Which Cruise Lines will do the best in the new normal?

[Roz]

2 hours ago, SelectSys said:

 

BTW - does anyone think that Virgin Cruises will be able to make it given they really entered full operations?

 

Did you intend to say they never really entered full operation?

 

I think Virgin is done before they got started.  Their ships have a lot of unique features, so if another line bought them they would have a lot of retrofitting to do.

[JRG]

5 hours ago, Hlitner said:

For about 2 months I have posted that there does not seem to be any science (or even studies) tying COVID case spread to buffets.  Nobody has yet to post anything to the contrary. 

 

Okay,  bolding here is mine.   Normally Hank I always enjoy your posts and realistic humor

 

Let me see if I can change your opinion on this one.

 

1) I agree with your statement but....don't you think it would also be nice to get rid of Novo at the same time though?

 

I mean you are right, but we might as well get rid of Novovirus because we do know scientifically that is is spread at the buffet like creamcheese on a bagel.

 

Getting rid of buffets  helps minimize the threat of NOVO too.

 

Do you see my point?  

Edited September 1, 2020 by JRG

[SelectSys]

29 minutes ago, Roz said:

 

Did you intend to say they never really entered full operation?

 

 

yes

[JRG]

12 minutes ago, JRG said:

Getting rid of buffets  helps minimize the threat of NOVO too.

 

Maybe get rid of the cruise crud thing too...

 

But back on topic,   I think market leaders with big balance sheets like Celebrity RCG will figure it out and do the best.

 

They will have a plan B for when the vaccine is available and a  Plan A for no vaccine  hope.

Edited September 1, 2020 by JRG

[Hlitner]

18 minutes ago, JRG said:

 

Okay,  bolding here is mine.   Normally Hank I always enjoy your posts and realistic humor

 

Let me see if I can change your opinion on this one.

 

1) I agree with your statement but....don't you think it would also be nice to get rid of Novo at the same time though?

 

I mean you are right, but we might as well get rid of Novovirus because we do know scientifically that is is spread at the buffet like creamcheese on a bagel.

 

Getting rid of buffets  helps minimize the threat of NOVO too.

 

Do you see my point?  

I do see your point and agree.  Noro is a big issue on cruise ships and experts have told us that the Lido buffets are part of the problem.  HAL is one line who has led the way with major modifications to its buffets.  That line used to have something they called "Code Orange" which was a practice followed the 2-3 days after embarkation which implemented many restrictions in its Lido.  About 3-4 years ago HAL modified its buffets to make a lot of those Code Orange procedures the norm.  One big change was to eliminate the traditional salad bar and replace it with salad stations where staff would make your salad to the passenger's specifications.  You simply tell the server what you want, how much, which dressing, etc.  They also pre-plated many items so that passengers could simply pick up a plate without ever having to share a serving utensil.  

 

Getting rid of buffets is certainly an option on the small ship luxury lines.  But it is not a reasonable option on mass market ships.  Replacing buffets with additional sit-down/served options is not possible with current staffing levels.  Adding a lot more staff would mean having to use more passenger cabins for staff which not only increases cost for extra staff but decreases revenue due to fewer passengers.  And consider how they would operate a 6000 passenger ship without buffets!  It is also not a good option for the restaurant industry which is already having its own economic depression.  No buffets means more servers and a lot more cost.  And this is not helped by the communities that have increased minimum wage to a point where restaurants where lower/moderate restaurants cannot afford to pay servers and still remain in business.  

 

My own prediction is that the entire restaurant industry is going to change in a big way.  High end restaurants will do fine.  Low end fast food places (i.e. McDonalds, Burger King, etc) will accelerate the replacement of human workers with robotics.  Most of the moderate priced sit-down restaurants are going to fail, especially in places where they are only permitted to operate at 50% of capacity if at all!  Consider that NYC, where COVID seems to be under control, has still banned any indoor dining.  This has caused over 20,000 restaurants (and over 350,000 jobs) to remain closed with thousands of permanent closures.  Several months ago I proposed that cruise lines and land-based restaurants might want to resurrect the old Automat model.

 

Hank

[cruisemom42]

22 hours ago, Flatbush Flyer said:

 

While mass market lines may be stuck with their orders for more monster ships, the premium/luxury lines are building much smaller ones (e.g., Oceania's two <1200 passenger Allura class ships or several other lines' expedition sized ships).

 

 

If smaller ships are so much more desirable, economically speaking, why is Oceania building 1200 passenger ships instead of additional 750 passenger ones?

 

[Flatbush Flyer]

2 hours ago, cruisemom42 said:

 

If smaller ships are so much more desirable, economically speaking, why is Oceania building 1200 passenger ships instead of additional 750 passenger ones?

 

By today's standards, 1200 is "small."

 

In any case, remember that O started with Renaissance's  "R" ships (<700 passenger) and added the 2 custom-built "O"'ships (approx 1200 passenger) which were ideal in all respects for the cruising profile sought by founders FDR and Bob Binder. 

 

During it's first decade of operation, the O passenger culture started developing "camps" of regular cruisers who clearly preferred the "R" (small, chic, intimate) or the "O" (small, but with added dining, a cooking school, etc.) ships.

 

Oceania's growth plan all along was the 1200 passenger ideal target (ergo, the 2 planned Allura Class ships). But, Oceania also quickly recognized the growing loyal "R" ship following and the increasing demand of other savvy cruisers to escape the floating amusement parks being built by the mass market lines. So, about 5 years ago, Oceania acquired the Ocean Princess (another <700 passenger "R" ship), poured $40 million into bringing it up to the Oceania standard - now cruising as Sirena.

 

And, while Oceania is working on the two Allura ships, it is also keeping the R ships front and center having already recently completed three of four complete interior makeovers at $25 million per ship. (Yes, small ships are still "IN.")

 

IMO,  a target fleet of four 700 passenger ships and four 1200 passenger ships is just perfect for Oceania. And, FWIW, you won't see the other long established premium/luxury lines looking to build any "big" ships either.

  

[cruisemom42]

10 hours ago, Flatbush Flyer said:

By today's standards, 1200 is "small."

 

In any case, remember that O started with Renaissance's  "R" ships (<700 passenger) and added the 2 custom-built "O"'ships (approx 1200 passenger) which were ideal in all respects for the cruising profile sought by founders FDR and Bob Binder. 

 

During it's first decade of operation, the O passenger culture started developing "camps" of regular cruisers who clearly preferred the "R" (small, chic, intimate) or the "O" (small, but with added dining, a cooking school, etc.) ships.

 

Oceania's growth plan all along was the 1200 passenger ideal target (ergo, the 2 planned Allura Class ships). But, Oceania also quickly recognized the growing loyal "R" ship following and the increasing demand of other savvy cruisers to escape the floating amusement parks being built by the mass market lines. So, about 5 years ago, Oceania acquired the Ocean Princess (another <700 passenger "R" ship), poured $40 million into bringing it up to the Oceania standard - now cruising as Sirena.

 

And, while Oceania is working on the two Allura ships, it is also keeping the R ships front and center having already recently completed three of four complete interior makeovers at $25 million per ship. (Yes, small ships are still "IN.")

 

IMO,  a target fleet of four 700 passenger ships and four 1200 passenger ships is just perfect for Oceania. And, FWIW, you won't see the other long established premium/luxury lines looking to build any "big" ships either.

  

 

You can say 1200 "isn't big" but that doesn't make it so just because other lines are building enormous ships of 6,000+.  I've spent most of my cruises over the last 10 years on a ship of ~320 passengers -- not exactly pulling at the bit to go on a ship with four times as many.

 

While O is willing to keep the "R" class going, for a while, I don't foresee them building new ships in that size range.  I have heard it from management aboard several cruise lines that while passengers prefer smaller ships, the larger, newer ones are simply more profitable due to the spread of fixed costs. However, I am sure you will say I've got it wrong. 

[Essiesmom]

26 minutes ago, cruisemom42 said:

 

You can say 1200 "isn't big" but that doesn't make it so just because other lines are building enormous ships of 6,000+.  I've spent most of my cruises over the last 10 years on a ship of ~320 passengers -- not exactly pulling at the bit to go on a ship with four times as many.

 

While O is willing to keep the "R" class going, for a while, I don't foresee them building new ships in that size range.  I have heard it from management aboard several cruise lines that while passengers prefer smaller ships, the larger, newer ones are simply more profitable due to the spread of fixed costs. However, I am sure you will say I've got it wrong. 

You haven't got  it wrong, but it is because the clients those mega ships are trying to attract can't afford the small ship prices, and probably want a more physically stimulating atmosphere than the mentally stimulating one of the smaller ships.  The smaller ship lines are profitable because they add the qualities the more affluent clients they want to attract at a higher price.  EM

[Flatbush Flyer]

50 minutes ago, cruisemom42 said:

 

You can say 1200 "isn't big" but that doesn't make it so just because other lines are building enormous ships of 6,000+.  I've spent most of my cruises over the last 10 years on a ship of ~320 passengers -- not exactly pulling at the bit to go on a ship with four times as many.

 

While O is willing to keep the "R" class going, for a while, I don't foresee them building new ships in that size range.  I have heard it from management aboard several cruise lines that while passengers prefer smaller ships, the larger, newer ones are simply more profitable due to the spread of fixed costs. However, I am sure you will say I've got it wrong. 

You are correct that, in the "old normal," MASS MARKET cruise lines expected to make more profit by building bigger ships filled with passengers for whom price is a critical element (perhaps even the only critical element). Those monstrosities allowed them to keep the fare low (but, of course, at the price of reduced quality).

 

On the other hand, premium/luxury lines have their own little "luxury" in that they can increase their prices in a market that can generally afford to pay it. And how do they keep that "market" engaged? They cater to folks that want smaller, more intimate ships with higher quality food, service, amenities, etc.

 

And, as aforementioned, the "new normal" will shape the future of mass market cruising in numerous ways - not the least of which is the inability of those mass market lines to turn a profit with mandated reduced ship capacity that, in turn, will require price hikes which will certainly be beyond the capacity of a critical mass of their existing clientele (who have lost jobs and/or otherwise need to make cruising a much lower or non-existent priority) to afford a cabin.

 

At the same time, premium/luxury lines will increase their prices (for all of the obvious reasons) and have a much easier time filling their much fewer/smaller ships with people who can afford it (in large part because enough of them are retired and minimally affected by the Covid economics).

 

So, no matter how you slice it or dice it, good old "supply/demand" will shape an obvious future for cruising where premium/luxury cruising will be the least affected (again, look at 2021/22 bookings on most of those ships).

Edited September 2, 2020 by Flatbush Flyer

[cruisemom42]

37 minutes ago, Flatbush Flyer said:

So, no matter how you slice it or dice it, good old "supply/demand" will shape an obvious future for cruising where premium/luxury cruising will be the least affected (again, look at 2021/22 bookings on most of those ships).

 

Bookings for 2021 and beyond are up for ALL lines, not just premium and luxury brands:

 

https://www.travelpulse.com/news/cruise/surprise-cruise-bookings-continue-to-rise-for-2021.html

 

And it is not all fueled by FCCs.

 

[Flatbush Flyer]

8 minutes ago, cruisemom42 said:

 

Bookings for 2021 and beyond are up for ALL lines, not just premium and luxury brands:

 

https://www.travelpulse.com/news/cruise/surprise-cruise-bookings-continue-to-rise-for-2021.html

 

And it is not all fueled by FCCs.

 

You gotta love the investor-appeasing doublespeak:

Royal Caribbean CFO Jason Liberty said in the call. “Since our last earnings call, bookings have averaged more than double the levels seen during the first eight weeks of the global cruise suspension.”

[Aquahound]

On 8/31/2020 at 10:04 PM, Flatbush Flyer said:

Not an opinion- rather, just common sense Econ. 101: Supply and Demand.

 

I understand supply and demand quite well.  However, common sense should also dictate that one's preferred cruise line does not conflate with survivability in an unprecedented health pandemic.  A person with common sense would have opinions in this matter, but can't possibly know the outcome.

[iancal]

We are not loyal to any one cruise line.  We know there will be changes.  Potentially to the on board environment and to the cruise lines themselves. 

 

 We do not care about supply demand.   Cruises are just one of our travel options.  If we believe, as we did with Med cruises last Oct, that prices are too high relative to value we simply extend our land trips.    If cruise lines want our future business, mass market or premium , they will have to be priced at a level that we are good with.  Otherwise...adios amigo.  We are certainly not going to pay more for any cruise than we think it is worth to us.

[Aquahound]

It should also be noted that NCLH (NCL, Oceania, Regent) is apparently placing their ships into cold storage.  That's mothballed in layman's terms, which is almost a complete shutdown (hence "cold").  Almost all crew is being sent home which is especially bad news because they will likely seek new employment.   Placing a ship into a laid up status and reducing crew below the statutory minimum suspends all class certifications.  In order to restart these ships, they must not only renew all certifications, they must complete a bottom survey.  That means drydock or in the case of newer ships, possibly by way of divers.  Between shut down costs and recertification/inspection costs, it'll likely be minimum $500k per ship.  

 

I anticipate cruise line loyalists spinning this in their loyalist ways.  There will be no surprises there.  But the truth is, this isn't good news.  It's another significant barrier with significant costs upon restart.  If I had cruises booked with those 3 lines, I'd be canceling now.  

 

Edited September 2, 2020 by Aquahound

[sanger727]

On 9/1/2020 at 11:17 AM, Flatbush Flyer said:

And YOU are very fortunate to still have an income. Many many many many others in the WORKING middle class are not in the same position and it will be a very very very very long time before they can again afford even an inexpensive cruise.

 

The terrible news for average wage earners criss crosses all current media. For example, https://www.pewsocialtrends.org/2020/04/21/about-half-of-lower-income-americans-report-household-job-or-wage-loss-due-to-covid-19/

 

https://www.brookings.edu/blog/up-front/2020/07/13/covid-19-job-and-income-loss-leading-to-more-hunger-and-financial-hardship/amp/

 

And yes, retirees (who make up a very large percentage of the premium/luxury segment demographic) are not without their own pandemic-related financial challenges. But I trust that enough of the regular travelers among them, whose pensions and savings (and even some investments) are remaining stable, will be able to return to cruising quickly - even with the inevitable higher fares necessitated by government mandated reductions in passenger loads as a Covid policy.

 

So, in the simplest supply/demand response to those posters who think mega ships will survive unscathed:

 

At a mandated 30% (for argument's sake) passenger reduction, a megaship might need 3500+ primarily middle class passengers paying eventually higher fares to break even while an R ship might need 450 primarily retired passengers (able to handle the higher fares) to "stay afloat."

 

We're not talking rocket science here.

 

I think your stereotype of a mass market cruiser is a bit off the mark. Your articles are centered primarily on the hardships experience by low income earners - which is now how I would categorize mass market cruisers. CLIA put out a report that the average cruiser's income is 90,000 a year - certainly not in the "low income" category. Maybe not high enough to want to blow tens of thousands on a luxury line. But certainly enough to pay their bills, have some savings, be able to afford vacation every so often, and I don't think COVID has fundamentally changed that. Yes, occasionally people on here post about the need to stretch to afford a cruise vacation or finance it; but that is the overwhelming minority. I don't think I recall seeing a single post recently about someone saying finances were discouraging them from booking at this point - mostly people who can't wait to get back on the ship and people who want to wait until there's a vaccine.... 

[Flatbush Flyer]

10 minutes ago, sanger727 said:

 

I think your stereotype of a mass market cruiser is a bit off the mark. Your articles are centered primarily on the hardships experience by low income earners - which is now how I would categorize mass market cruisers. CLIA put out a report that the average cruiser's income is 90,000 a year - certainly not in the "low income" category. Maybe not high enough to want to blow tens of thousands on a luxury line. But certainly enough to pay their bills, have some savings, be able to afford vacation every so often, and I don't think COVID has fundamentally changed that. Yes, occasionally people on here post about the need to stretch to afford a cruise vacation or finance it; but that is the overwhelming minority. I don't think I recall seeing a single post recently about someone saying finances were discouraging them from booking at this point - mostly people who can't wait to get back on the ship and people who want to wait until there's a vaccine.... 

If I remember correctly the CLIA $90k figure was family (not individual) income. In any case, a Covid (or post-Covid "recovery") dent in that income will most likely reduce the overall numbers in mass market cruising - more so than in the premium/luxury (which will still not have to fill as many berths per ship as their mass market counterparts).

Put another way: the mass market ships face the double whammy of needing the most passengers (many with less money) while the premium/luxury ships will only need to raise prices (which the bulk of their demographic will still be able to afford).

And, let's think about things like the recent outside cash infusion to NCLH. If the "sh*t hits the fan," which ships will their creditors want (based on ability to revive their profitability)? I'm betting it will be the relatively small premium/luxury ships. 

Which ships would YOU want in a default?

[sanger727]

5 minutes ago, Flatbush Flyer said:

If I remember correctly the CLIA $90k figure was family (not individual) income. In any case, a Covid (or post-Covid "recovery") dent in that income will most likely reduce the overall numbers in mass market cruising - more so than in the premium/luxury (which will still not have to fill as many berths per ship as their mass market counterparts).

Put another way: the mass market ships face the double whammy of needing the most passengers (many with less money) while the premium/luxury ships will only need to raise prices (which the bulk of their demographic will still be able to afford).

And, let's think about things like the recent outside cash infusion to NCLH. If the "sh*t hits the fan," which ships will their creditors want (based on ability to revive their profitability)? I'm betting it will be the relatively small premium/luxury ships. 

Which ships would YOU want in a default?

 

I don't think it will be anywhere near as dramatic as you think. $90,000 is still not low income as a household income. I've had no post covid income dent and I think the true holds for many professionals. Will there be some sure; but how will that compare to the dent in the luxury lines of the seniors they rely on not wanting to jump back into cruising right away for health concerns. May be a wash. The mass market lines have sold some ships and will probably re-enter the market slowly so they if before they could fill 10 ships at 4,000 per; now they may only be trying to fill 3 or 4 ships at 2 or 3,000 per. So they can have a 70% customer drop and still be full.

[davekathy]

On 8/31/2020 at 12:57 PM, SelectSys said:

My own guess is that MSC will come out of the COVID-19 crisis stronger than any other line.  Private ownership and an enormous freight business give them an edge in my mind.   Who do you think will be, relatively speaking, a winner and why?  Conversely, which lines or types of cruise lines are likely to not fare as well?  Again, this is all relative.

My Magic 8 Ball says, "cannot predict now". 🎱

[SelectSys]

3 hours ago, iancal said:

...

 We do not care about supply demand.   Cruises are just one of our travel options.  If we believe, as we did with Med cruises last Oct, that prices are too high relative to value we simply extend our land trips.    If cruise lines want our future business, mass market or premium , they will have to be priced at a level that we are good with.  Otherwise...adios amigo.  We are certainly not going to pay more for any cruise than we think it is worth to us.

 

Your perspective seems in line with classic economic principles.  All consumers have a price at which they are willing to purchase a good.  The lower the price, the more the good is demanded by the market.  Same on the supply side except in reverse where high prices stimulate supply.

 

You bring up a good point in terms of "substitute goods."  The underlying good you are consuming is travel and cruises are just one means of achieving that end.  The existence of a ready substitutes may serve to keep a check on the prices as well as shrink the market for cruises even more.  Look at this link and substitute cruises for apple and land travel for android if you are interested in seeing an illustration of the effects of substitutes:

https://www.economicshelp.org/blog/glossary/substitute-goods/

 

BTW - I am in your camp as well.  If the price is too high, I am not going.  If the price is much higher than before, I may go occasionally but will seek travel alternatives.  

 

1 hour ago, sanger727 said:

...Yes, occasionally people on here post about the need to stretch to afford a cruise vacation or finance it; but that is the overwhelming minority. I don't think I recall seeing a single post recently about someone saying finances were discouraging them from booking at this point - mostly people who can't wait to get back on the ship and people who want to wait until there's a vaccine.... 

 

I think the cruise critic posters largely (not in all cases) live like they were raised in "Lake Wobegon" as most seem above average in terms of resource availability.

 

39 minutes ago, davekathy said:

My Magic 8 Ball says, "cannot predict now". 🎱

 

Some people are making their bets now on who is going to do well going forward.  It seems that the market may believe that RCCL is a bit stronger relative to their competitors.  I would leave it to a market watcher to say if my hunch is correct.  

 

BTW - The Carnival dividend yield seems crazy high at 12%.  I thought RCCL seemed rich at 4.5%.  Carnival must be going to cut the dividend as they have no earnings and taking on debt to fund dividends doesn't seem to be a "prudent" use of funds.

 

RCCL:

 

NCL:

 

Carnival:

Edited September 2, 2020 by SelectSys

[jocap]

My guess is that Celestyal and Fred Olsen will do well... Celestyal has bought a Costa ship, and Fred O has bought two HAL ships, and all three are being refurbished ready for spring cruising.  Small, mass market,  not very expensive, and not owned by the large cruise lines.

[iancal]

Not to worry, I passed Eco 101, 201, 303 in uni and I spent many years in business at the pointy end.

 

We travel frequently since retiring.  Six stars to no stars.   Business class to cattle class.   Cruises to ferrys.   Whatever it is we want to get the best price we can.      We travel internationally about four months a year.  Saving ten, fifteen, twenty percent, some times more, by booking late on these travel expenses can really add up.  Especially accommodation and cruises.w

 

 We establish a buy price for a cruise inside the final payment window.  We follow 2 or 3 ships.  IF our price hits, we book.  If not, we carry on with our land travels.

Edited September 2, 2020 by iancal

[SelectSys]

43 minutes ago, iancal said:

 

We travel frequently since retiring... We travel internationally about four months a year.  Saving ten, fifteen, twenty percent, some times more, by booking late on these travel expenses can really add up.  Especially accommodation and cruises.

 

 We establish a buy price for a cruise inside the final payment window.  We follow 2 or 3 ships.  IF our price hits, we book.  If not, we carry on with our land travels.

 

I hope to execute on your strategy when I retire.  Being willing to be flexible is always a plus in terms of getting the best deal!

 

My retirement is on hold pending some clarity on COVID-19 and the reopening of travel more generally.  I figure I might as well work if I am stuck at home anyways.

[bigrednole]

11 hours ago, SelectSys said:

BTW - The Carnival dividend yield seems crazy high at 12%.  I thought RCCL seemed rich at 4.5%.  Carnival must be going to cut the dividend as they have no earnings and taking on debt to fund dividends doesn't seem to be a "prudent" use of funds.

All dividends on cruise stocks are halted. It will be a long while before dividends come back. That money will be used to pay off debt incurred. But, those loading up on shares at low prices will reap the benefits in 2-3 years. RCCL will get back to the $110s. CCL and NCLH will get back to the $50s. I rode my plays for a very nice return so far on all 3 of them. I dumped RCCL because the long term gains will be lower: 100% return in the next 2-3 years. But, RCL and NCLH will see 200% when they return. My predictions in this whole mess:

 

1. RCL buying out NCLH. It may be bold, but at such a low price point, it may be possible. I am not sure they would want to, but it would be bold. As much as I dislike Apple, I always thought they should have bought out Disney when their stock went to $100.  
2. All 3 return to pre-covid levels by 2023. It is not unlikely and most debt will be covered. This assumes cruising starts in early 2021. If I told you that you could double or triple your money in 3 years, would you be all over it? I know my retirement accounts will love it and what I make will allow me to cruise 12x a year if I so choose.In 3 years, the cruise stocks will be more than 50% of my portfolio if they go back to pre-covid levels. 
3. By end of the year, RCL @ $75, NCLH @ $30, CCL @ $30. This is because of the success of MSC, soon others, and a vaccine required in the US. 

[iancal]

Cruise lines get rid of older smaller ships when then fail to meet corporate revenue and profit goals or because the capital investment required over the next few years is not justified by their profitablity.

 

Some HAL cruisers like to wax poetic about how profitable and how wonderful these smaller ships are.  This is not so much about small ships as it is about these ships and perhaps how HAL was marketing and operating them.  Same for some of the other mass market cruise lines.

 

The fact that the first five ships to go, P'dam and the other four, speaks volumes about how profitable they really were and about HAL's longer term commitment to them.  This is all about business, return on equity etc.

 

Bottom line for these five ships was that they  no longer had economic value to HAL and HAL shareholders.  It was more advantageous to HAL to dispose of them rather than operate them.   That does not mean that smaller cruise lines with more focus, more agility, and a clear marketing strategy could not make a go of these ships for more years.  It only means that HAL could not.

 

Covid may have moved the fleet departure time frame up for these  ships but the writing was on the wall.

Edited September 3, 2020 by iancal