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Showing posts with label Cruise capacity. Show all posts
Showing posts with label Cruise capacity. Show all posts
Weinstein: More Carnival Cruise Line Capacity Generating Outsized Returns
Moving two former Costa Cruises ships originally built for sailing Asia to the Carnival Cruise Line brand in North America has been an instant success, said John Weinstein, CEO of Carnival Corporation, speaking on the company’s second-quarter earnings call.
Weinstein said that Carnival Cruise Line will amount to about a third of Carnival Corporation capacity in 2023 and 2024, compared to approximately 25 per cent pre-pandemic.
The Venezia debuted in New York earlier in June and is the first of two ships that will operate under the ‘Fun Italian Style’ branding, with the Firenze set to join the fleet next year, sailing from Long Beach.
“These transfers are part of our portfolio management strategy, which is contributing to Carnival Cruise Lines's capacity, growing 22 per cent more than pre-pause expectations. And Costa’s capacity is reduced by 36 per cent, compared to pre-pause expectations,” Weinstein explained.
“The added capacity to Carnival Cruise Line will not only generate outsized returns for the company but rightsizing the Costa brand is also having these desired effects of supporting its revenue profile confirmed by recent booking and pricing trends,” he said.
“We remain committed to our strategy of owning a portfolio of world-class brands, many of which are truly dedicated to specific markets and it’s clear the strength of this portfolio is now shifting into high gear.”
The new Symphony of the Seas will help propel the Caribbean to a record year of cruise capacity.
Despite the uptick in ships and passengers, capacity and pricing is not a concern for Royal Caribbean International.
“After the hurricanes in September, we saw that softness for about four to six or seven weeks but that recovered and picked up and we're in a good booked position for Q1,” said Michael Bayley, president and CEO, on the company’s Q4 2017 earnings call. “And overall we're feeling pretty good about the Caribbean for 2018.
“We’re fortunate because we've got the Symphony of the Seas coming into the Caribbean towards the end of the year. We have also got Celebrity Edge and we're introducing Mariner of the Seas after an extensive modernization and revitalization and we're putting that product into the short market, so that’s quite a lot of volume that’s coming into that market. We're actually very excited about what that product’s going to do, the bookings are going very well and it’s still outside of its typical booking window because it’s a short product. So overall, we're feeling okay about the Caribbean.”
As for the booking window, the company opened 2019 deployment four months earlier than in previous years.
Richard Fain, chairman and CEO of Royal Caribbean Cruises, noted the booking window continues to impress.
“Now you may recall that a year ago I said and I'm quoting, that the booking window has stretched as far as we will ever want and I don’t expect to announce another record level bookings a year from today,” Fain said. “Well I wasn’t terribly accurate, here we are a year later and we're announcing another record level bookings.”
CFO Jason T. Liberty advised that other companies in the Caribbean marketplace may have pricing challenges, but those incidents are not indicative of the entire market.
“There are occasions sometimes when a new product enters the market from competitors and they may have some challenges initially and you may see some fairly aggressive pricing going into the market,” he said. “That can be disruptive but it's very localized.”
The Caribbean remains the top cruise destination for North Americans — it is the closest warm-weather getaway for many U.S. travelers, and it is associated with fun in the sun, a dash of culture and a hefty dose of shopping. The region has also become a bargain hunter’s paradise, with fares down much further than the cruise lines would prefer.
The cruise industry attributes fare declines to a recent 12 percent increase in capacity, plus negative publicity that has mostly affected first-time cruisers and impacted three- and four-day cruises. The Feb. 12 edition of Bloomberg Businessweek published a story titled, “A Caribbean Crowded With Ships Means Discounts for Cruise-Goers,” describing the plight of the cruise lines with “a flood of new cabins to sell.”
Caribbean capacity will fall next year, although not to the degree that cruise lines had hoped. Robin Farley, an analyst with financial firm UBS, said that a 1 percent rise in capacity during the first quarter will be counteracted by a 3 percent drop the following three quarters.
Changes contributing to the fluctuation in stateroom totals include a lull in Norwegian Cruise Line’s aggressive newbuild program. The company will not have a delivery for 18-plus months between last February’s launch of Getaway and the debut of Escape, set for October 2015. Addtionally, Royal Caribbean International’s 5,400-passenger Allure, the largest cruise ship in the world, will leave the Caribbean next year to sail from May to October out of Barcelona, Spain. MSC Cruises has also rethought the announced year-round deployment of the 3,502-passenger Divina out of Miami. Instead, the ship will spend part of next year in Europe.
Royal Caribbean will see the highest overall capacity increase in 2015 at 7 percent and the highest Caribbean increase at 1.7 percent. The Caribbean growth comes from the 4,180-passenger Quantum of the Seas, which has special features that analysts believe will allow it to maintain premium pricing. The ship will sail in the region from November to May only, and this short stint is expected to keep prices up.
Cruise industry veteran Bob Dickinson, leaving his consultancy for Carnival Corporation in May, has for decades said that demand must grow in order for prices to grow, and that the first-time cruiser is of the highest importance. For some travel agents, low pricing has been a boon for bringing in first-timer cruisers and for up-selling onboard accommodations.
Lindsey Kunzer, team leader for Liberty Travel in Los Angeles, noted that promotions and deep discounts have helped make this booking season a good one.
“Though there may be less commission made per booking, there were more bookings brought in by these promotions,” Kunzer said.
Mark and Jason Jacobs, respectively CEO and president of TA4Life in North Potomac, Md., and Orange County, Calif., see that low rates and inexpensive airfare are helping expand the cruise market. The pair report that their agency is making a lot more revenue — though pricing is down, many clients are choosing higher categories of accommodations.
“The Caribbean was neglected for a while, as cruise lines pulled out and went elsewhere — mainly Europe — for higher per diems and pricing in euros,” Mark Jacobs said. “Now that airfares are prohibitive in Europe and cruise fares are lower, we’re seeing a real resurgence [in the Caribbean].”
Some agents have looked outside cruising for higher commissions in recent years. The Jacobs brothers began selling all-inclusive land-based vacations a few years ago, in addition to cruises.
“All-inclusives are skyrocketing, and we are getting commissions on air,” Jason Jacobs said. “We did see some loosening up on cruise line non-commissionables at the Vacation.com conference, and some indications that there may be more commissioning on shore excursions and air from the cruise lines.”
The brothers are also looking more to river cruising, where commissions are bigger.
If pricing slowly strengthens, agents and cruise lines will see whether or not the new cruisers attracted to discounted rates stick with cruising as a Caribbean vacation, as well as how the Caribbean stands up to competing cruise destinations.
Norwegian Cruise Line is coming to a "tipping point" in terms of new capacity arriving and needs to "get serious" about growing international markets to ensure it fills it.
The line, which recently launched Breakaway (pictured) and Getaway, will add another four new ships between 2015 and 2020.
Francis Riley, director of international markets, said: "We need to be looking at the long-term strategic investment in international markets; whether that's through marketing, buying more charter seats, or how we're driving more distribution."
He said getting more agents selling Norwegian, and more training and education to make sure they are targeting the right customers, was key.
"The biggest opportunity for us is to support the capacity growth that's coming in with all our new ships by developing our international business - and that bodes really well for the UK as it's our biggest single market outside the US."
Riley added: "I think my biggest fear is that typically, there's only one cruise specialist in any agency. That keeps me up at night.
"Every agent sells a package but not every agent feels comfortable selling a cruise, and that has to be my biggest concern as the sector grows. It's our responsibility as an industry to tackle this issue."
He said he understood agents had a lot of pressures so said it was "important to make them understand the differentiation between the cruise brands".
Riley claimed Norwegian's Partners First scheme was enjoying huge success by rewarding agents that work in true partnership with the line to grow both their businesses.
He claimed that despite reducing base commission to 10%, Norwegian had paid out "just as much if not more" in rewards to those key agents that had performed really well for the line.
"Agents have the opportunity to earn well in excess of the base rate and many do. Many of them are retaining more commission than they ever have done with us," he said.
Riley claimed Norwegian, having posted 24 quarters of consecutive growth, could now truly claim to be "industry leading rather than industry following".
"By any measure, whether it's EBITDA, net per share, net revenue, Norwegian is now best in class," he said.
UBS Investment Research periodically publishes an evaluation of cruise capacity and where it is headed. In its current study, UBS said Carnival Corporation may be in discussions with shipbuilders for another Seabourn order, which could be announced before the end of 2013. The new ship is likely planned for 2017, as the analysts think Carnival is finished ordering for 2016, with three orders currently in place. In addition, Royal Caribbean International has an option that expires in December for a fourth Oasis-class order scheduled for mid-2018 delivery — another possible order that could be announced later this year.
UBS expects 3-4 percent compound annual capacity growth in North America for the period of 2012-2016, which is below the 10-year average between 2003 and 2012, which came in at just under 6 percent. Analysts are predicting about three percent average growth in 2013 and 2014, as all ordering for those years is now completed, and further withdrawals of existing ships are likely to be announced later.
Analyst Robin Farley pointed out that Carnival Corporation has reiterated its intention of scheduling delivery of two to three ships per year and has only two ships on order for delivery in each 2014 and 2015. Royal Caribbean had been maintaining capital spending discipline, with one ship on order for delivery in 2014 and one in 2015, and no ships scheduled to be delivered for 2013.
Meanwhile, Norwegian Cruise Line exercised its option for a second Breakaway Plus ship for spring 2017 delivery — the line has the first Breakaway Plus order scheduled for October 2015. The two 4,200-berth vessels will be the largest in Norwegian’s fleet.
Another summer announcement came from Prestige Cruise Holdings, which announced in early July that the company has put in an order for a new 738-passenger all-suite, all-balcony ship for Regent Seven Seas. This will be the largest vessel in the fleet, driving close to 40 percent growth in capacity. Named Seven Seas Explorer, it is scheduled for delivery in summer 2016.
UBS notes that Viking Ocean Cruises has been in discussions for additional orders we may see later this year, related to the December 2012 Memorandum of Agreement with Fincantieri for the construction of two more ocean cruise vessels with an option for another two. Neither the shipyard nor Viking has announced an exact delivery date for the additional newbuild orders at this time, but UBS predicts the timing to be the end of 2016 and the end of 2017. Viking Ocean already has newbuilds scheduled to debut in May 2015 and early 2016.
