Arison: Fuel can be albatross for new orders
1/7/2008
Fuel spouting over $140 a barrel has sent cruise stocks tumbling in recent days. The market is ‘extremely sensitive right now to fuel,’ acknowledged Micky Arison, chairman and ceo of Carnival Corp. & plc. ‘We’re not alone,’ he added. ‘We’re crying with a lot of companies right now.’
A recent business-news ranking comparing corporate valuations to General Motors put Carnival at three times the value of the automotive giant. ‘While we’re getting hammered, it’s not any worse than others,’ Arison told reporters on board Holland America’s new Eurodam.

But he warned that if current conditions continue for an extended period, future capacity growth will slow.

‘The cost for the dollar brands to build in Europe and the operating profit based on $140 fuel means the returns are not higher than the cost of capital right now,’ Arison said. If today’s scenario holds, ‘it is likely you will see a slowdown in newbuilds after 2011.’

Carnival Dream and Magic were the last contracts inked by Carnival. That was one year ago. Meanwhile, the company is taking a very high pace of deliveries for orders placed three or four years ago, particularly for European-sourced brands.

However, Arison cautioned that even the sterling- and euro-denominated lines face steeper capital costs due to the skyrocketing price of shipbuilding components, on top of fuel. ‘The margins are starting to narrow,’ the Carnival chief said.

It’s hard to put today’s dynamics into a historical context. During the gas lines of the 1970s in the United States, Carnival was just a two-ship entity. Now it’s 88 vessels strong, with a global portfolio of brands.

‘We were very U.S.-centric. Now we’re global. While times were as difficult or more difficult than today, having to deal with these issues globally is much more complicated for us,’ Arison noted.

It is interesting as there are a few lines hoping to order new ships in the very near future, should oil keep going the same way (and they are predicting $150-175 a barrel within weeks, it hit $145 today before falling again) from what he is saying is that it will cost more to operate the ship thus any profit you make will not service the debt you incur when building it - you run at a loss. This of course supposes that the cruise lines do not hike their fares which they may well be able to do as hotels are having to increase their rates etc and with less ships coming on line there could be a stagnation in new cabins coming on line both in the US and in Europe.

While RCI do have quite a bit of its fuel hedged they are taking a double digit drop on the market with more to come, first because their margins are tighter than CCL, second their financing costs are higher, their US operations have upwards of 6 new ships being delivered which on paper will be lucky to cover their costs (inc Capital). NCL will also find their margins cut substantially but I suspect they will not be as exposed ?

Luxury brands will no doubt feel less exposed in any event but it will be interesting to see if Silversea converts their option for a second new build. Could we see RCI selling Celebrity ? (ok an exteme case) !

Where the cruise lines have a difficulty compared with the airlines is newer stock. There is still a substantial backlog of aircraft orders so airlines can go to Boeing or Airbus and defer their deliveries and airlines in markets still performing well (Middle East and China) are likely to jump in and grab these slots.

There are really only 3 significant cruise lines so there is no one who is going to jump in and grab production slots in Italy or Finland particularly as designs are basically proprietary so Carnvial are likely to be unwilling and unable to take a RCI design for example.

This means that all the cruise lines can do is

-park older stock as detailed above

- take their existing orders even if that means retiring older stock earlier as the cancellation costs for existing orders would be prohibitive.

-shuffle stock to the more profitable zones (Euro etc) but this quickly diminishes as over-supply will drive down yields.

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I have heard that P&O are looking at moving their order for the sister to Ventura to another brand (possibly Costa) and designing their own bespoke new build.

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I wonder if this has more to do with the popularity (or not) of Ventura.

We cruised on her for 2 weeks at the beginning of June and had a lovely time and liked the ship very much. The feeling of most past P&O cruisers (which we shared) was that the other ships in the fleet would be their choice and even many new cruisers who very much liked the ship were saying that they would like to explore other P&O ships rather than sail again on Ventura.

With 3 Grand class ships already operating out of Southampton next year it could prove difficult selling a 4th in 2010?

We had an interesting lunch with P&O's marketing director whilst on Ventura, we asked him if Oceana was likely to leave the fleet in 2010 when Ventura’s sister is launched as there has been speculation that this may happen. He was very insistent that Oceana was a good seller and would be retained.

With Sea Princess ceasing sailing out of Southampton next year and highly likely to leave Princess in 2010 Oceana may become more popular, being a sister ship and this may be putting further pressure on her to be retained.

P&O were not successful in having 2 ships the same (Adonia/Oceana) before and they do rather sell on the individuality of each of their ships.

[ 07-02-2008: Message edited by: richard_maidment ]

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Originally posted by P&OOfficer:
I have heard that P&O are looking at moving their order for the sister to Ventura to another brand (possibly Costa) and designing their own bespoke new build.

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I highly doubt this as Costa does not want a one-off Grand in their fleet and if P&O defers this order, they won't get another ship before 2013-2014.

I have heard from a good source that Sea Princess will become Ocean Village 3.

Ocean Village has been conducting market research to establish whether people would cruise OV from Southampton as their operating costs for OV are high due to flights.

There is also talk of Ocean Village and P&O Australia to share ships, and operate under the OV brand.

There is rumour of them planning to home port in Southampton and do two week turnarounds to the med and canaries, also with shorter party/city cruises.

The cost of designing and building a bespoke may be higher - but can you put a price on the success?

Ventura is clearly not unfolding in the way P&O had hoped, and the press is iffy to say the least.

P&O also has a huge repeat base and will they get this with the Ventura pax?

I really see the logic of merging OV and P&O Aussie though, the P&O brand took a beating and a half over the last few years and it is interesting to see Princess taking a bigger role brand wise (they now have more berths to sell than P&O Aus) and when ever you see press it is aboput Carnival Australia. Rebrand Pacific Dawn and Sun as OV would be great for the market there and give OV some real flexibility with fleet deployments if they wished, they would obviously be able to cross sell to both groups of pax. I think some of the older Costa tonnage would be better for Carnival than moving Sea P though.

I've heard rumours Aurora, Oriana or Sea Princess would be OV3. I was told at New Year in no uncertain terms by one of my tablemates Aurora and Oriana were leaving the fleet THIS year and they wouldn't have it they weren't.

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They should stop now and those on order whose keels haven't been laid cancelled. Just finish the ones started. Once everything is settled with the oil and credit crunch they should resume.[/QB]

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I would suggest that the complaints from traditional P&O passengers should be ignored - they're not the people that Ventura is aimed at. If Ventura is full and making money then P&O will be happy with her and with her sister.

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I really see the logic of merging OV and P&O Aussie though, the P&O brand took a beating and a half over the last few years and it is interesting to see Princess taking a bigger role brand wise

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I agree and believe that this was one of my predictions for 2008 made in our predictions thread back in January. There is no doubt that Carnival are keen to create two brands in Australia and currently P&O and Princess are basically selling the same product and often the Princess product is slightly cheaper than the P&O product on like cruises.

Carnival has had great success with the Aida and OV products and it would work in Australia. The ability to share vessels between the northern and southern summers is also a great option particularly as the average ship tonnage is growing and it is hard (almost impossible) to proftably run a 70K tonne vessel out of Sydney on milk run cruises in July. The interesting option for Carnival for OV could be directing one of the newbuilds still on order for Aida to OV. These ships are purpose built for club cruising and much more suited to the concept than the ageing Pacific Sun.

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They should stop now and those on order whose keels haven't been laid cancelled. Just finish the ones started. Once everything is settled with the oil and credit crunch they should resume.

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Originally posted by Tom Burke:
I thought that Ventura is sailing pretty much full every time? If so that would suggest that P&O's gamble with her is paying off.

I would suggest that the complaints from traditional P&O passengers should be ignored - they're not the people that Ventura is aimed at. If Ventura is full and making money then P&O will be happy with her and with her sister.

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Tom - I'm with you on this one. P&O is not forward pricing the Ventura like a ship they can't sell. She has some of the highest per diems of the fleet on a like for like basis. There is no availability on many of her cruises. She is designed to compete with RCI, not to please Oriana and Aurora passengers.

I look forward to trying her, because from the pictures I've seen, I think she looks rather nice internally. Indeed I'd go so far as to say that she epitomises modern aspirational Britain with the trendy restaurants and designer features, larger spa etc. And whilst I'd prefer a better looking ship externally, when onboard who will notice. I rather fancy drinks at the Metropolitan bar and dinner in a Marco Pierre White restaurant etc.

The question that comes to my mind with Ventura is more can she be a success within the P&O brand. The P&O brand is being, in my view, a bit too stretched across the fleet. Traditional classy cruising (Oriana and Aurora), OAP cruising (Artemis), Modern adults cruising (Arcadia) and modern family cruising (Ventura). Is it really feasible to appeal to all these people under 1 brand? The 'branding baggage' of P&O may be a bit much for Ventura. By that I mean that when people think of P&O I'm sure they would have a different image in their mind than when they think of RCI, and that image may not reflect Ventura.

My personal recipe would be to move Oriana and Aurora to Cunard, ditch Artemis and focus on the newer ships and the more modern brand for P&O, park the traditional stuff with Cunard.

As for OV3 - I'd say that Sea Princess or Oceana fit quite well. Right size range, former fleetmates of the current ships, quite adaptable I would have thought.

While cruising on 'Norwegian Jade' a few weeks ago, I met a group of Ventura passengers in Rome. We were all on excursions. They were the typical elderly P&O 'socks and sandals' passengers. They were obviously not Ventura's target market and were generally not over impressed with Ventura. They felt that she was very comfortable, but too big and too modern.

Although the above tale is hardly a quantative measurement of customer satisfaction, I think a lot of the traditional P&O passengers are trying out Ventura this season. I wonder how many will return? I also wonder how many of the new breed of pax will pick P&O over NCL or RCI?

Interestingly there were a lot of passengers on Jade, who had cruised with P&O in the past. I did hear complaints that NCL were not like P&O. Others were impressed that NCL was generally cheaper.

Us Brits now have more choice of old, new, big, medium and small ships sailing from our ports this summer than ever before. Let the battle commence and may commence!

[ 07-07-2008: Message edited by: Malcolm @ cruisepage ]

It was a crime to take her from Princess in the first place but to ditch her.........

Matts, have you ever been keelhauled ?

That all said she doesn't work for me the way she is now, she needs a major upgrade new facilities, more balconies etc and a really intensive proper visionary refit - she could be absolutly stunning but P&O just don't seem to bother - they just fluff her.

Certainly the mood I detected on board was that the ship was possibly too big but didn’t offer any more than the smaller ships. New cruisers liked it but would probably try a different (P&O) ship whilst P&O regulars would return to their favourite ship.

One significant problem is that whilst the ship is marketed for families there are issues with the pools. The childrens splash pool has been made too deep and has failed risk assessment and is permanently closed until a solution is found. This will involve serious modification or a rebuild. The other pools whilst excellent for swimming are too deep for most people to stand up in and safely supervise a young child. Strangely the only steps go down into the deep end! This issue in itself is enough to discourage families from rebooking when the other ships have more to offer in this respect.

Whilst conversations on board hardly constitute market research impressions are that repeat business could be tricky for Ventura or its new clone but continued popularity of the rest of the fleet may be assured.

One thing is interesting: as we were preparing to leave Southampton on 31 May (on Oriana), Independence of the Seas drifted slowly past us. The response was mixed. Lots of passengers were aghast; I suspect these were the Oriana Trads. But quite a few people were clearly impressed, and I did overhear a few people commenting "she's bigger than Ventura, you know..." and "apparently she's amazing inside...". So I wonder if Ventura is actually big enough and attractive enough for the long haul? I think that the winners in the coming couple of years will be the companies that best hit their market (obvious, really), and IoTS, Carnival Splendor, Oasis, 'F3', etc, might do that better, in the market for mega-mega-liners, than a mere mega-liner such as Ventura?

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Originally posted by Tom Burke:
...and IoTS, Carnival Splendor, Oasis, 'F3', etc, might do that better, in the market for mega-mega-liners, than a mere mega-liner such as Ventura?[/URL]

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