This is a time of contrasts. The industry is introducing ever more amazing ships while raising standards and the bar on product delivery. At the same time, ticket prices are dropping lower than ever due to the economic downturn. We are seeing seven-day Caribbean cruises being offered as low as $399 per person this coming winter; year-end sales; and two-for-one pricing for 2010.
The immediate result is that the cruise companies are generating lower returns, and we suspect, only the big, strong companies are posting profits. Another result that may have more long term impact is that no new ship orders have been placed in the last couple of years. While there are an impressive 24 ships on order for deliveries in 2010 through mid-2012 that will drive further industry growth and expansion, the question is what happens afterward?
Cruise line executives have told us that with no or less new capacity entering service, they will be able to drive prices up, as demand will catch up with the supply. However, the industry’s successful course up to this point has been based on growth and expansion, and new ships generating excitement and interest.
There is a saying that “new gets old,” which for us means that the cruise fleet and the product will get “old” in consumers’ perception unless new ships and new innovative features continue to be introduced.
In addition, new safety and environmental rules may also force the retirement of some ships, hence, creating a need for replacement tonnage, read: new ships.
We would like to quote Enrico Buschi, COO at Fincantieri’s cruise ship business unit, who told us that “the economy will drive new ship orders.” When the cost of capital goes down and consumer confidence returns, the new orders will come, according to Buschi. And we believe him. The cruise product is just too good to fade away, and there is still huge untapped potential in North America, Europe, South America and in the Asia/Pacific region.
So what we should expect are more exciting new ships, featuring state-of-the-art technology, complying with the new rules and all the environmental restrictions which are being phased in – so far through 2020.
Meanwhile, let us not forget the 24 new ships under construction that will drive growth through 2013. And this fall, the world’s biggest cruise and passenger ship ever, the Oasis of the Seas, will enter service, guaranteeing that a lot of media and consumer interest will be focused on the cruise industry.
So stay tuned. There is lots more excitement coming in the industry this fall, for the next few years, and thereafter.
Angela Reale Mathisen & Oivind Mathisen