaska on Carnival in early August for half of what Royal is charging to take you to Cozumel three months later.

 

The real question is can Royal keep up the sky high prices for all of the new builds? If that bubble bursts, there may not be anything left with which to compete.

[BlerkOne]

9 minutes ago, tidecat said:

The real question is can Royal keep up the sky high prices for all of the new builds? If that bubble bursts, there may not be anything left with which to compete.

They seem to be betting the farm on it. I suspect they have favorable cancellation/delay clauses in the contracts. But it is still a high risk bet.

[blt23]

Some of the numbers being posted here are wildly inaccurate.

Carnival’s 2027 Excel class will cost around $1.7 billion, and Royal’s 2028 Oasis should clear $2.0 billion. The 86k ton ships just ordered by Oceania are costing $950 million, so I’m very skeptical that a new Spirit class equivalent could be had for less than $900 million. 

Thus, Carnival’s mega ships are about 20% cheaper per berth than small ships would be. Similar applies for operating costs, as larger ships offer efficiencies of scale in both staffing and systems/energy usage. To estimate a comparison, at equal cruise prices a new small ship at 100% capacity would have the same profitability as a mega ship at 80% capacity, or at equal capacities, a new small ship would need prices 25% higher than a mega ship.
Not fully pursuing that extra 25% possible profit from mega ships will make it even harder for Carnival to rebuild its finances, and if cruising demand suddenly dropped by 30+% the whole industry would be screwed regardless.

The notion of paying somewhat high prices for somewhat smaller ships sounds exactly like Princess’ market segment, and I strongly suspect that the “people who want to pay more to cruise on ships with less to do but don’t want a more luxurious experience” demographic is significantly overrepresented on Cruise Critic forums relative to the general cruise population.

As for the other argument happening here, Royal is in a significantly stronger financial position than Carnival because they have less excess debt from the pandemic and are making more profit (on much fewer berths, impressively). They are on track to get their debt down to a comfortable level faster than Carnival, even accounting for their larger orderbook. Obviously a lot of their current success is built on potentially fragile crazy prices for cruises on the newest and biggest ships, but they are also starting from a better overall spot if there does prove to be some future weakness in cruise demand. None of that is investment advice or stock analysis, just my reading of the companies’ core finances.

[tidecat]

3 minutes ago, blt23 said:

Some of the numbers being posted here are wildly inaccurate.

Carnival’s 2027 Excel class will cost around $1.7 billion, and Royal’s 2028 Oasis should clear $2.0 billion.

Do you have a source for that? I have a hard time believing that the cost nearly doubled from 2020 ($950 million). Cruise Industry News has Excel 4 and Excel 5 at $950 million each, and the 2028 Oasis class ship at $1.45 Billion.

[BlerkOne]

4 minutes ago, tidecat said:

Do you have a source for that? I have a hard time believing that the cost nearly doubled from 2020 ($950 million). Cruise Industry News has Excel 4 and Excel 5 at $950 million each, and the 2028 Oasis class ship at $1.45 Billion.

They are correct about widely inaccurate numbers.

 

2028:

Cruise Line	Ship	Cost1	Tonnage	Capacity	Yard	Sailing	Delivery
Carnival	Unnamed	$950	183,900	5,400	Meyer Werft	TBA	TBA
Explora Journeys	Explora VI	$600	70,000	922	Fincantieri	World	TBA
Viking Ocean	Unnamed	$400	47,000	998	Fincantieri	World	TBA
Viking Ocean	Unnamed	$400	47,000	998	Fincantieri	World	TBA
Royal Caribbean	Unnamed	$1,450	231,000	5,714	Chantiers	TBA	TBA
Norwegian	Unnamed	$1,300	169,000	3,650	Fincantieri	TBA	TBA

[blt23]

25 minutes ago, tidecat said:

Do you have a source for that? I have a hard time believing that the cost nearly doubled from 2020 ($950 million). Cruise Industry News has Excel 4 and Excel 5 at $950 million each, and the 2028 Oasis class ship at $1.45 Billion.

Carnival's latest quarterly report says they have secured 1.4 billion in export credit financing for 2027, which at the industry standard 80% would suggest an all in price around 1.7 billion. It's possible there's something weird going on there and the total price is actually closer to the 1.4, but it definitely appears to be in that range. 

 

If you scroll to the bottom of that Cruise Industry News page, it says "Costs may be estimated", so that's not exactly the most reliable source. 

[BlerkOne]

13 minutes ago, blt23 said:

Carnival's latest quarterly report says they have secured 1.4 billion in export credit financing for 2027, which at the industry standard 80% would suggest an all in price around 1.7 billion. It's possible there's something weird going on there and the total price is actually closer to the 1.4, but it definitely appears to be in that range. 

 

If you scroll to the bottom of that Cruise Industry News page, it says "Costs may be estimated", so that's not exactly the most reliable source. 

Or maybe they are thinking of a second ship order. The Carnival you speak of is Carnival Corp, not just Carnival Cruise Line.

[blt23]

6 minutes ago, BlerkOne said:

Or maybe they are thinking of a second ship order. The Carnival you speak of is Carnival Corp, not just Carnival Cruise Line.

Carnival Corp has clearly stated that they are only getting the one ship in 2027 (see that order's press release), and noted that they have not yet secured financing for the 2028 order (see that order's press release and the quarterly report). 

[BlerkOne]

Or maybe refurbish several ships.

[BlerkOne]

1 minute ago, blt23 said:

Carnival Corp has clearly stated that they are only getting the one ship in 2027 (see that order's press release), and noted that they have not yet secured financing for the 2028 order (see that order's press release and the quarterly report). 

Carnival Corp is allowed to change their mind, especially if conditions warrant. They have also said clearly 1 or 2 ship orders a year. Time will tell.

[tidecat]

On 4/16/2024 at 12:11 AM, blt23 said:

Carnival's latest quarterly report says they have secured 1.4 billion in export credit financing for 2027, which at the industry standard 80% would suggest an all in price around 1.7 billion. It's possible there's something weird going on there and the total price is actually closer to the 1.4, but it definitely appears to be in that range. 

 

If you scroll to the bottom of that Cruise Industry News page, it says "Costs may be estimated", so that's not exactly the most reliable source. 

Carnival's first quarter FY 2024 10-Q has $2.138 billion in new fixed assets during the quarter. That would have included Carnival Jubilee (reported by Cruise Industry News at $950 million) and Sun Princess (reported as $1 billion). It's possible there may have been some non-ship asset purchases that quarter, but even if not, we're not talking about less than 10% variance. It's also possible there are some costs paid to contractors other than the shipyard associated with placing those ships into service that are being capitalized with the ships.

 

I would expect the price to go up somewhat due to the all of the inflation that has happened since the original Excel class order was placed. I just question whether the amount financed is actually specific to Excel 4, or if it may have been secured in anticipation of the larger order with Fincantieri that so far has not materialized. It's also possible Meyer Werft may have material surcharges built into the price and Carnival would have to cover the worst case scenario for those. Just because they secured $1.4 billion in financing doesn't mean they have to take the entire amount.

[jsglow]

What I take from the chart Blerk posted above is that small ships will continue to get built, if not for Carnival than somebody. I'd love to do a Viking cruise someday. Yes, I'll have to pay for it. I agree with the notion that Carnival Corp will likely do this via greater brand distinction.

[Prometheus1]

Will be interesting to see what Carnival does. A bit of a buzz about Royal Caribbean building the Discovery class to replace some of the smaller ships. Carnival may follow suit once  Royal starts building...time will tell.

[jimbo5544]

9 hours ago, Prometheus1 said:

Will be interesting to see what Carnival does. A bit of a buzz about Royal Caribbean building the Discovery class to replace some of the smaller ships. Carnival may follow suit once  Royal starts building...time will tell.

I doubt we will see CCL get anything in the next 3 years besides the two they now have on order.  They are stretching the envelope to get to where they are,  They are finding the best route to go juggling the drag they would get from new builds and still primarily focused on Covid debt reduction.  A tough task.