- The cruise industry is beginning a downsizing the likes of which have never been seen in the modern cruise business.
- While other segments of the shipping industry have experienced significant downturns prompting the wholesale scrapping of vessels, cruise shipping up until now has been on a continuous growth path.
- One of the challenges for the cruise lines will be to find buyers looking for cruise ships.
- Many of the smaller cruise lines that were the traditional buyers for older ships went out of business as the cruise industry grew and consolidated.
- This may mean that the cruise industry can only turn to the scrappers.
A recently reported article in the Maritime Executive highlights the plight of cruise lines who are struggling to eke out an earning in this economic crash due to coronavirus.
The U. K based Marella Cruises
The U.K.-based Marella Cruises, part of the TUI Group, announced after the suspension that it would be retiring its cruise ship the Marella Celebration. Built in 1984, the 33,000 gross ton cruise ship was the oldest and smallest in the Marella fleet, which has been expanded with ships from Royal Caribbean and Celebrity Cruises. Previously they had said the ship would operate for up to four more years before being retired. Marella had sold her sister ship for scrap leading to speculation that the Marella Celebration will soon depart for the scrap yards in Asia.
The Carnival
As the largest cruise corporation, Carnival also had the most diverse fleet and some of the oldest cruise ships operating in major markets. The strategy had been to replace ships that were not Generating the results with newer ships which inherently have the opportunity for greater revenue with additional cabin and balcony designs and generate a premium because they are new. However, none of Carnival’s ship sales in recent years had been to scrap yards and indeed very few modern cruise ships had gone to scrap at all.
Royal Caribbean
It is unknown if any of the other large brands such as Royal Caribbean might be considering similar ship sales to reduce costs. However, reports are circulating that Pullmantur, the Spanish brand that announced that it had filed to reorganize under Spain’s insolvency laws, is currently stripping parts and material from the former Royal Caribbean ships the Monarch and Sovereign that it was operating. This has led to speculation that both ships might be being prepared for sale or scrapping.
A subtle comparison
The only comparison that can be made to the current situation in the cruise industry is the mid-1970s when the oil crisis combined with the decline in long distance ocean travel collapsed the passenger business. Then ships that were just a decade old were sent to the scrap yards and fleets like P&O and Union-Castle Line quickly disappeared. P&O sold six of its 10 passenger ships for scrap.
How cruise lines reduce expenses
Faced with no definitive timeline for a return to service and uncertainty over the rate at which travelers will return to cruising, the cruise lines are struggling to improve their liquidity and reduce their monthly cash burn. Carnival Cruise Line in its preliminary second quarter update reported that by extending maturities on its debt, reducing capital expenditures, employment, and operating costs, that it had lowered its monthly burn rate to $650 million from approximately $1 billion. Royal Caribbean Cruise Line is burning between $250 and $275 million a month.
Hard reality
A glut of cruise ships could drive down prices in the scrap market and they are more time consuming for the scrappers because of all the outfitting that need to be stripped as well as a structure that often has less prime metals.
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Source: The Maritime Executive
