hkskyline
June 19th, 2005, 08:40 AM
Liners in contest for supremacy of seas
Cruise sector is juggling currency fluctuations and inflated fuel costs against terrorism-defying rise of consumer demand
By AMY YEE
17 June 2005
Financial Times
Queen Mary 2 will soon lose its crown as the world's biggest cruise liner. Royal Caribbean has a Dollars 820m 158,000-tonne ship scheduled to begin service in 2008.
Having second best does not sit well with Carnival, owner of the QM2 and the Cunard cruise line, the world's largest cruise company. Carnival had planned the Pinnacle - which, at up to 200,000 tonnes, would reclaim the title.
"Until the euro and dollar become more aligned, we don't see it as becoming feasible project," says Howard Frank, chief operating officer. With Pinnacle on hold, Carnival is working on designs for more moderate size ships that would be ready after 2008.
The weak dollar and strong euro is hampering cruise operators from building more ships in European shipyards where cruise ship construction is traditionally focused. Shipyards in Japan and South Korea are too backed up with orders for container ships to take on cruise liners.
Currency pressures come as demand for cruises rises and threatens to outpace supply. Across the industry there are only 16 new ships on order for 2005-07, compared with 37 new ships in 2001-03. Meanwhile, cruise passengers rose to 10.46m globally in 2003 and that number continues to grow about 8 per cent annually, says Cruise Lines International Association, an industry group.
Robin Farley, analyst with UBS, speculates that the strengthening of the dollar against the euro this month might result in more ship orders, particularly from Disney Cruise Lines and Royal's Celebrity brand.
In any case, says Micky Arison, chief executive of Carnival, there is a point where bigger is not necessarily better.
A ship that carries as many as 3,600 passengers has immense volume. In terms of efficiency, "it starts to head down the curve", he says, reaching "a point of diminishing returns".
But being the biggest has real advantages. To keep supply flowing, Carnival last year placed a order worth nearly Dollars 3bn for four new ships plus a refurbishment with Italian shipyard Fincantieri in spite of currency pressures. Orders for two of the new ships for North American brands were placed in US dollars; two others were in euros; and the redesign in a combination of both.
"The yard wanted the European contracts," says Mr Arison. Carnival faced the challenge of "building for our dollar brands in price ranges we've historically built for", or about Dollars 165,000 per berth. Bundling the order was a "side benefit" of Carnival's Dollars 8.2bn takeover in 2003 of P&O Princess, he says.
Carnival now has 12 cruise brands and 78 ships, including Carnival, Aida, Costa, Cunard and Princess. By comparison, Royal Caribbean, the second-largest cruise operator, has just two brands and 29 ships.
The new ships are scheduled for delivery in 2007 and 2008. Mr Arison says that, if currency pressures remain, there "may be an impact in 2008 or 2009" on the company's plans for growth.
Since the turbulent days of the P&O takeover, the cruise industry has not only weathered the "perfect storm" created by terrorism, war and Sars, but has grown.
But rising fuel costs cast another pall. Fuel has grown from 3-4 per cent of revenue to 5.5-6 per cent.
Carnival does not hedge fuel costs. Since the P&O merger, it has reviewed and trimmed costs. Measures such as reducing cruise speeds, adjusting propeller blades and conducting maintenance work at night can save about 3-4 per cent on fuel costs. Yet these savings do little to offset fuel price increases of about 50 per cent since last year.
However, beside the risks of currency, fuel and the travel industry's number one concern - terrorism - the cruise industry appears on course for healthy growth.
Cruise sector is juggling currency fluctuations and inflated fuel costs against terrorism-defying rise of consumer demand
By AMY YEE
17 June 2005
Financial Times
Queen Mary 2 will soon lose its crown as the world's biggest cruise liner. Royal Caribbean has a Dollars 820m 158,000-tonne ship scheduled to begin service in 2008.
Having second best does not sit well with Carnival, owner of the QM2 and the Cunard cruise line, the world's largest cruise company. Carnival had planned the Pinnacle - which, at up to 200,000 tonnes, would reclaim the title.
"Until the euro and dollar become more aligned, we don't see it as becoming feasible project," says Howard Frank, chief operating officer. With Pinnacle on hold, Carnival is working on designs for more moderate size ships that would be ready after 2008.
The weak dollar and strong euro is hampering cruise operators from building more ships in European shipyards where cruise ship construction is traditionally focused. Shipyards in Japan and South Korea are too backed up with orders for container ships to take on cruise liners.
Currency pressures come as demand for cruises rises and threatens to outpace supply. Across the industry there are only 16 new ships on order for 2005-07, compared with 37 new ships in 2001-03. Meanwhile, cruise passengers rose to 10.46m globally in 2003 and that number continues to grow about 8 per cent annually, says Cruise Lines International Association, an industry group.
Robin Farley, analyst with UBS, speculates that the strengthening of the dollar against the euro this month might result in more ship orders, particularly from Disney Cruise Lines and Royal's Celebrity brand.
In any case, says Micky Arison, chief executive of Carnival, there is a point where bigger is not necessarily better.
A ship that carries as many as 3,600 passengers has immense volume. In terms of efficiency, "it starts to head down the curve", he says, reaching "a point of diminishing returns".
But being the biggest has real advantages. To keep supply flowing, Carnival last year placed a order worth nearly Dollars 3bn for four new ships plus a refurbishment with Italian shipyard Fincantieri in spite of currency pressures. Orders for two of the new ships for North American brands were placed in US dollars; two others were in euros; and the redesign in a combination of both.
"The yard wanted the European contracts," says Mr Arison. Carnival faced the challenge of "building for our dollar brands in price ranges we've historically built for", or about Dollars 165,000 per berth. Bundling the order was a "side benefit" of Carnival's Dollars 8.2bn takeover in 2003 of P&O Princess, he says.
Carnival now has 12 cruise brands and 78 ships, including Carnival, Aida, Costa, Cunard and Princess. By comparison, Royal Caribbean, the second-largest cruise operator, has just two brands and 29 ships.
The new ships are scheduled for delivery in 2007 and 2008. Mr Arison says that, if currency pressures remain, there "may be an impact in 2008 or 2009" on the company's plans for growth.
Since the turbulent days of the P&O takeover, the cruise industry has not only weathered the "perfect storm" created by terrorism, war and Sars, but has grown.
But rising fuel costs cast another pall. Fuel has grown from 3-4 per cent of revenue to 5.5-6 per cent.
Carnival does not hedge fuel costs. Since the P&O merger, it has reviewed and trimmed costs. Measures such as reducing cruise speeds, adjusting propeller blades and conducting maintenance work at night can save about 3-4 per cent on fuel costs. Yet these savings do little to offset fuel price increases of about 50 per cent since last year.
However, beside the risks of currency, fuel and the travel industry's number one concern - terrorism - the cruise industry appears on course for healthy growth.