Cruise Order Book: Record level of new berths in 2016

With 12 large new ships to be delivered over the course of the year, new market entrants are also benefiting from positive market conditions. David Mott reports

Cruise Order Book: Record level of new berths in 2016
Royal Caribbean's Ovation of the Seas during her construction phase at Meyer Werft
This article was first published in the Spring/Summer 2016 issue of International Cruise & Ferry Review.

When the history of the cruise industry in the early years of the 21st century comes to be written, 2015-2016 will be seen as a watershed couple of years, especially for the shipbuilding element of it. The delivery of 12 new ships to the market this year is the best for five years, and the new berths added will amount to an unprecedented near 30,000 as the ever-increasing size of new vessels starts to make an impact. It is also significant that all the new ships coming out of shipyards will have been booked in the cautious period after the 2008 recession as the industry started to recover.

The way shipbuilding business is done is changing, with owners placing strategic orders, sometimes well into the future, to tie up propitious building slots with non-specific options or letters of intent. The result is an unprecedentedly long order book stretching as far as 2022 – six years ahead – when the average building time is probably around two years. Peter Wild, an industry analyst of long experience, remarks: “I have never known an order book of such length in my 30 years of looking at the industry.”

Another aspect of this changed modus operandi is that owners and shipyards are now getting together, often under the same corporate roof, as never before as they plan their newbuilding strategies. Unsurprisingly, the instigator of this new method of working is market leader Carnival Corporation with its nine-ship facility agreed with Meyer Werft and Fincantieri last year. Meyer is building four new-design gas ships, the industry’s first. And on the penultimate day of 2015, Carnival filled four of the five remaining slots at the Italian shipyard with two ships for Costa Asia in China and, more surprisingly, two more for P&O Cruises Australia and Princess Cruises. The agreements for all four will be turned into definitive contracts in 2016 with deliveries in 2019/20. This one remaining unallocated slot at Fincantieri will cause some speculation.

Another string to Carnival’s bow is that it is forming a new brand for the China market together with China State Shipbuilding Corporation. The plan would include the purchase of both new and existing cruise ships to homeport in China, according to the joint venture. No prizes for guessing where any new ships will be built. Commenting on this new approach, Bo-Erik Blomqvist, Carnival’s senior vice president of Shipbuilding, says: “A critical aspect of our fleet enhancement strategy is our next-generation ship design, which serves as an innovative platform for our future orders for our large ship brands. This new ship platform enables us to make great advances in design, technology, safety and efficiency.”

The most surprising contract of recent months – and one which illustrates well this new modus operandi – is an agreement reached by luxury operator, Crystal Cruises, with Lloyd Werft, the renowned ship repair and conversion yard, to build three new 1,000-passenger, ice-strengthened luxury vessels. You have to go back as far as 2001 to find the last time the yard built a new ship on its own and the contract may be the result of a lack of timely building slots from the front-line builders. Genting says other yards were sounded out before deciding on Lloyd Werft. In addition, Genting in Hong Kong, Crystal’s new owner, has paid €17.5 million for 70% of the yard’s business operations and 50% of its land. The ships are part of a wider luxury package, including two river boats, and the first delivery is planned to be at the end of 2018. Star Cruises, also owned by Genting, is due to take delivery of Genting World, the first of two 3,400-berth vessels, from Meyer Werft in October. Genting’s chairman, Tan Sri Lim Kok Thay, says: “It is our intention to make Crystal Cruises the core of what will become the world’s premier luxury brand.”

Another German builder set to make a return to cruise shipbuilding is Nordic Yards, which last completed orders for the sector 14 years ago. Chairman Herbert Aly says the yard is “negotiating its entry” back into the business which only means new tonnage is on the cards. He says the company sees great potential in building small expedition-type vessels and has drawn up no fewer than seven designs for ships between 200 and 250 berths. The yard also sees a “sustainable niche market” for larger vessels of up to 800 passengers maximum. The chairman says the first ship could be ready by 2018. The initiative has been spurred by a gap in earnings caused by recent Western sanctions against Russia, a major customer, says the chairman.

An order which some people have been anticipating for the last 19 years has come from over-50s specialist Saga Cruises, which has booked a new ship for fewer than 1,000 passengers, with an option for a second vessel. CEO Robin Shaw says the order stemmed from Saga research showing that one third of over-50s approaching retirement say they will spend more money on cruising when they do. This trend will be boosted in the UK source market by the fact that people now have easier access to their pension money than they used to. The ships will have 540 cabins and suites and, given the nature of the business, a high 15% will be singles.

Viking Cruises, the industry’s newest brand, seems reluctant to talk about its growing fleet to the extent that it was content to leave it to builders, Fincantieri, to confirm the upgrading of two more options to firm orders for the fifth and sixth ships. Both these vessels, plus the fourth ship, are subject to technical and financial details, for the contracts to be finally confirmed. What remains to be seen is just how big the fleet will get.

Royal Caribbean Cruises Ltd. took the industry slightly by surprise by ordering a fifth 4,200-berth Quantum ship for Royal Caribbean International from Meyer Werft. And chairman and chief executive, Richard Fain, hinted at more, commenting: “We fully expect the momentum to continue as we add to this innovative class.” This was typical of Fain, who has a penchant for teasing the media and the analysts with his hints. The group disclosed that in the five years from 2015 to 2019 it will be spending, as things stand, a total of US$8.4 billion on new ships, with US$2.4 billion of this being expended this year. Also this year, delivery will be taken of another Quantum ship, Ovation of the Seas, and Harmony of the Seas, the latest 5,400-berth Oasis class ship being built at STX France’s Chantiers de l’Atlantique shipyard.

Cyril Tatar, SVP Newbuilding at Holland America Line, says the company, which introduces its first Pinnacle class ship, Koningsdam, in March, likes to operate over a five- to 10-year timespan when considering new tonnage. So Koningsdam, HAL’s largest ship with 2,600 berths, may not be the new standard for too long. Tatar says previous ships had been built to a Panamax beam of 32.2 metres, but the new design has gone out to 35 metres which has enabled the inclusion of an extra 500 berths. Koningsdam’s bookings are going well and run to several months, he says. A sister ship is due in 2018.

Faced with huge losses on the building of two much-delayed cruise ships for AIDA Cruises, Mitsubishi Shipbuilding in Japan, the only builder of major cruise ships outside Europe, seems likely to get out of the cruise business after posting an extraordinary loss of US$357 million in its latest accounts. There was speculation at the beginning of last year that the hulls would be taken to Meyer Werft in Germany, AIDA’s traditional builder, for completion. To its credit Mitsubishi, which blames the delay and the losses on design changes, stayed with the contract and it seems likely no definitive decision on its future in the industry will be made until the two ships are delivered.

The long-awaited Seven Seas Explorer, dubbed six-star and the world’s most luxurious cruise ship by her operators, Regent Seven Seas Cruises, will make her debut this summer in Europe and then transfer to Miami at the beginning of December. She will carry just 750 passengers in all-suite, all-balcony accommodation. Another luxurious newcomer, Seabourn Encore, will go straight to a short initial season in Australasia when she is delivered at the end of the year. The US$275 million, 600-berth ship is the first of two configured with an extra deck. The second, Seabourn Ovation, is due in the autumn of 2018.

The latest in a series of up to eight energy-saving cruise ships, the US$510 million, 2,500-berth Mein Schiff 5, is due to be delivered by Meyer Turku in Finland to her owner TUI Cruises in the second quarter of the year. The vessel, which it is claimed uses 30% less energy than normal, was instrumental in saving the Turku shipyard when STX Europe said it was pulling out and Meyer Werft stepped in with a controlling stake and took over the baseload of work. The series, which once looked in serious doubt of being completed, will now be finished when the remaining ships are handed over in 2017, 2018 and 2019. The last two in the series were confirmed as firm orders by owners TUI in the summer of 2015.

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David Mott
By David Mott
Tuesday, April 5, 2016