New Wave of Orders

Cruise ship building has picked up the pace again after Carnival Corporation placed what it called a "historic multi-billion-dollar cooperation" with Fincantieri to construct four new ships and redesign the previously announced Queen Victoria for Cunard Line.

 "The time is moving on newbuilds," said Micky Arison, chairman and CEO of Carnival, in the company's third quarter conference call less than a week before the agreement was announced.

"The time is starting to run short for deliveries for summer 2007," he said, promising some news "shortly."

Two of the newbuilding orders have been placed in U.S. dollars; the other two are in euros. The redesign of the Queen Victoria is in a combination of euros and dollars.

The U.S. dollar agreement calls for the construction of a 110,000-ton Conquest-class ship for Carnival Cruise Lines for $500 million, and a 116,000-ton Caribbean Princess-class ship for Princess Cruises for $525 million. Both ships are expected to be delivered in 2007.

The euro-based agreement calls for the construction of one 110,000-ton and one 116,000-ton ship. Carnival has a one-year option to designate which of the company's brands will take delivery of the vessels.

 Arison has also said that a very large prototype, which he called the Pinnacle Project, is being developed for Carnival Cruise Lines, with deliveries no earlier than the end of 2008 and possibly not until early 2009.

Arison added that he has two strategic objectives. One is to invest in and grow the company's brands in Europe; the other is to work with the yards to get dollar rates he can accept.

"There is significant upside (to the yards for more orders), if they can meet our requirement hurdles," he pointed out.


Just prior to Carnvial's announcement, Royal Caribbean Cruises exercised its option for a second Ultra Voyager last month and will now take deliveries of two new mega ships from Aker Finnyards, the first in 2006 and the second in 2007.

Norwegian Cruise Line (NCL) has three ships under construction for deliveries in 2005 and 2006, one at Lloyd Werft and two at Meyer Werft, and has promised to build one new ship each year.

MSC has also confirmed its two new ships on order at Chantiers de l'Atlantique for deliveries in June 2006 and March 2007.

In addition, Radisson Seven Seas Cruises has an option with T. Mariotti, which expires at the end of the year, according to CEO Mark Conroy.

Disney Cruise Line is also reportedly planning two new ships, while other rumors surface regularly about new luxury cruise line start-ups.

But the lion's share of the orderbook belongs to Carnival, with new ships under construction at Fincantieri for deliveries this fall for Carnival and Costa Crociere; in 2005 for Carnival and P&O Cruises; in 2006 for Costa, Holland America Line and Princess Cruises; and in 2007 for Carnival, Princess and Cunard Line, plus the two ships that have not yet been designated to a brand in 2008.

It is expected, however, that the other two ships will go to Costa and AIDA cruises.

AIDA told Cruise Industry News earlier this year that the brand "has developed wonderful new ships with Carnival Corporate Shipbuilding and were in discussions with yards." Without releasing further details, AIDA said that the new ships will be somewhat larger than the existing fleet and that the first delivery is expected in 2007.

Cost Factors

Despite the unfavorable dollar-euro rate, Arison said in a prepared statement that the all-in cost of latest two vessels announced compares favorably to the $165,000 to $175,000 per berth price that Carnival has historically paid for new ships.

Royal Caribbean CEO and Chairman Richard Fain said earlier this year that the overall cost (of newbuildings) was more important than the exchange rate.

Fain has also noted that newbuilding costs are a combination of the actual building cost, the exchange rate and the return on capital.

Colin Veitch, CEO of NCL, said that its recent contracts with Meyer Werft were in dollars for the first ship and in euros for the second. "We look at the cost in dollars per berth not so much at the exchange rate," he said. "The exchange rate is only one variable."

The four major builders of cruise ships are all committed to defending their market shares and competing for new orders, in addition to Lloyd Werft and T. Mariotti, as well as Mitsubishi, where Sakao Fukuda, manager of the cruise ship business department, told Cruise Industry News: "We would like to continue to compete for cruise ships, making use of the experience and technology gained from building the two Princess ships."

But for hopeful shipyards, Arison also cautioned that he is not looking at building costs in the context of 2004, which is turning out to be a very profitable year, but keeping in mind that he cannot predict what the market will be like in three to four years (when new ships would be delivered). "We are taking a very conservative approach to costs," Arison said. - Oivind Mathisen

Excerpt from the Cruise Industry News Quarterly Magazine: Fall 2004


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