The Cruise market in 2002

• The creation of « Ocean Village » and of « A’Rosa » by the P&O group, the first being destined for a new younger clientele within the English market, and the second for a more mature and experienced clientele within the German market.
• Similarly, Costa has dedicated the ‘Costa Marina’ to the Germans and RCC has created « Island Cruises » to operate on the English market at attractive prices.

These new brand names sometimes have difficulty in getting established, with potential clients showing a certain distrust towards a new name and product, but for owners it allows them to use older cruise ships, which are facing the competition of new ships from their parent companies.
 

• A newly created American cruise company, Oceania, is proposing to charter two Renaissance ships to work the American market and the last three should find their trade within Europe to fulfil the upper end of some national markets.
• The hulls under construction for the American company AMCV with Ingalls and their outfitting have found takers with NCL (the Star Cruises group) who bought at the very favourable price of $36 million and will have them completed – or at least the hull of the first-ship with Lloyd Werft in Germany, the undisputed specialist of passenger ship conversion.

 

Brillance of the Seas 99,090 gt, blt 2002 by Meyer Werft, operated by RCC

For the second consecutive year, the orderbook has hardly expanded, with the exception of two ships ordered by the Carnival group with Fincantieri, one unit of 85,000 tons, 1,848 lower berths, for Holland America Lines, with delivery in mid-2006, and one unit of 110,000 tons, 3,000 lower berths, for Carnival, for delivery at the end of 2005, at the respective prices of some 380 and 460 million euros. Fincantieri thus confirms its lead position amongst European shipbuilders.

Also worth noting is the order by the Scandinavian company Birka for a vessel of 700 cabins with Aker Finnyards, at a price of $155 million, destined primarily for cruise seminars.

At the end of the year, the firm orderbook stands at 27 ships with a capacity of 57,164 lower berths, with delivery to be spread out over the next three years, which will increase berth capacity in service respectively by 10.8 % in 2003, 9.5 % in 2004, and 2.5 % in 2005.

Confronted with a demand which most probably will increase at the rate of some 8 % per year, the threat of surplus capacity seems to be receding, which will reassure bankers and financial analysts who have been concerned at the rapid rise in the number of ships joining the market these last years. However this brutal reduction in new orders puts the future of the large European shipyards specialised in the cruise industry into jeopardy. Converting towards other types of ships, such as ferries, ro-ros, LNG carriers and military or specialised craft, although a logical solution, is not always obvious in such a generally sluggish market. The first victim of this reduced activity has been the small Norwegian shipyard Fosen, builder of the ship ‘The World’ for Residensea, which had to ask for creditors’ protection.

Several projects are currently under discussions, namely for Star Cruises, Saga, Aida Cruises, Radisson, Disney Cruises, etc. but are slow to get confirmed. RCC has not placed any new order in 2002 and is questioning the size of future ships, in view of the success of the ‘Voyager’ series, 137,000 tons. It is also a fact that decisions were on hold awaiting the outcome of the merger with P&O Princess. RCC has extended its option until September 2003 that it has with Meyer Werft for two ships of the ‘Serenade’ class (85,000 gt, 2,000 lower berths), for delivery in 2005 and 2006, whereas P&O were unable to postpone any further its two options with Chantiers de l’Atlantique.
The market will from now be obliged to follow the development pace of the new giant CCL/P&O Princess. It is very unlikely that the year 1999, which had 25 new orders will be repeated, but one can reasonably hope that some new orders will be placed in 2003 by the big groups who will pursue a more modest rhythm for their expansion in 2005 and beyond. Carnival should logically show the way and be followed by its competitors, but the number of new orders risks being insufficient for the appetites of the European shipyards.

Europe has a total construction capacity of about fifteen ships of 90,000 gross tons per year, certainly greatly oversized relative to the needs for a reasonable growth of the cruise industry in the coming years. A reduction in capacity will consequently have to take place, resulting in a shrinking of orders and in the number of owners, and of a greater sensitivity from financial institutions and investors towards this sector - always hungry for funds. The depreciation of the dollar against the euro will also act as a brake, despite the historically low levels of interest rates.

In this situation competition between shipyards is fierce, and since national subsidies have been banned by Brussels, and the negotiating margins on prices remain very slim, it is more on financing know-how and means of tax leverage developed by some E.U. countries, that efforts will be concentrated.

The only satisfaction is that the construction of cruise ships should remain an European speciality for numerous years to come, since Asian shipyards have no interest to break into this high risk and very restrictive market, whilst they are experiencing healthy orders of standard ships. The dramatic and costly fire of the ‘Diamond Princess’ under construction with Mitsubishi should also be a dampener.
 

• For Carnival Cruise Lines, the ‘Carnival Conquest’, (110,000 gt, 2,974 lower berths) built by Fincantieri, the ‘Carnival Legend’, (88,500 gt, 2,114 lower berths) built by Kvaerner Masa.
  u For Holland America Line, the ‘Zuiderdam’ (85,000 gt, 1,848 lower berths) built by Fincantieri.
• For Royal Caribbean Cruises, the ‘Brilliance of the Seas’, (90,090 gt, 2,100 lower berths) built by Meyer Werft, the ‘Navigator of the Seas’, (137,300 gt, 3,138 lower berths) built by Kvaerner Masa.
• For Celebrity Cruises, the ‘Constellation’, (91,000 gt, 1,950 lower berths) built by Chantiers de l’Atlantique.
• For P&O Princess Cruises, the ‘Star Princess’ (108,806 gt, 2,600 lower berths) built by Fincantieri, the ‘Coral Princess’, (88,000 gt, 1,950 lower berths) built by Chantiers de l’Atlantique.
• For Aida Cruises, ‘Aida Vita’, (42,289 gt, 1,266 lower berths) built by Aker MTW.
  u For Norwegian Cruise Line, the ‘Norwegian Dawn’, (91,000 gt, 2,244 lower berths) built by Meyer Werft.
• For Festival Cruises, the ‘European Stars’, (58,600 gt, 1,506 lower berths) built by Chantiers de l’Atlantique.
• For Residensea, ‘The World’ (40,000 gt, 616 lower berths, 110 apartments, 88 suites) built by Fosen.
• For Royal Olympic, ‘Olympia Explorer’, (25,000 gt, 836 lower berths) built by Blohm + Voss.

 

European Stars 58,600 gt, blt 2002 by Chantiers de l'Atlantique, operated by Festival Cruises

The second-hand market was extremely quiet. Several significant sales noted were:

• ‘Patriot’ (built in 1983, 33,000 gt, 1,250 passengers) this ship which was the former ‘Niew Amsterdam’ was bought by Carnival following the AMCV bankruptcy in May and resold to Louis Cruises in Cyprus against a ten year time-charter, which puts a value on the ship of about $65 million.
• ‘Victoria’ (built in 1966, 29,000 gt, 778 passengers) this ship which belonged to P&O, was sold to a company of the Katsoufis group for $17million, with a seven year time-charter to a German tour operator.
• ‘Pacific Princess’ (built 1971, 20,000 gt, 640 passengers) was sold for $15 million to Pullman Tours, who confirm their place as leader in the Spanish market.
• ‘Switzerland’ (ex ‘Daphné’, built 1955, 15,000 gt, 500 passengers) was sold for $2.5 million to a company of the Kollakis group, Majestic International Cruises.

The second-hand market is getting smaller but it is worth mentioning that ships of good standing always find buyers at a fair value and if it is true that many ships are potentially for sale, their lack of success is often attributable to an excessive asking price. The oldest ships and steam turbines fitted ones should definitely disappear from the market.
 

Coral Princess 88,000 gt, blt 2002 by Chantiers de l'Atlantique, operated by P&O Princess

With over a billion dollars net profit for a turnover of $4.4 billion, Micky Arison chairman of Carnival could legitimately express his satisfaction on the development of his company over the course of the year, but also on the resilience of the cruise market in the face of the serious geopolitical events which the world is currently experiencing.

Strangely and unexpectedly, it is not so much terrorism which troubles cruise operators at the end of the year as much as the spreading of viruses aboard their ships, causing some discomfort but without serious repercussions to passengers. This was given widespread publicity by the American media always in search of something sensational. Let us trust that owners will quickly be able to wipe out this invisible problem.

Our confidence in the growth of the cruise industry remains firm, even and above all if, as we have already stated, the pace of newbuildings slows down significantly. The trend towards company mergers is on the other hand certainly not finished, since outside certain marginal niche products, a critical mass is necessary in order to operate a company with a certain serenity, to be able to cope with political uncertainties and the whims of the tourism industry as well as the commercial domination of the Carnival group.
 

Carnival Legend 88,500 gt, blt 2002 by Kvaerner-Masa, operated by Carnival