As 2002 is coming to an end, the cruise industry can look forward to a 9.9 percent increase in capacity worldwide in 2003 as estimated by Cruise Industry News (CIN), followed by 12.5 percent in 2004, before the pace slows significantly to 2.6 percent and 1.2 percent in 2005 and 2006, respectively, before new orders are placed.
On a worldwide basis, the industry grew by only 2.4 percent in 2002, largely due to capacity reduction in the Far East.
But a more relevant picture is presented by breaking down the regional markets, as there is little overlap between the markets except for the percentage of Europeans who cruise on North American-based ships.
By introducing nine new ships and deploying ships closer to home markets, the North American cruise lines are expected to carry a record number of passengers in 2002.
With ship withdrawals, the net capacity increase was 5.1 percent in 2002, estimated by CIN.
In 2003, however, the industry expects to boost its capacity by 8.0 percent, followed by 13.8 percent in 2004, before the pace tapers off significantly in 2005 and 2006.
Thus, for the next two years at least, capacity expansion and the economy can be expected to continue to depress pricing, as the cruise companies will have to continue to focus on cost savings and onboard revenue to maintain earnings.
The capacity increases are primarily driven by the major cruise brands: Carnival Cruise Lines, Holland America Line, Princess Cruises and Royal Caribbean International (RCI), and to a lesser extent by Norwegian Cruise Line.
A new wave of orders can be expected in 2003 for deliveries starting in 2005 and beyond, as the yards' orderbooks dry up, prompting sweeter offers to the cruise lines, and as the different brands need to drive market expansion by introducing new ships. But industry executives expect future growth to be on a more modest scale as the industry consolidates into two or three major companies.
Princess has let two options at Chantiers De L'Atlantique lapse, while RCI has postponed two options at Meyer Werft, which are now due in January 2003.
Meanwhile, the building program for Celebrity Cruises has come to a conspicuous halt.
European capacity increased by 6.4 percent in 2002, according to CIN, and will continue to grow by 20.2 percent in 2003, 8.0 percent in 2004, and 3.1 percent in 2005, pending more ship transfers from North America and more new orders.
Overall, the European capacity will grow by nearly 34 percent, from 90 ships at the start of 2003 to 99 by the end of 2005.
Thus, 2003 and 2004 can also be expected to be an intensely competitive period in Europe. Also, with the economic downturn in Germany, that market's short-term potential may be overly optimistic.
It is Carnival Corporation which is primarily driving the European market growth through new ships for Costa Crociere, Cunard Line, and Seetours, while Princess is transferring ships to P&O Cruises and Seetours.
Costa will follow the example set by Carnival Cruise Lines and drive growth by introducing new and bigger ships, expanding into new markets, and offering new homeports and new itineraries.
Outside the Carnival group, it is only MSC Cruises that will introduce new ships in Europe, two new ships for 2003 and 2004, respectively.
While the Asia/Pacific market potential has shifted to the Chinese mainland market, this is a long term proposition at best.
Regional Asia/Pacific cruise capacity dropped nearly 30 percent in 2002 compared to 2001 and will only grow by 1.5 percent in 2003, according to CIN.
The Pacific Princess, which will be introduced in 2003, will be marketed partially in Australia and the rest of year in North America.
No further newbuildings or ship transfers have been announced, although there are reports that Star Cruises may build new ships for the Chinese market.
Analysts who follow the industry set 12-month price targets ranging from $32 to $37 for Carnival and from $23 to $27 for RCC.
At press time, Carnival traded at $25.96 and RCC at $19.30.