Out of the doldrums?

Out of the doldrums?
The unexpected order of a third billion-dollar Quantum class ship for Royal Caribbean International from Meyer Werft shipyard in late May was a welcome boost for the whole cruise sector, which has spent most of 2013 on the back foot.

Earlier this year, several fires and breakdowns on Carnival Cruise Lines (CCL) ships led to increasing media coverage, fuelled by calls from US politicians already hostile to the sector for more oversight and regulation of the industry.

After CCL parent company Carnival Corporation became embroiled in a heated exchange of letters with one US senator, it then announced a US$700m revamping across its entire fleet (not just CCL’s) to improve safety and reliability.

Any hopes that Carnival’s 2013 results would bounce back from a disastrous 2012, which saw net income fall by US$614m (32 per cent) to US$1.3bn, were dashed by a US consumer backlash against CCL, which saw it having to discount heavily to maintain volumes.

Partly as a result, Carnival’s Q1 2013 results were only a small improvement compared with Q1 2012 figures (if the one-off 2012 write-off on Ibero Cruises is excluded) and were accompanied by forecasts revised downwards for the rest of the year.

The Q2 results conformed to those forecasts, with net income only US$14m compared to US$41m in Q2 2012. Comments from the Corporation board that it could take “two or three years” for CCL fully to recover its reputation in the US did not bode well for the industry’s largest player.

Its concern was evident in its move to bring back former CCL President/CEO and marketing guru Bob Dickinson as a consultant to strategise marketing and distribution in North America. Shortly afterwards, Carnival Chairman and CEO Micky Arison passed the CEO mantle to long-time board director Arnold Donald.

An even larger write-off of its own Spanish brand (Pullmantur) had damaged the 2012 results of Royal Caribbean Cruises Ltd (RCL), with profits down US$489m (81 per cent) to just US$18m. But it had more encouraging news for Q1 2013, which was better than it had forecast with net income up from 2012’s US$47m to more than US$76m.

Also, while only one CCL new ship is on the order books (alongside six newbuilds for five other Carnival brands), RCI has four on order plus an option on a fifth (a fourth Oasis-class vessel). If this is firmed up, it will bring its total berths to 100,000 – well ahead of CCL’s 82,000 – by 2018.

There has also been greater competition from a resurgent, newly IPO-ed and increasingly profitable Norwegian Cruise Line, which has three ships with a combined 15,000 berths on order or optioned.
The economic situation in Europe, along with the high cost of airfares from North America, has prompted a reduction in European capacity for several brands over the 2012-2014 period. RCL has reduced Europe’s share of its global capacity from 31 per cent in 2011 to 26 per cent in 2013. It will cut back still further in 2014.

That said, the cruise sector still managed to generate a record €37.9bn for the European economy in 2012. That was more than 3 per cent up on 2011 and, as a result, an extra 10,000 jobs were generated for a total of 327,000.

Passenger numbers also rose by 1.3 per cent to nearly 6.3m, with 4.8m people cruising within Europe, joined by about 900,000 passengers from outside the region.

This meant a 4.3 per cent increase (to 29.3m) in passenger visits to about 250 European ports.

It is clear that the Mediterranean (up from 11.5 per cent of global cruise capacity in 2003 to 19.9 per cent in 2012 according to CLIA Global figures), Australasian (1.6 per cent to 4.1 per cent) and South American (2.4 per cent to 3.4 per cent) ports and destinations have been the major beneficiaries over the past decade while the Caribbean (45.7 per cent to 37.3 per cent) and Alaska (7.4 per cent to 5.4 per cent) have both lost significant share.

Significantly, despite all the hype, Asia (including China) has only kept pace with global capacity growth (7 per cent in both 2003 and 2012) and has yet to see a major increase in its share.

Norwegian’s CEO Kevin Sheehan has postponed the company’s plans for new deployments in Asia and Australia to concentrate on the US source market for cruises closer to home.

But Carnival Asia’s CEO Pierluigi Foschi is still forecasting between 7m and 10m Asian cruise passengers by 2020, most of them Chinese and some on new Chinese-owned lines.

This article appeared in the Autumn/Winter 2013 edition of International Cruise & Ferry Review. To read the full article, you can subscribe to the magazine in printed or digital formats.

Tony Peisley
By Tony Peisley
21 November 2013