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WILL THE PACE SLOW? Royal Caribbean received an extension from Meyer Werft on its options to purchase a fifth and sixth ship of its new Radiance class, while P&O Princess and Chantiers de l’Atlantique reached an agreement on the option for the third vessel in its series of Panamax super liners, due to be declared on 15 December 2000. Under this agreement, the latest date for declaring the option was deferred by up to six months, with the vessel to be delivered in 2004. P&O Princess Cruises has a second existing option for delivery of a fourth ship in the series in the fourth quarter of 2004, to be declared by June 15,2001 P&O Princess Cruises CEO Peter Ratcliffe noted that“while the fundamentals of the cruise industry remain sound, our decision to extend the option on a new ship gives us more time to assess current market conditions and ensure we make a prudent decision about the pace of newbuilding.” Given the apparent tightness of the orderbook at experienced cruise ship yards, it’s interesting that both Meyer and Chantiers were ready to grant the extensions. Still, these deferrals have to be seen within the context of what has been a massive capacity build up. Counting only firm orders, 16 vessels with a total of 24,868 lower berths are due to be delivered to the industry this year, according to the tally kept by consultancy G.P. Wild (International) Ltd. In 2002, according to Wild, deliveries will be 14 vessels for 27,200 berths in 2003, 14 vessels for 28,984 berths and in 2004 seven vessels for 16,572 berths. The most recent major order came in December when Crystal Cruises’ parent company, NYK, signed a contract with Chantiers de l’Atlantique for a 68,000-ton, 1,080-guest vessel for June 2003. The month before Carnival Corporation’s Cunard Line formally signed a contract with Chantiers de l’Atlantique for the “grandest and largest passenger vessel ever constructed,” the 150,000 ton, 2,620 passenger Queen Mary 2. Expected to enter service in late 2003, it will be built at a cost of approximately $780 million. Prior to that, in October, Carnival’s Costa unit announced it had signed a letter of intent with Fincantieri for two 105,000-ton, 2,720 passengers vessels for delivery in late 2003 and late 2004 at approximately $400 million a copy. So, is the cruise industry finally face-to-face with overcapacity? Or is the “if you build it, they will come” notion holding true? What seems apparent is that it isn’t the people who are adding all the capacity who are feeling the most pain. While the industry giants have been filling the cabins on their new deliveries, to do so they have been slashing prices. As a result, travel agents have been switching customers who usually take budget cruises to mid-grade cruises and customers who usually take mid grade cruises to luxury ships. That has put the squeeze on smaller operators. Last September nearly 3,000 passengers on Premier’s Big Red Boats and other ships had their vacations terminated after Donaldson, Lufkin and Jenrette, which held the mortgage on the ships, pulled the plug. In December, Commodore Holdings filed for Chapter 11. Since its filing, Commodore has returned all but one of its ships and all of their passengers to port and, at press time, was in the process of repatriating all non-essential crew to reduce costs while it developed its plan of reorganization. Its Universe Explorer was on long-term charter and continued to operate unaffected by the bankruptcy petition. Commodore has reduced its management and shore side personnel from approximately 120 to 18. Last month Commodore said that, contrary to some media reports, its reorganization plans were too preliminary for it to estimate when or if it would resume operations. The fates of Premier and Commodore underscore that, except for those smaller companies with very well defined niches, cruising has become a game dominated by the giants. What remains to be seen is whether having bitten their smaller competitors by the relentless intake of new tonnage, the majors will now find it harder to successfully promote their own older, smaller ships. Over the years, the cruise majors have generally been far readier to add tonnage than to delete it. Bucking this trend is Star Cruises. Last month it announced that, as part of its long term fleet modernization program, it will be disposing of some old tonnage—starting with the 40,000-grt Star Aquarius, now 11 years old, which has been sold to a new owner in Laem Chabang, Bangkok. Star also announced that it is in “advanced discussions with a number of shipyards for new buildings for delivery post-2002.” |
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