The cost of small ships

[Gloria Mundi]

DH and I are booked on a small-ship cruise (<100 people) in Alaska in July. I'd looked at river cruises in Europe before this and knew that the cost would be way over the big-ship cruises, so the cost of our Alaska excursion wasn't a major surprise and I knew it was ballpark ($3K pp for 7 nights) for a smaller ship.

 

I've been pondering ever since, though, why the per-person cost becomes so much lower on the bigger ships. It's curiosity more than anything, probably because I'm a numbers person and my work involves some components of costing. From what I can see, smaller ships save on fuel and accommodations (this ship has pretty spartan rooms and you're cautioned not to take much 'cause there's no room for it). I'd also guess they serve less food per person because this type of trip wouldn't appeal to people who want midnight chocolate buffets. No on-board musicians or other entertainers need to be paid.

 

Which leads me to the conclusion that the bigger ships can keep the sticker prices low because of all the add-ons. Extra charges for premium restaurants, casino profits, selling excursions (ours are pretty much included other than the crazy expensive ones such as amphibious plane flights), kickbacks from stores in the port (not enough passengers to generate a lot of revenue, and probably not a shop-till-you-drop group), art auction profits, etc.

 

Anything else? We know that this cruise will be a much better fit for us than a mega-ship and are really looking forward to it.

[LHT28]

The bigger ships carry more passenger to offset the costs

small ship line have a lot of operating fees & with minimum number of passengers someone has to pay

 

Some smaller ships are U.S. flagged & have to hire U.S personal & pay accordingly unlike the larger ships where they hire offshore & pay minimal wages

[maryann ns]

The bigger ships make a lot of their money from all the add-ons, drinks, casino, excursions, etc.

[sail7seas]

I'm no economics expert but I've heard the phrase 'economy of scale'. I think it means the more people they can get on a ship, the more they can spread the costs. They have to run a show each night so the more people they load into the lounge to watch it, the more drinks they hope to sell.

 

Carnival Family of ships buys a whole lot better than a small line like, for example, Windstar. When you have the huge Carnival family buying for huge vessels, suddenly that $1.00 for five pounds of flour becomes $ .29 for the five pounds.

 

The small ship needs a Captain (and the price to pay him) whether he is responsible for 56 crew and 400 guests of 500 crew and 3,500 guests.

The more people, the more casino revenue, drinks, excursions, photos etc

 

I think it might be something like that.

Why else was HAL so eager to add more cabins to Rotterdam and Veendam (and, initially, other ships) but to add more people to share the costs and increase the revenue.

 

[John Bull]

I'm a numbers person and my work involves some components of costing. From what I can see, smaller ships save on fuel .

 

Sorry, but I can't believe you work in costings :p

 

Smaller ships save on fuel?

Yes. they do.

A 3000 passenger ship probably burns about ten times as much fuel as a 100 passenger ship.

In the same way that executive jets burn less fuel than jumbo jets.

And taxis burn less fuel than buses.

 

Can you not see the big flaw in your costings? ;)

 

JB :)

[Mr_Cruise]

I'm no economics expert but I've heard the phrase 'economy of scale'. I think it means the more people they can get on a ship, the more they can spread the costs. They have to run a show each night so the more people they load into the lounge to watch it, the more drinks they hope to sell.

 

Carnival Family of ships buys a whole lot better than a small line like, for example, Windstar. When you have the huge Carnival family buying for huge vessels, suddenly that $1.00 for five pounds of flour becomes $ .29 for the five pounds.

 

The small ship needs a Captain (and the price to pay him) whether he is responsible for 56 crew and 400 guests of 500 crew and 3,500 guests.

The more people, the more casino revenue, drinks, excursions, photos etc

 

I think it might be something like that.

Why else was HAL so eager to add more cabins to Rotterdam and Veendam (and, initially, other ships) but to add more people to share the costs and increase the revenue.

 

 

 

Everyone's contributions / ideas of how pricing works are all valid; great group of thinkers!

 

Economies of scale largely has to do with the construction costs per square / cubic unit. Think if it this way:

 

If you build a cube shaped building that is 2 x 2 x 2, you are using 24 square units of material yielding 8 cubic units of useable space (0.33 cubic units per square unit of material). If you make a cube shaped building with dimensions of 20 x 20 x 20, you are using 2,400 square units of material yielding 8,000 cubic units of useable space (3.33 cubic units per square unit of material).

 

Essentially, the larger you build something the more cost effective it is for the finished space. It's the same concept used when determining the best size to build a warehouse, or a store, or... a cruise ship.

[euro cruiser]

It comes down to fixed and variable costs, and a cruise ship has high fixed costs. The more passengers to spread those costs over, the lower the cost load per passenger.

 

For example, the cost of the ship itself is fixed. Certain personnel costs are fixed (you can't sail without a captain, engineers, etc.) while others are variable based on the number of passengers (cabin stewards, waiters, etc.).

[PennyAgain]

I have traveled often on small ships and really prefer them. The major cost difference I believe comes from the attention given to passengers on small ships that you just don't get on the big ones.

 

The food is not mass produced and is generally of a much higher quality.

 

There are fewer selling opportunities on small ships.

 

Small ships generally include tours which are price add-ons on bigger ships.

 

No casino on small ships and usually only one tiny shop (if that).

[Gloria Mundi]

A 3000 passenger ship probably burns about ten times as much fuel as a 100 passenger ship.

<snip>Can you not see the big flaw in your costings? ;)

 

JB :)

 

OK, my job does not include fuel costs on large transport vehicles! I can see your point- that the fuel consumption doesn't rise at the same rate as the number of passengers a ship carries.

 

It also occurred to me that on a large ship they can hire a large group of people at (or below) minimum wage, depending on the ship's flag, to do the cleaning, potato peeling, etc. I don't think the small ships hire at that level- according to one review of the ship we'll be on, the captain (a "she", BTW, 7seas) has been known to deliver drinks to the group in the hot tub on deck. (Yeah, we're looking forward to this!) They hire people to do more complex and customer-facing jobs, at higher salaries, with the understanding that they'll have to do some of the grunt work, too.

[John Bull]

OK, my job does not include fuel costs on large transport vehicles! I can see your point- that the fuel consumption doesn't rise at the same rate as the number of passengers a ship carries.

 

It also occurred to me that on a large ship they can hire a large group of people at (or below) minimum wage, depending on the ship's flag, to do the cleaning, potato peeling, etc. I don't think the small ships hire at that level- according to one review of the ship we'll be on, the captain (a "she", BTW, 7seas) has been known to deliver drinks to the group in the hot tub on deck. (Yeah, we're looking forward to this!) They hire people to do more complex and customer-facing jobs, at higher salaries, with the understanding that they'll have to do some of the grunt work, too.

 

Well, certainly the captain won't be paid the same rate as on Oasis. And probably has to make her own coffee. ;)

But hey-ho, the further up the scale you go, the more specialised the work & the less variety you get.

My excuse for a life-long lack of ambition :D

 

JB :)

[sail7seas]

OK, my job does not include fuel costs on large transport vehicles! I can see your point- that the fuel consumption doesn't rise at the same rate as the number of passengers a ship carries.

 

It also occurred to me that on a large ship they can hire a large group of people at (or below) minimum wage, depending on the ship's flag, to do the cleaning, potato peeling, etc. I don't think the small ships hire at that level- according to one review of the ship we'll be on, the captain (a "she", BTW, 7seas) has been known to deliver drinks to the group in the hot tub on deck. (Yeah, we're looking forward to this!) They hire people to do more complex and customer-facing jobs, at higher salaries, with the understanding that they'll have to do some of the grunt work, too.

__________________

July 7, 2012- Wilderness Adventurer, Ketchikan to Juneau

 

 

 

 

Sorry for not knowing the Captain of Wilderness Adventurer is a female. :eek:

 

 

 

Thanks to those who answered the question. VERY helpful info. It interests me why RCI is so eager to keep building those massive ships and how they can make more money per ton than the smaller ships.

[BruceMuzz]

The costs of operating a small ship are not that much less than the costs of operating a much larger one.

 

Let's look at the big cost issues for ships:

Building

Financing

Fuel

Food

Basic operations

Salaries for non-tipped crew/staff

Port charges and fees

 

Cost per cabin is a huge factor in cruise ship financing, and critical to a ship making a profit.

Large ships have a much lower cost per cabin, and so have a much higher profit margin/

 

The companies building the big ships normally pay cash.

The small companies building the small ships need to finance them - and pay the interest.

 

The largest ships are usually the newest ones, with the best fuel efficiency. There are now some new 5,000 passenger ships with lower fuel consumption than older ships carrying 1,000 passengers.

 

Purchasing food by the ton is far less costly than purchasing by the pound or the case.

 

The basic port fees and charges are nearly the same for most ships, regardless of size.

Large ships make all their own fresh water at very low cost. Small ships must often purchase fresh water at high cost.

 

The expensive employees are the licensed officers. Large ships have nearly the same number of them as smaller ships.

The very inexpensive employees are the service staff. Large ships have many more, but they cost very little.

 

We must remember that cruise ships rarely make any profit selling cruises. The cruise fares hopefully pay for just the basic costs listed above.

 

Profits come from onboard spending. The more people spending money on my ship, the more profit I make.

[firefly333]

Sorry for not knowing the Captain of Wilderness Adventurer is a female. :eek:

 

Thanks to those who answered the question. VERY helpful info. It interests me why RCI is so eager to keep building those massive ships and how they can make more money per ton than the smaller ships.

 

Im with that other guy, how can you work in costing and not understand economies of scale.

 

And also why are you saying RCL is so eager to build these massive ships, when from what Iv read, only the two big ones, next ones will be smaller, due to pax demand for smaller ships.

 

Fuel is probably one of the biggest costs .. and you seem to not be starting there with your costing. When fuel prices go up .. the cruising companies miss their projected earnings, its such a huge part of the cost.

 

Have you ever owned even a small boat .. fuel is a huge cost to run them.

[Gloria Mundi]

Have you ever owned even a small boat .. fuel is a huge cost to run them.

 

Nope- if I ever own a boat it will be a kayak or a canoe! But thanks to everyone for the helpful answers. I learned a little bit more about how the cruise business works.

[sail7seas]

Im with that other guy, how can you work in costing and not understand economies of scale.

 

And also why are you saying RCL is so eager to build these massive ships, when from what Iv read, only the two big ones, next ones will be smaller, due to pax demand for smaller ships.

 

Fuel is probably one of the biggest costs .. and you seem to not be starting there with your costing. When fuel prices go up .. the cruising companies miss their projected earnings, its such a huge part of the cost.

 

Have you ever owned even a small boat .. fuel is a huge cost to run them.

 

 

 

I Don't work in costing.

 

You have the wrong poster. It's OP that said that.

 

 

As to RCI and massive ships........ Yes, I call Oasis and Allure massive. They aren't a port stop; they are an invasion when they dock and open the gangway. :eek:

[PennyAgain]

The small ships referred to above are based in Alaska and hire Americans and pay US wages and meet all the maritime labor requirements.

 

Nuf said.

[bbwex]

First of all, the price of $3K/pp for 7 days is not bad for a small ship! Bear in mind that for a verandah cabin on a large ship, you could easily pay that much or more. Most of the small ships have only or mostly outside cabins.

 

It is true that large ships have significantly larger cabins pretty much. Lines such as the former Cruise West or Lindblad have fairly small cabins, but they are looking to provide a very different cruise experience. If you had a really small ship (100 or so passengers) with large cabins, the operating costs would be extreme. Smaller ships of the luxury lines obviously charge more per person, part of that is the service, part of that is the mere cost per person to operate the ships.

 

It's been said that large ships have tremendous economies of scale. We are going to be on a small boat in the Galapagos, and the room steward(s) will have a total of only 8 cabins on the entire boat. Stewards on large ships handle more than twice that number of cabins. Restaurants can be more efficient and profitable on large ships, and obviously bars make tremendous amounts of profits. As Steve Wynn said on "60 Minutes," the only way to make money in a casino is to own one!

 

As for fuel, large ships are tremendously more efficient on a per passenger per hour basis.

 

While it is not the major item, some have mentioned the cost of the captain. On the smallest passenger vessel, the captain is trained, licensed and certified. The captain on a 100 passenger ship is not making what the captain on Oasis of the Seas is making, but then the captain of the Oasis of the Seas is certainly not making 60 times what the small ship captain is making, yet that is the difference in the passenger load.

[BruceMuzz]

First of all, the price of $3K/pp for 7 days is not bad for a small ship! Bear in mind that for a verandah cabin on a large ship, you could easily pay that much or more. Most of the small ships have only or mostly outside cabins.

 

It is true that large ships have significantly larger cabins pretty much. Lines such as the former Cruise West or Lindblad have fairly small cabins, but they are looking to provide a very different cruise experience. If you had a really small ship (100 or so passengers) with large cabins, the operating costs would be extreme. Smaller ships of the luxury lines obviously charge more per person, part of that is the service, part of that is the mere cost per person to operate the ships.

 

It's been said that large ships have tremendous economies of scale. We are going to be on a small boat in the Galapagos, and the room steward(s) will have a total of only 8 cabins on the entire boat. Stewards on large ships handle more than twice that number of cabins. Restaurants can be more efficient and profitable on large ships, and obviously bars make tremendous amounts of profits. As Steve Wynn said on "60 Minutes," the only way to make money in a casino is to own one!

 

As for fuel, large ships are tremendously more efficient on a per passenger per hour basis.

 

While it is not the major item, some have mentioned the cost of the captain. On the smallest passenger vessel, the captain is trained, licensed and certified. The captain on a 100 passenger ship is not making what the captain on Oasis of the Seas is making, but then the captain of the Oasis of the Seas is certainly not making 60 times what the small ship captain is making, yet that is the difference in the passenger load.

 

As I mentioned earlier, the licensed officers are expensive.

Due to Union Agreements and "paying what the traffic will bear", the Senior Officers on a small cruise ship are normally paid the same as the Senior Officers on a large ship.

The Captain, Staff Captain, Chief Engineer, and Hotel Manager on Celebrity's and Azamara's smallest ships receive the same salary as their counterparts on RCCL's Oasis of the Seas.