CRUISING: Still the one shipping market where capacity seems to create demand

When Disney Cruises finally gets rolling with it's now twice deferred program of cruises on Disney Magic, it will be introducing a new concept in cruising.(see separate story). And it could introduce even more Americans to a market that's already growing rapidly and that continues to generate orders for ever more ambitious ships.

Five million North Americans took a cruise vacation in 1997 according to figures compiled by G.P. Wild International. Add to that 1.35 million Europeans and 420,000 passengers from other areas and the world total reaches 6.77 million-a growth of 9.19% over the previous year. Clearly, there are going to be a lot of happy faces at this year's Seatrade Cruise Shipping Convention in Miami Beach.

Those determined to look for the gray cloud outside of every silvery lining will have to content themselves by worrying that, as berth capacity has soared, utilization rates have sunk just a little.

Defying that trend, the world's largest cruise ship operator, Carnival Corporation, noted an occupancy level of 104.2% in its latest quarterly report, up from 101.1% in the equivalent quarter of the previous year. For the whole of the fiscal year ended November 30, 1997, Carnival's occupancy rate averaged 108.3%, compared with 107.6% in FY 1996. Carnival Corporation is comprised of Carnival Cruise Lines, Holland America Line, Windstar Cruises and equity interests in Costa Cruises, Seabourn Cruise Line and Airtours plc, which operate a combined total of 35 ships.

In FY 1997, the company carried 1,945,000 passengers (compared to 1,764,000 in FY 96) and had revenues of $2.45 billion, 10.6% up on FY 96. That left chairman and CEO Micky Arison "quite pleased with the performance of all the company's cruise lines."

Carnival's second 101,000 gt ship, the Carnival Triumph, will enter service next year while its third, Carnival Victory, will arrive in 2000. Meanwhile, the 70,000 gt Elation and Paradise will be delivered this year. Elation, the seventh ship in Carnival's Fantasy class from Kværner-Masa, is the first cruise ship to have Azipod azimuthing, podded propulsion units. Equipped with tractor, rather than pusher, propellers, the Azipods eliminate the need for rudders, long shaft lines and stern thrusters.

On sea trials in December, Elation achieved an 8% improvement in propulsive efficiency compared with previous Fantasy class ships and a dramatic improvement in maneuverability that saw the turning circle diameter at full speed reduced by 30%. The 2,400 passenger Elation will be the first cruise ship to be homeported on the West Coast, offering a program of year-round, seven-day Mexican Riviera voyages from Los Angeles. Carnival's strategy for 1998 also includes increases in the capacity deployed on its Alaska and Hawaii programs and an expansion of its Tampa and New Orleans based programs.

CAPACITY CREATES DEMAND

Carnival's ongoing success would seem to justify the widely held cruise industry credo that, in this part of the shipping market, capacity creates demand. So it was not surprising to find Carnival back in the newbuilding market in January with the announcement that Costa Crociere had awarded Kværner-Masa a $390 million order for a 2,100 passenger, 82,000 grt ship. This was understood to be the first of around $2.5 billion of orders for six newbuildings, with both Kværner-Masa and Fincantieri in the running. It was predicted that the orders would be for a base hull in the 75,000-80,000 grt range that can be fitted out for any of the corporation's cruise brands-including Costa Crociere. On acceptance of the Elation in February, Carnival announced a firm order--with an option for two sister ships--on the Finnish yard for a $375 million ship that will be the first of a new 2,100 passenger, 82,000 gt class. Deliveries are slated for late 2000 for the first ship and 2001 and 2002 for the follow ships, if the options are exercised. The previous week, Carnival's Holland America brand had announced a $300 million order for construction at Fincantieri of a $300 million 61,000 gt, 1,380 passenger near-sister to its Rotterdam for delivery in fall 2000.

This table was updated February 27, 1998. If you spot any errors, or have any updates or additions to report, please let us know!

The 1998 newbuilding announcement season had opened when P&O's Princess Cruises placed orders, each worth $425 million, with Fincantieri for two sister ships for its Grand Princess. At 109,000 gt and 2,600 passengers, Grand Princess will edge the 100,000 gt Carnival Destiny, also built by Fincantieri, from its position of "world's largest cruise ship" and will hold that honor until sometime in 1999, when Kværner Masa delivers the first of RCCL's 136,000 gt "Project Eagle" ships from its Turku Yard.

The two latest Princess orders, along with three other ships that are under construction, represent a $2.5 billion expansion that will double Princess' capacity in the next four years to give it a fleet to 13 ships and 22,500 berths. "Our decision to expand the fleet so aggressively is based on the advance bookings on Grand Princess, which is already sold out for her inaugural European season, and the outstanding passenger and travel agent reaction to our other Grand Class ships already in service," said Peter Ratcliffe, president of Princess. According to Ratcliffe, the two newbuild mega ships will be deployed to the Caribbean year-round. Royal Caribbean, too, has been finding that adding capacity pays off. In the first quarter of 1997, for example, it reported a 24.2% increase in revenues following an 18.7% increase in capacity and a 4.6% increase in revenue per available lower berth.

"Despite one of the largest capacity increases in our history, we were able to achieve both increased per diems and increased occupancies for the quarter," noted chairman and CEO Richard D. Fain. Royal Caribbean is confident that acceptance by its customers of its Vision-class vessels-which are pushing the limits of ships that can pass through the Panama Canal-will be followed by enthusiasm for its whopping 136,000 gt "Project Eagle" ships. The size of these giants has been growing even before the first steel has been cut. Initially, they were said to be 130,000 gt. Now, a gross tonnage of 136,000 gt is being quoted with length being 311 m, beam on waterline 38.6 m, maximum beam 48 m and passenger capacity 3,840. Firm orders have now been placed with Kværner Masa for threeof these ships for deliveries in 1999, 2000 and 2001. Each Project Eagle ship has been specified with a propulsion package comprising three 14 MW Azipods. The two side units will be fully azimuthing, that at the centerline will be a fixed unit.

Royal Caribbean's Celebrity Cruises, meanwhile, has just taken delivery of the final ship in its current newbuilding program, the 77,000 gt,1,888 passenger Mercury from Germany's Meyer Werft. That brings the Celebrity fleet to five ships with a total capacity of more than 8,200 lower berths. With an average age of just under three years, this is the youngest fleet of any major cruise line. Celebrity has won an impressive array of travel industry awards, including being deemed the "highest rated premium cruise line" by no fewer than three respected cruise guides.

At the beginning of February , Royal Caribbean signed letters of intent with three yards to build up to seven ships. Four of the orders are firm. Three are options. The first firm order was for two 1,900 passenger Millennium Class vessels for Celebrity Cruises brand. These will be built at Chantiers de l'Atlantique. The next order was for the first of a new 2,000 passenger, 85,000 gt Voyager class of panamax vessels for Royal Caribbean International that will be built at Meyer Werft. The fourth firm order was to exercise the option for the third Project Eagle ship from Kværner Masa.

MORE COMFORTABLE AROUND THE MIDDLE

When Celebrity Cruises became part of the Royal Caribbean fold, it seemed a pointer to the future destiny of small- to mid-size operations in an industry dominated by the giant players. Now, though, there are signs of improving prospects in the middle tier of the market and the list of prospective take-over targets is shrinking.

There is, though, ongoing speculation over Cunard. Down to five ships, it should move into profit this year thanks to a reported 15% increase in bookings. This may have been achieved with the help of such moves as offering travel agents double commissions on some November bookings. Kværner Group would probably be happiest to sell Cunard to a suitor who would sweeten the deal by ordering a couple of (much needed) newbuildings for the line from Kværner-Masa-or maybe even Kværner Philadelphia.

One mid-size line that's probably not for sale is Crystal Cruises. With healthy forward bookings for its two super luxury 50,000 gt vessels, it may well be thinking of adding a third ship.

The big comeback story is Norwegian Cruise Line. After shrinking back to a size that made it look very suitable for swallowing, it is growing its fleet again. In December, it announced that it had purchased the partially completed hull of what was to have been the Costa Cruise Line flag ship, Costa Olympia. Work on that project was halted in 1996 when Germany's Bremer Vulkan shipbuilding group went bankrupt. Now the ship will be completed, to NCL's design specifications, as the Norwegian Sky at Lloyd Werft, Bremerhaven (where a buy out effort by managing directors, Werner Luken and Dieter Haake, is being backed by Britain's NatWest bank). Scheduled for delivery in August next year, the 77,000 gt, 842 ft x 105 ft Norwegian Sky will carry approximately 2,000 passengers, double occupancy. Features will include a glass-domed midship atrium, a two-level show lounge and a variety of dining options.

The size and design are "extremely compatible with our existing fleet and consistent with NCL's philosophy of providing a more personal cruise experience for our passenger," says NCL president and chief operating officer Hans E. Golteus. "This announcement is yet another exciting development in a year which has seen unparalleled growth for our company of 6,000 berths launched or committed to over the last 12 months. It further establishes the resurgence of NCL's position as a dominant force in the cruise industry."

"Dominant force" may be somewhat of an overstatement, but NCL is definitely regrowing itself. Besides announcing the Norwegian Sky order, it has completed the purchase of its tenth ship, Aida, from Germany's DSR (to which it is being chartered back for one year), and this year will stretch the Dreamward and Windward. Lloyd Werft will insert new 130-ft midsections in each, after which they will emerge as the Norwegian Dream and the Norwegian Wind, passenger capacity of each being increased from 1,240 to 1,760. NCL has also reportedly been in "definitive talks" with shipyards about ordering a further four newbuilds in the 1,600-2,500 berth range.

CONDOS AT SEA

Former NCL president Knut Kloster Jr. appears to be having more success with his ResidenSea project than his father has thus far had with with his World City project. The 250,000 gt America World City always seems to be just one or two tantalizing steps away from materializing into an actual contract. In contrast, Knut Kloster Jr.'s plans for a floating resort where accommodations can be purchased has now reached the stage where a letter of intent has been signed with Germany's HDW, and there are plans for two further ships to follow the first. Ironically, HDW was closely involved with plans to build the World City for Knut Sr., back in the days when German shipbuilding subsidies were more lavish and before the project was painted red, white, and blue and remarketed as a path to America's maritime salvation!

CLASSIC REVIVAL

One reason why overall cruise industry utilization rates have been falling is that elderly cruise tonnage has not been going to the scrapyard at the rate predicted. Industry pundits had suggested that the cost