Ship Values

Capital resources and low costs are key competitive/actors in today's cruise industry.

The most successful cruise lines are also those that have access to capital and are price competitive in their respective markets. The same cruise lines also tend to build ships at the lowest cost per berth, or the largest ships, thus achieving maximum economies of scale.

The new ships on the order book today are being built at a per berth cost ranging from approximately $132,000 to $200,000. The price comes down, however, when ships are built in series.

Starting from under $20,000 per berth in the late 1960s, construction prices rose during the 1970s to reach $100,000 and more during the 1980s. By the early 1990s, the per berth price for a medium sized cruise ship had reached $200,000.

More recently prices seem to have stabilized and the cruise lines are building bigger ships.


In the contemporary (mass) market, Carnival Cruise Lines took delivery of the Fascination this year at an estimated per berth price of $154,000 while the Inspiration will be delivered in 1997 at a reported contracted per berth price of approximately $132,000.

Straddling both the contemporary and premium markets, Royal Caribbean Cruise Line is building the first two Project Vision ships in France at an estimated per berth cost of $171,000 and another two in Finland at an estimated per berth cost of $154,000.

Thus, both of these operators will be able to continue to compete on price against other operators in the Caribbean and elsewhere.

In the premium market, Princess Cruises becomes an even stronger contender, building the Sun Princess and its sister ship at an estimated per berth price of $153,000 - comparable to Carnival and RCCL but Princess can be expected to command higher per diems in the premium market.

Celebrity Cruises is building its Century class ships at an estimated per berth cost of $180,000 based on the reported construction cost. This puts Celebrity's cost structure in the middle range in the premium market. Covering the contemporary, premium and luxury markets, Holland America Line took delivery of the Ryndam this fall at an estimated per berth price of $200,000. In 1997, HAL will take delivery of a fourth sister ship, the Veendam, at an estimated per berth price of $180,000.

The building cost would seem to put HAL at a competitive price disadvantage compared to Princess but at the same time give it an edge in the luxury market. At the top end of the scale is Crystal Cruises which is building the Crystal Symphony at an estimated per berth cost of $260.000.

Economies of Scale

As the ships grow bigger, the per berth cost is not coming down, but operating costs can be spread over many more passengers. Thus, a bigger ship will be significantly more profitable than a smaller one given the same rates.

Both Carnival and Princess are building their 100,000-ton ships at estimated per berth costs of about $154,000.

Existing Market

The new ships enter markets dominated by ships often built at significantly lower cost.

In the contemporary market, RCCL launched the big ship age with the 70,000-ton Sovereign of the Seas class and built three ships ranging from $114,000 to $128,000 per berth.

Carnival launched its Fantasy class, which is still continuing, at an initial price per berth price of $110,000 which then escalated to $150,000 per berth following the reorganization of the Finnish yard industry.

In the premium market, Celebrity Cruises was launched with ships that carried a per berth construction price of $117,000 and $134,000 respectively.

Princess, meanwhile, introduced the Sky, Crown and Regal Princess at per berth costs ranging form $150,000 to $187,000.

Moving into premium market, Norwegian Cruise Line built two ships costing upwards of $196,000 per berth.

These two ships were contracted when prices were at their highest, and while the construction cost may be defended in the premium markets in Alaska and Bermuda, it is high for the Caribbean where the contemporary and premium markets tend to overlap.

Previously, NCL built the Seaward for an estimated per berth cost of $78,226 in 1988.

Upscale Market

Economies of scale also apply in the upscale market.

In 1988, for instance, Royal Viking Line took delivery of the 740-passenger Royal Viking Sun which was built at a cost of $125 million or about $210,000 per berth. Two years later, Crystal entered the market with the 960-passenger Crystal Harmony which was built at a cost of about $200 million or about $210,000 per berth as well.

Costs tend to escalate as ships get smaJier, however. The 120-passenger Sea Goddess vessels were built at a cost of more than $283,000 per berth.

The slightly larger 212-passenger Seabourn Cruise Line vessels, meanwhile, managed to cut the per berth cost to $234,000.

Not so lucky was the 212-passenger Royal Viking Queen which was built at a per berth cost of more than $400,000.

The 100- to 110-passenger Renaissance Cruises tried to beat the small-ship cost factor by building at a cost of approximately $180,000 per berth.

But Renaissance still has found it difficult to make small ship operations profitable.

Another expensive one-ship company that has struggled is Radisson Diamond which built its 354-passenger ship at a per berth cost of $353,000.

Buy and Sell Values

Second-hand ship values are a function of several factors, including the ship's age and earnings potential as well as market development. Three cases serve well to illustrate the point:

When Cunard Line bought the Royal Viking Sun and the RVL trade name from Kloster Cruise for $175 million, the deal suggested a per berth value of $230,000.

When Carnival acquired 43 percent of Epirotiki Lines by transferring the Canivale and the Mardi Gras, the transaction indicated an estimated per berth net value of $16,000 for the Epirotiki fleet (including debt commitments, etc.).

Although the AEA deal to acquire RVL and RCL in 1993 fell through. the $565 million price suggested an estimated per berth value of $160,000.


Delta Queen Steamboat Company, meanwhile was able to acquire American Hawaii Cruises by promising to invest $30 million in its two ship fleet, suggesting a per berth value assessed at less than $20,000 - seemingly a bargain by today's standards.

While Delta's investment in American Hawaii has so far jumped to $60 million, and may go higher before the two ships are brought up to standards, a revised per berth value of $40,000 still makes American Hawaii very price competitive in today's cruise market.

Value Indications

Overseas Shipholding Group acquired a 49 percent stake in the Chandris Group in 1992. However, because of the differences in the company's two cruise fleets, Fantasy Cruises and Celebrity Cruises, it is difficult to assess a fair per berth value. The average per berth net value, however, was $75,000.

When the Lelakis Group acquired Regency Cruises last year, the company was valued at approximately $45 million based on the price paid. That would give a per berth value on the Regency fleet at the time of about $20,000.

The investment of Chargeurs and Accor in Costa Crociere is even more difficult to project in a per berth value. The French group contributed three ships to the deal and $60 million.

In return, they acquired a 24 percent interest in Costa. A hypothetical scenario suggests an across the board per berth net evaluation of the Costa fleet at $85,000.

Shifting Values

In 1991, an effort to sell Renaissance was unsuccessful. The eight-ship fleet which had been built at what was called heavily subsidized prices of around $20 million each, would cost an estimated $40 million to build without subsidies, according to industry sources. The highest bid meanwhile was reported to be $14 million per vessel.

In 1990, the 600-passenger Monterey was sold at a distress sale for $14 million or about $23,000 per berth.

Paquet Cruises acquired Ocean Cruise Lines and its two ships for a reported $100 million or $106,000 per berth.

Also that same year, Carnival withdrew a $220 million or $75,000 net per berth offer to acquire Premier Cruise Lines.

The Big Deals

In 1989, Carnival acquired HAL, including Windstar Cruises, for $635 million. Since the deal also included hotels, day-boats, rail cars and busses, the amount applicable to cruise ships was estimated at $571 million. The combined fleets were thus given a per-berth market value of more than $110,000.

Also in 1989, Kloster acquired the two-ship Royal Cruise Line for $225 million or nearly $147,000 per berth.

In 1988, Princess acquired Sitmar and its three ships for $210 million suggesting a per berth price of $71,000. Two of the ships were built in 1956. Also in 1988, the Norwegian Anders Wilhelmsen Co. bought out its two partners in RCCL for $567 million which put an estimated total value on RCCL at the time at $843 million and an estimated per berth value of about $89,000.


Effjohn acquired the aging three-ship Bermuda Star Line for a reported $20 million or less than $10,000 per berth.

Dolphin Cruise Line acquired the Star/Ship Rovale for $16 million or less than $15,000 per berth. HAL acquired the two ships of Home Lines in 1988 for $250 million or $126,000 per berth.

The same year, Regency Cruises acquired the Royal Odyssey from RCL for $22 million or $27,000 per berth.

Bottom Line

Ship values are closely linked to the state of health of the cruise market. In a growing market, successful operators will need more tonnage whether through newbuildings or acquisitions of existing tonnage.

But it is also a matter of strategy and fit. The successful cruise lines have ship and product profiles that may not accommodate a particular ship even though it may be offered at a good price.

While some ships may seem like good bargains and some cruise lines may seem like take-over candidates, the cruise industry is a highly specialized business. It requires a great deal more expertise than running hotels or resorts, for example.

As newbuilding prices remain stable and the leading cruise lines are building larger ships for better economies of scale, the second-hand market in this part of the world may be shrinking. That is another way of saying that second-hand prices may also be on their way down. In the end, however, pricing is a function of the market.

In short, the most successful cruise lines have built the largest ships at the lowest cost in their respective market.

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