24th SEATRADE CRUISE SHIPPING CONVENTION 2008
March 10-13, 2008
Miami Beach Convention Center
Miami Beach, Florida, USA
This year’s Seatrade Cruise Shipping Convention in Miami - no doubt - was characterised by key indications for a significant change in many areas of the industry, stretching from customer behaviours to new instruments of cruise line financing.
Despite an economic downturn at least in North America, which still accounts for two-thirds of the passengers worldwide, the collapse of the housing market also called the subprime bubble, falling stocks, rocketing oil prices, a progressive decline of the greenback, new legislative challenges from governments and environmental groups to name only a few clear signs for a recession, the current newbuilding order book ironically shows a total of more than 40 ships on order or under construction and re-engineering and refurbishing of the existent fleet is booming.
An elite of three European yards - Aker, Fincantieri and Meyer - deliver 97 per cent of all the tonnage worldwide. Apart from Mitsubishi Heavy Industries of Japan, Asian yards have until now not penetrated the market. But this is not a question of “if” - it is only a question of “when”. Korean shipbuilder STX has acquired a significant share in Aker Yards, the cradle of the mega cruise ships of the Freedom and Genesis class, in autumn 2007 and has launched a mandatory offer to gain full control of Aker Yards in July 2008. With a shift in ownership, cruise line operators spearheaded by NCL Norwegian Cruise Lines part of Star Cruises the one and only Asian cruise line operator and the third largest in the world, might well be the first to order a new vessel not only for price reasons in Korea or China.
In August 2007 ailing Star Cruises announced that in exchange for 1 Billion USD, 50 percent of the ownership of NCL would pass to the large private equity group Apollo Management. Apollo, which already owns Oceania Cruises and has also acquired Regent Seven Seas, has quite different return expectations. They want to triple their investment in 5(!) years! Taking into account that prices have been stable over decades even as rates at hotels and resorts were skyrocketing, such a philosophy must lead to a deterioration of customer services and the compliance with safety standards.
Another private equity firm, New York-based Court Square Capital Partners, has closed a deal in February 2008 with family-owned Grand Circle Travel. Strong indications that equity houses with absolutely no experience in a specific industry, develop an ever increasing interest in this obviously undervalued cruise business! Owners or sharks that is the question!
This shift from an entrepreneurship driven, customer and marketing orientated industry to a business that is governed by financial technocrats, was clearly demonstrated when the panel of the State of the Industry Debate gave a farewell to Bob Dickinson - a legend - who had retired in November 2007, after a 35 years career at Carnival and 24 years as a protagonist of Seatrade Cruise Shipping Convention and was welcoming his successor Gerry Cahill a former Price Waterhouse financial officer. His declared focus will be on higher profits, which he wants to achieve through lower costs and higher prices. Mmmmh, very interesting!
In an act of solidarity not always seen by such highly competitive executives from Carnival, Royal Caribbean, Norwegian Cruise Line, MSC Cruises and Celebrity, all five gentlemen were quite confident that travellers will not stop cruising in a toughening economic environment. One of the reasons why they were so optimistic is the fact that their assets (ships) can be easily moved compared to hotels which are fixed to their foundations.
The Caribbean, which has reigned supreme and unchallenged for decades as the go-to cruise destination, has come under pressure and Europe in general and the Mediterranean in particular has become the hottest region in the world. Cruise lines and passengers alike share the desire to travel to other destinations in the world, as cruising has become a year-round business. Not a single word on organized crime, gangs, hijacking, raids, blackmailing etc. in this region where pirates have always been causing a lot of headakes.
It would break the mould to list all the issues of possible changes and increased risks for modern cruise ships, but one technical aspect should be mentioned in the context of the deployment of more ships in European waters resulting in frequent crossings of the North Atlantic:
It is the stability of modern cruise ships which are designed to carry passengers in spacious and luxurious accommodation, for fine weather sailing in different areas of the world, at those times of the year when the sea will generally be kind to the passengers. There is only one exception – the QM2. She is designed for the worst North Atlantic conditions. On her maiden voyage she already had to take a force 8 winter storm with winds up to 100 miles an hour.
The stability and strength of modern, extremely fragile cruise ships - better floating hotels or cities, is - because of the very low draft - very poor and can only be guaranteed by sophisticated equipment and technologies. If these technical devices fail in bad weather the immediate consequence will be a listing of the ship. Think the unthinkable - an evacuation - and all the enthusiasm for a deployment of cruise ships in European waters and frequent, year round crossings of the North Atlantic will add up to an extremely alarming situation.
The International Maritime Organisation IMO has seen itself obliged to design better methods of assessing the residual stability of damaged new cargo and passenger vessels in the case of an accident. Accordingly, all new vessels built from 1st of January 2009 will be governed by new technical design regulations to ensure a higher level of stability in a damaged state. In the recently revised SOLAS regulations, the previous concept of risk assessment has been extended.
One more remarkable trend and a new term - “disegalitarianism”.
In modern cruise shipping, passengers were treated equal in all ship’s public areas, no matter which accommodation they had booked.
With the advent of extremely “nouveau riche” individuals with a supposed affinity to organised crime and different tastes and expectations (not necessarily elegant but expensive) on the top and low budget holiday makers at the lower end, cruising will have to adjust at least to a two-tier society and there are strong indications already for this significant change. The genuine upper class as a consequence will disappear from the mega ships and move to small luxury brands where their required level of intimacy will be (hopefully) guaranteed.
There is only one hope that the Silver Jubilee (25th Anniversary) of the Seatrade Cruise Convention 2009 in Miami, will give a proof for the continuation of cruising’s buoyant resilience and triumph over all kinds of adversity.
State of the Industry Debate
Daniel J. Hanrahan,Celebrity Azamara CLIA
Stein Kruse,Holland America Line
Colin Veitch,Norwegian Cruise Lines
Adam M. Goldstein,Royal Caribbean Cruise Line
Richard E. Sasso,MSC Cruises
Gerald Cahill, Carnival
State of the Industry Debate
Scott McNeill, Molded Fantaseas, www.scottmcneillart.com
Martin Uhlig, bst, www.bst.co.at
John C. Hutchison, Thermax-Fipro, www.fipro-ag.com
Thomas Pfitzer, Rescompany, www.rescompany.com
Martin Uhlig, bst, www.bst.co.at
Thomas Niklaus, Thermax-Fipro, www.fipro-ag.com
Thomas Trendelenburg, Alulight, www.alulight.com
Peter Schaeffler, Alulight, www.alulight.com
Debbie McNeill, Molded Fantaseas, www.scottmcneillart.com
Maurizio Cergol, Fincantieri