Fuel Surcharges

[Fouremco]

With the skyrocketing price of fuel, which will only get worse on the heels of President Biden's decision to ban Russian oil, we are now starting to see press coverage of the concern that many of us have had over the past couple of weeks:

 

https://www.thestreet.com/investing/royal-caribbean-carnival-norwegian-fuel-surcharge-oil

[canadianbear]

I seem to remember when we first started cruising there was a surcharge but hasn’t been for years now.  

[broberts]

Undoubtedly fuel charges will reappear. I don't believe the contract wording permitting the charge has ever been removed. So the charge could be levied immediately without notice.

[ski ww]

With the price of crude predicated to go even higher it should be no surprise when the cruise lines start charging the fuel surcharge.

[ALD18]

And probably the airlines in one form or another

[RickT]

Fully understandable.

 

Hopefully the conflict in Ukraine is over soon however based on countries now choosing to refuse Russian oil I suspect high gas/oil prices to remain for quite some time.

[cmich068]

I believe broberts is correct in that most lines do still have the language in their contracts allowing them to impose at any time. 

 

But they have also chosen not to reimpose them in the past during spikes. Ultimately they need to make a business decision in doing so and the cost of fuel is only one input. If bookings are strong, less of a concern, if bookings are still soft they may not want to further impact them by raising fares/surcharges etc. 

 

All this to say, I wouldn't be surprised if they do, but I wouldn't be surprised if they don't. 

Edited March 9, 2022 by cmich068

[Fouremco]

9 minutes ago, cmich068 said:

But they have also chosen not to reimpose them in the past during spikes.

On the other hand, past spikes occurred at a time when cruise lines' profits were up and they could afford to absorb the relatively small financial hit. Now we are seeing a record breaking spike following on the heels of the worst two consecutive years financially for the cruise lines, some of them barely able to survive. I expect that the combined financial pressures will result in the lines imposing the surcharge this time around, probably in the very near future.  

[cmich068]

3 minutes ago, Fouremco said:

On the other hand, past spikes occurred at a time when cruise lines' profits were up and they could afford to absorb the relatively small financial hit. Now we are seeing a record breaking spike following on the heels of the worst two consecutive years financially for the cruise lines, some of them barely able to survive. I expect that the combined financial pressures will result in the lines imposing the surcharge this time around, probably in the very near future.  

 

Absolutely correct.

 

But you still need to weigh it against the potential for cancellations, especially given the flexible cancellation policies the lines have put in place to overcome COVID hesitancy. If occupancy is already soft and adding a surcharge to existing bookings drives some of those bookings to cancel it may not be worth it to lose that onboard spend potential. Might be better to just boost base fares for new bookings instead.

 

Anyways that's why the cruise lines pay a bunch of people to sit around a boardroom table in Miami and figure this stuff out, way above my pay grade!

[Fouremco]

26 minutes ago, cmich068 said:

 

Absolutely correct.

 

But you still need to weigh it against the potential for cancellations, especially given the flexible cancellation policies the lines have put in place to overcome COVID hesitancy. If occupancy is already soft and adding a surcharge to existing bookings drives some of those bookings to cancel it may not be worth it to lose that onboard spend potential. Might be better to just boost base fares for new bookings instead.

 

Anyways that's why the cruise lines pay a bunch of people to sit around a boardroom table in Miami and figure this stuff out, way above my pay grade!

While we wait for those in the boardroom to make their decision, let me say that I don't think the soft occupancy that we have witnessed during the pandemic was because of pricing. I'd opine instead that it has to do with the fear of COVID, dislike of the health protocols, and itinerary limitations. I doubt that a $9 or $10 per day surcharge would lead to a flood of cancellations.

 

Changing subjects briefly, C.A.R.T. dissolved way back in 2003. Time for you to fly a new flag! 😇

 

 

[cheese please]

Small price to have to pay if it means sticking it to Russia and helping Ukraine

[DirtyDawg]

From Royal's press release on Feb. 4th regarding their 2021 results;

"Fuel Expense

Bunker pricing net of hedging for the fourth quarter was $549 per metric ton and consumption was 303,000 metric tons.

As of December 31, 2021, the company had hedged approximately 54% and 15% of its total projected metric tons of fuel consumption for all of 2022 and 2023, respectively. For all of 2022 and 2023, the annual average cost per metric ton of the fuel swap portfolio is approximately $490, and $515, respectively. 

Based on current fuel prices, the company expects approximately $206 million of fuel expense in its first quarter 2022 at an average pricing of $615 per metric ton net of hedging."

 

I am not sure about RCL's fuel mix but the Global average bunker spot price was over $900 per metric ton recently, up from $654 at the start of the year. RCL's hedges are mostly swaps so, with my understanding of interest rate and currency swaps, means that the counterparties are locked-in. I'm sure the new hedging positions RCL are putting on for late 2022 and 2023 will be at higher prices than their current ones. How much more? Time will tell. 

 

As @cheese please said, if the cruise lines do add on a fuel surcharge, its a small price to pay if it means sticking it to Russia and helping Ukraine.

[A&L_Ont]

The other item that I haven’t heard mentioned, is the price increase of food. I’m sure it is buried into the cruise cost, but even that would have gone up for fuel delivery let alone the actual price of the goods. 

[CKCruising]

I remember the last set of fuel surcharges circa the late 2000s.  I think they added the charge to your cruise and if the price was below a certain amount the quarter before your cruise, it was waived.  I think that amount was $60 or $70 a barrel...lol

[Been There, Planning That]

2 hours ago, CKCruising said:

I remember the last set of fuel surcharges circa the late 2000s.  I think they added the charge to your cruise and if the price was below a certain amount the quarter before your cruise, it was waived.  I think that amount was $60 or $70 a barrel...lol

We'd booked a Mediterranean cruise during this time period and at the time of booking the cruise fare included a fuel surcharge and was clearly identified as such.  

 

We book early and before sailing, and after final payment,  the surcharge was lifted and the amount we'd paid was returned - as an OBC I seem to recall.

 

Ruth