• an economic slowdown
• terrorist acts
• war

This passed troublesome year has experienced all three events simultaneously which have weighed heavily over the cruise industry. The last three slowdowns were caused by:

1985: the piracy on the 'Achille Lauro'
1991: the Gulf war
1999: the Kosovo war

The cruise market has always been able to recover from these crisis and to frequently compensate these temporary slowdowns with a subsequent rapid expansion.

We have not mentioned the overcapacity as we do not believe that this is a major handicap to the market's development, as the industry has always been able to absorb such surpluses by attracting new adepts to cruising.

It is the ships which create the market, in the United States firstly and more recently in Europe, and the increase in the number of cruise passengers is always linked to the advent of new ships, as was the case:

• in the U.K. with the deliveries of the 'Oriana' and the 'Aurora',
• in Germany with the 'Aida' and the 'Deutschland',
• in France with the 'Mistral',
• in Italy with the new ships of Costa and Festival,
• in Spain with the 'Bolero' and the 'Oceanic'.

It is true that, if one of the causes mentioned above occurs, let alone all three together, the potential overcapacity of the fleet exacerbates the situation and depresses prices. However as in nature, there is a natural selection which then takes over, and tends to eliminate the least adapted ships and the weakest companies, thus allowing a quick return to a more healthy balance. It is particularly true this year with the bankruptcies of Commodore Cruise Line, Renaissance Cruises, and AMCV in the U.S..

The year 2000 ended with a record orderbook of 50 ships under construction (100,000 lower berths), which had financial analysts worried and which had a negative effect on shares prices of companies quoted on the exchanges. Nine months later, at the beginning of September, the view of the main operators had become totally positive based on a load factor of over 100 % in the U.S. with complaints only about minor price reductions on offer. The drama of September 11th of course changed everything and severely affected the tourism industry in general and the airline sector in particular.

It is nonetheless amazing that apart from several days just after September 11th, owners were able to fill their ships by lowering their prices, which leads one to think that clients have not been put off the idea of cruising and only need to be convincingly persuaded. If cruises had suffered the same crisis in confidence as happened to air traffic, it is unlikely that the same number of clients would have been as forthcoming no matter what the price. Ships were relocated towards safer destinations, with embarkations from the nearest ports for passengers, allowing them to depend less on flight connections. During the last quarter, operators were able to achieve average load factors of over 90 % in the U.S., which is a remarkable achievement given the circumstances. Europeans have not by and large changed their holiday schedules.

Companies that went bankrupt were already tottering before September 11th and this dramatic event simply added the coup de grace:

• Renaissance paid for their serious commercial mistakes, with a too rapid expansion on a poorly defined market segment and too heavily indebted.
• Commodore overspeculated within the gambling cruises in the U.S., where the relaxing of restrictions for playing on land no longer made it necessary to play on gambling ships.
• AMCV which had high running costs due to American flag, suffered from very aggressive competition of other cruise lines and of the excellent infrastructures in the Hawaiian archipelago.
  

The major owners, well-stocked with new ships, have taken advantage of the lightening in the shipyard orderbooks, to delay certain deliveries and to slip back the dates of some of their orders. This was the case for P&O with Chantiers de l'Atlantique, RCCL with Masa Yards and more recently Carnival with Fincantieri. The construction of a ship is a partnership between shipyards and owners and such a decision can equally be an advantage to the yard which having no new orders this year, risks facing a lack of ships to be built in three years time.
 

This slowdown in the pace of orders may in the medium term pose a problem to European shipyards specialising in cruise ships, now facing serious problems at finding substitute work, as the Koreans have taken a dominant place in building LNG carriers and with orders for new ferries being currently scarce. Among the large European shipyards, only Fincantieri is well placed for the moment with an orderbook spread over 2005.

At the end of 2001, there remain 38 ships to be delivered:

• 13 in 2002, comprising 25,000 lower berths,
• 13 in 2003, comprising 26,000 lower berths,
•  9 in 2004, comprising 21,000 lower berths,
•  3 in 2005, comprising 5,500 lower berths.

It is however unlikely that the two cruise vessels being built at Ingalls for AMCV will ever be completed (1,900 berths each) as cruise vessels. These new ships represent over the next three years an average increase of 8 % of the annual capacity which should easily be absorbed if the market picks up to its normal rate of expansion of about 8 % p.a. as well. In comparison the levels in 2000 were up by 17 % in the U.S. and by 20 % in Western Europe. In addition the market penetration is seven times less prominent in Europe compared to the U.S., and should therefore grow much faster in the future compared to the American market. Given this situation, is it therefore still reasonable to harp on about overcapacity?
 

• For Carnival, the 'Carnival Spirit' and the 'Carnival Pride' (85,700 gt, 2,114 berths) built at Kvaerner Masa.
• For RCC/Celebrity, the 'Summit' and the 'Infinity' (91,000 gt, 1,950 berths) built at Chantiers de l'Atlantique, the 'Adventure of the Seas' (137,000 gt, 3,138 berths), built at Kvaerner Masa and the 'Radiance of the Seas' (90,000 gt, 2,100 berths) built at Meyer Werft.
• For Star Cruise/NCL, the 'Norwegian Star' (91,000 gt, 2,240 berths), built at Meyer Werft and 'Norwegian Sun' (77,000 gt, 2,000 berths) built at Lloyd Werft.
• For P&O Princess Cruises, the 'Golden Princess' (108,000 gt, 2,600 berths) built at Fincantieri.
• For Festival Cruises, the 'European Vision' (58,000 gt, 1,500 berths), built at Chantiers de l'Atlantique.
• For Radisson Seven Seas, the 'Seven Seas Mariner' (48,000 gt, 710 berths) built at Chantiers de l'Atlantique.
• For Renaissance Cruises, the 'R Eight' (30,000 gt, 700 berths) built at Chantiers de l'Atlantique.
• For Silversea Cruises, the 'Silver Whisper' (25,000 gt, 382 berths) built at Mariotti.
• In total 13 ships with 23,000 lower berths have been delivered. Two ships have been put back to 2002, the 'World' for Residensea and the 'Olympia Explorer' for Royal Olympic Cruises.