Cruise ship economics

[wowzz]

For those interested in budgets,  TA commissions etc, this may be of interest.  The figures may not be exact, but they make interesting reading.

https://thehustle.co/the-economics-of-cruise-ships/

I particularly liked the breakdown as to how much the cost of food was per passenger per week! 

Edited July 29, 2020 by wowzz

[mercury7289]

11 minutes ago, wowzz said:

For those interested in budgets,  TA commissions etc, this may be of interest.  The figures may not be exact, but they make interesting reading.

https://thehustle.co/the-economics-of-cruise-ships/

Thank you, very interesting, particularly the posts at the end.

[AndyMichelle]

I like the quote 'they can give a cabin away for free and still make a profit'... 

Andy 

[Harry Peterson]

Thanks - fascinating.

 

A pretty damning indictment of the cruise industry - and perhaps one of the reasons some governments aren't keen to help it out.

 

Two bits stood out for me:

 

The standard contract for a crew member like a cleaner or dishwasher requires a mandatory 308 hours per month — 11 hours a day, 7 days a week, for as long as 8-10 months, with no days off — for the equivalent of $400-700 per month, or $1.62 to $2.27 per hour.

 

and

 

The Hustle asked several major cruise lines to comment on the concerns raised in this article. None of the companies responded.

[pete14]

I would exercise caution in believing every word and figure quoted. Hustle is an American ‘information company’ whose daily email goes to around a million people. This article first appeared in mid March. They claim to make it easy to ‘make smart business decisions fast’, not specifically to do with the tourist industry or cruising specifically. This may be why none of the major cruise lines responded to their request to comment. 

[Harry Peterson]

3 minutes ago, pete14 said:

I would exercise caution in believing every word and figure quoted. Hustle is an American ‘information company’ whose daily email goes to around a million people. This article first appeared in mid March. They claim to make it easy to ‘make smart business decisions fast’, not specifically to do with the tourist industry or cruising specifically. This may be why none of the major cruise lines responded to their request to comment. 

Many of those figures have appeared elsewhere though - particularly the wage rates - and there’s little dispute as to their accuracy.  And if the cruise companies felt they could challenge the article I’m sure they would have done.

 

Cheap cruising depends on appallingly low wages only made legal by manipulating the law.

 

You can always try to justify it by arguing that these workers don’t have to take on the contracts, and that it’s what they would have been paid at home, but they’re not at home and in reality it’s all about profits for Carnival and the rest.

 

I’m uncomfortable with it, just as I’m uncomfortable with the exploitation of workers here, but anything to keep costs down of course, regardless.

[mrsgoggins]

Unlike pete14, I doubt that this is far from the truth.  It doesn't make for comfortable reading that's for sure. Thanks for posting.

[terrierjohn]

Whilst some information will be accurate I imagine that a lot has been left out because it would undermine the main anti cruising thrust of the article. You do glean some of the inaccuracies from the replies, like that concerning TA's commission, and there will be others.  As one poster pointed out none of the crew are "press ganged" into service, and all those I have ever had conversations with have been more than happy to have such well paid jobs, as compared to the average in their home countries. Equally I have no idea how much taxes are paid by cruise lines to the countries where they have cruising bases, but they do indirectly account for sizeable sums from all their subcontractors ashore.

Cruise lines are not Lilly white, but then very few major international corporations are either.

[pete14]

48 minutes ago, mrsgoggins said:

Unlike pete14, I doubt that this is far from the truth.  It doesn't make for comfortable reading that's for sure. Thanks for posting.

I didn’t say it is far from the truth, I just advised caution because it is using figures and assumptions that we (and to a lesser degree possibly they) are not able to verify.
 

I also am supportive of exploited people who are paid low wages. However, we need to look at it in the context of the country they and their families live. The average wage in India (where most P&O waiting staff come from) is much lower than in the UK. India itself is a country of massive inequality - massive wealth for a few and poverty for the vast majority. Those who work for P&O are paid a wage that would be illegal in UK, more like modern slavery levels. However, the relative value at home in India is much higher. Many P&O waiting staff I have talked to are proud to be working for P&O because they are well treated by their employer and the money they earn, (wages and tips) enables them to provide for their families and access decent education for their children. If they were paid the minimum wage that applies in UK it would go a whole lot further in India than it does in UK.

[mrsgoggins]

40 minutes ago, pete14 said:

I didn’t say it is far from the truth, I just advised caution because it is using figures and assumptions that we (and to a lesser degree possibly they) are not able to verify.
 

I also am supportive of exploited people who are paid low wages. However, we need to look at it in the context of the country they and their families live. The average wage in India (where most P&O waiting staff come from) is much lower than in the UK. India itself is a country of massive inequality - massive wealth for a few and poverty for the vast majority. Those who work for P&O are paid a wage that would be illegal in UK, more like modern slavery levels. However, the relative value at home in India is much higher. Many P&O waiting staff I have talked to are proud to be working for P&O because they are well treated by their employer and the money they earn, (wages and tips) enables them to provide for their families and access decent education for their children. If they were paid the minimum wage that applies in UK it would go a whole lot further in India than it does in UK.

 

 

I take your point that you didn't say that the article was far from the truth but urged caution.

 

I also accept everything else you have said about the workers on board and is something DH and I talk about every time we cruise, it does not stop me feeling uncomfortable about it though, including the number of hours the staff put in, not only the pay.  My concern is that we really only see what we want to see and will use any minor inaccuracies to dismiss the main tenet of the piece, which I suspect is largely accurate.

[molecrochip]

Hmm... I know a little something about this but again would urge caution as the article has been spun in a very anti-cruise way rather than as a pure economics piece. I'm not supporting either side, just sharing some knowledge.

 

• Pete is right in his assessment of Indian staff. They are employed through Indian companies complying with all Indian laws. In fact, health & safety responsibilities are way in excess of Indian or Bermudan requirements. They are seem as a prestige employer. Indeed a few years on a cruise ship can really open doors to other prestige jobs back home when your sea days are over.
• Very crudely looking at annualised hours, working 10hrs a day, 7 days a week for 8 months is about 2,400hrs. Divide that by 52 weeks in a year =  46hrs a week. There are a lot of people who work this many hours a week in the UK.
• As for hours worked, ever asked how many hours a kitchen hand or chef on a Royal Navy ship works?
• The over-capacity numbers are based on lower bunks as far as I can calculate. Cruise lines don't oversell based on maximum occupancy - its against the law.
• The average passenger breakdown appears to be broadly correct however its been based on publicly available accounts so generalised slightly.
• Re food cost. Its worth remembering that a company the size of Carnival can enter massive supply contracts for regions / brands etc. This significantly reduces cost of food acquisition.
• Broadly, $103 food = £85 x 2 people = £170 a week. The shopping bill for my family doesn't come to this amount and I'm not buying on bulk!
• Cruise lines do contribute to local marine costs / coastguard costs etc - varies by jurisdiction.
• Most local economies do better than portrayed in this article. Yes some lines have deals with preferred retailers (hmm Diamonds International and Columbian Emeralds) but they still make a healthy profit themselves with little advertising costs.
• Finally, all of these loop holes, are not loop holes at all. The system was specifically designed this way. Its only in recent years that the reality has become uncomfortable.
• People could bang the drum for these crew members to earn UK minimum wage however the cost of their cruise will go up by 30% - that is not so popular.

 

Edited July 30, 2020 by molecrochip

[pete14]

47 minutes ago, mrsgoggins said:

 

 

I take your point that you didn't say that the article was far from the truth but urged caution.

 

I also accept everything else you have said about the workers on board and is something DH and I talk about every time we cruise, it does not stop me feeling uncomfortable about it though, including the number of hours the staff put in, not only the pay.  My concern is that we really only see what we want to see and will use any minor inaccuracies to dismiss the main tenet of the piece, which I suspect is largely accurate.

I know nothing more about ‘Hustle’ than I read on their own website this morning so I cannot be confident that I know of their accuracy, sources and importantly motives. Hence the caution. If I lived overseas and knew nothing of the British media, believing online reports from newspapers such as the Sun, Daily Star or even the Telegraph or Guardian could give me a distorted view of British society and our way of life or thinking. For me, the same caution applies to any information source I know nothing about, either from UK or anywhere else in the world. The report from ‘Hustle’ could be true in every respect and have no agenda behind it, all I am saying is that we should exercise caution until we know more of the source.

[Harry Peterson]

5 minutes ago, molecrochip said:

Hmm... I know a little something about this but again would urge caution as the article has been spun in a very anti-cruise way rather than as a pure economics piece. I'm not supporting either side, just sharing some knowledge.

 

• Pete is right in his assessment of Indian staff. They are employed through Indian companies complying with all Indian laws. In fact, health & safety responsibilities are way in excess of Indian or Bermudan requirements. They are seem as a prestige employer. Indeed a few years on a cruise ship can really open doors to other prestige jobs back home when your sea days are over.
• Very crudely looking at annualised hours, working 10hrs a day, 7 days a week for 8 months is about 2,400hrs. Divide that by 52 weeks in a year =  46hrs a week. There are a lot of people who work this many hours a week in the UK.
• As for hours worked, ever asked how many hours a kitchen hand or chef on a Royal Navy ship works?
• The over-capacity numbers are based on lower bunks as far as I can calculate. Cruise lines don't oversell based on maximum occupancy - its against the law.
• The average passenger breakdown appears to be broadly correct however its been based on publicly available accounts so generalised slightly.
• Re food cost. Its worth remembering that a company the size of Carnival can enter massive supply contracts for regions / brands etc. This significantly reduces cost of food acquisition.
• Broadly, $103 food = £85 x 2 people = £170 a week. The shopping bill for my family doesn't come to this amount and I'm not buying on bulk!
• Cruise lines do contribute to local marine costs / coastguard costs etc - varies by jurisdiction.
• Most local economies do better than portrayed in this article. Yes some lines have deals with preferred retailers (hmm Diamonds International and Columbian Emeralds) but they still make a healthy profit themselves with little advertising costs.
• Finally, all of these loop holes, are not loop holes at all. The system was specifically designed this way. Its only in recent years that the reality has become uncomfortable.
• People could bang the drum for these crew members to earn UK minimum wage however the cost of their cruise will go up by 30% - that is not so popular.

 

Given your background, I can understand why you’d argue this way, but there are moral issues here which trouble some of us. It’s a question of balancing morals against profits and low prices for customers I suppose.

 

The same arguments apply in the clothing industry. Low prices here, created by low wages elsewhere. Plenty of people think that’s perfectly acceptable in a market economy, but whether it’s morally acceptable or not is another issue.

[wowzz]

I too agree about the moral attitude. However, the majority of cruise lines appear to have crew that stay with them for years, so the financial incentive seems sufficiently high for them to keep working new contracts. 

[Harry Peterson]

4 minutes ago, wowzz said:

I too agree about the moral attitude. However, the majority of cruise lines appear to have crew that stay with them for years, so the financial incentive seems sufficiently high for them to keep working new contracts. 

If you have little in the way of alternatives you’ll take what’s available though, and that’s what’s been happening in Leicester. We condemn that here (as evidenced by what’s going on with Boohoo and its share price) but somehow it’s OK if we’re taking advantage of people overseas.

 

 I see your viewpoint, but I still have concerns about employing people on American/European ships at third world wage rates.

[wowzz]

6 minutes ago, Harry Peterson said:

If you have little in the way of alternatives you’ll take what’s available though, and that’s what’s been happening in Leicester. We condemn that here (as evidenced by what’s going on with Boohoo and its share price) but somehow it’s OK if we’re taking advantage of people overseas.

 

 I see your viewpoint, but I still have concerns about employing people on American/European ships at third world wage rates.

The issue is, where do we draw the line. We all eat fresh food harvested abroad by cheap labour (Spanish fresh produce comes to mind), buy cheap clothes manufactured in the Indian subcontinent using a mixture of cheap labour and children etc.

I try and shop ethically, but in an international market place, this is not easy  

 

[terrierjohn]

21 minutes ago, Harry Peterson said:

If you have little in the way of alternatives you’ll take what’s available though, and that’s what’s been happening in Leicester. We condemn that here (as evidenced by what’s going on with Boohoo and its share price) but somehow it’s OK if we’re taking advantage of people overseas.

 

 I see your viewpoint, but I still have concerns about employing people on American/European ships at third world wage rates.

But surely Harry any alternative will hit the ships hotel staff the hardest. If wage levels were raised to western standards the price increases would lead to significantly lower cruise sales with less staff needed. If recruitment switched to western staff it would be even worse.

I also have reservations about the way this reduces western operating costs, but westerners pushing for fairer wage structures in these areas, is only going to lead to demands for inflationary wage increases back home, which I doubt would be beneficial for the rest of the economy in these countries. Beware the effects of unintended consequences.

[FamilyCruiserUK]

 

 

 It is very easy for us "westerner's" to be appalled at the wages this article suggests. The hospitality industry in Asia is huge. There are schools set up to teach Individuals the required skills to work in the hospitality sector, and it is very hard to gain entry into these schools. The potential jobs are from cruise ships to hotels all over the world. There are few well paid (in South Asia) jobs that match the pay found on cruise ships and as such the demand for said jobs is huge. 

 

Don't forget there are lots of low paid hospitality jobs in the US that rely on Tips from customers to make up to a living wage. 

 

If the cruise company's pay a western wage then the jobs could be filled by Western persons and the knock on effect would be less jobs for people from South Asia creating more poverty in those countries. Said to say, but we can't even stop poverty in the western world where esp here in the UK we have a minimum wage......

[molecrochip]

7 hours ago, Harry Peterson said:

Given your background, I can understand why you’d argue this way, but there are moral issues here which trouble some of us. It’s a question of balancing morals against profits and low prices for customers I suppose.

 

The same arguments apply in the clothing industry. Low prices here, created by low wages elsewhere. Plenty of people think that’s perfectly acceptable in a market economy, but whether it’s morally acceptable or not is another issue.

Harry, specifically I was not arguing either way. I just wanted to add a bit more colour to the discussion.

 

There is a big moral judgement and the clothing industry (along with the Asia electronics industry) are equally dubious. But lessons are being learned. 

[Britboys]

Of course there are moral arguments but these apply far more widely than the cruise industry. Is it any different if you go and stay in a luxury hotel somewhere like India or Thailand? I'm guessing the conditions and wages there for "lowly" hotel service staff will also be extremely low by Western standards...

[Selbourne]

21 hours ago, wowzz said:

For those interested in budgets,  TA commissions etc, this may be of interest.  The figures may not be exact, but they make interesting reading.

https://thehustle.co/the-economics-of-cruise-ships/

I particularly liked the breakdown as to how much the cost of food was per passenger per week! 

Interesting. I was told some years ago that the profit on any cruise is generated from the last 10% of passenger bookings plus on board spend (the first 90% covering fixed and variable costs) and this article seems to support that. It rather scuppers the belief that cruise ships can still sail profitably with much reduced capacity (which I’ve never believed). And of course, therein lies the problem. If social distancing requirements necessitate a reduction of, say, 20% or more of normal passenger levels, it could well be better to just keep the ships mothballed. The other option is to up prices by 20% or more (which, looking at current prices, they might have already done) but that’s not sustainable long term for a market that has lost consumer confidence. 

[molecrochip]

15 hours ago, Selbourne said:

Interesting. I was told some years ago that the profit on any cruise is generated from the last 10% of passenger bookings plus on board spend (the first 90% covering fixed and variable costs) and this article seems to support that. 

This used to be correct however a 5000 passenger ship is not 2.5 times as expensive to run than a 2000 passenger ship.

 

Hence why running the Corporations biggest 25 ships will enable the company as a whole to break even with the other 70 in lay-up.

[Selbourne]

26 minutes ago, molecrochip said:

This used to be correct however a 5000 passenger ship is not 2.5 times as expensive to run than a 2000 passenger ship.

 

Hence why running the Corporations biggest 25 ships will enable the company as a whole to break even with the other 70 in lay-up.

Yes, I get the ‘economies of scale’ that the bigger ships generate, hence the ever increasing march towards them, but do you happen to know what the tipping point is, in terms of what reduction in passenger capacity they could sustain yet still make a profit?

[molecrochip]

Sorry Selbourne, no desire to teach you to suck eggs...

 

So a Britannia/Iona size ship can breakeven with about 35% capacity sold. This includes the relevant onboard spending of those passengers and assumes 35% across cabin types.

 

A ship like Aurora is closer to 60%.to breakeven. 

 

These numbers include contribution to shoreside/Corporation costs as these have no revenue stream of their own.

[terrierjohn]

2 minutes ago, molecrochip said:

Sorry Selbourne, no desire to teach you to suck eggs...

 

So a Britannia/Iona size ship can breakeven with about 35% capacity sold. This includes the relevant onboard spending of those passengers and assumes 35% across cabin types.

 

A ship like Aurora is closer to 60%.to breakeven. 

 

These numbers include contribution to shoreside/Corporation costs as these have no revenue stream of their own.

That should give you some comfort Selbourne, to know that we big ship cruisers have been subsiding your small ship fares for years.