CCL Slows Ship Construction

[jsglow]

2 minutes ago, shof515 said:

i think a big issue with older ships overall is the fuel consumption. Newer ships is more fuel efficient with using less fuel overall. with using less fuel there is some cost savings

 

its like having a car with 10 mpg replacing it with a new car with that gets 15-18 mpg

There is NO Doubt that all the new builds are more efficient money makers with more $ coming in than going out relatively speaking.

[Joebucks]

12 minutes ago, jsglow said:

Can't possibly be.  Think of the navy.  WWII battleships (Wisconsin and Iowa) were in full combat service in the Gulf War 50 years after their keels were laid. The Wisconsin wasn't stricken until 2006; 65 years of proud service.  And trust me, they had been 'Sunshined' with cruise missiles and a hundred other weapons beyond their original 16in guns.

 

Sunrise's retrofit was $200MM. A new Excellence is over $1B.  That's a lot of steel plate welds and dry dock inspection costs.  Ships don't get cut up at 25 years because they're 'old'.  They get cut up because they're 'obsolete'.  See the old balcony-less Fantasy Class for reference. Heck, I think the old Holiday was sailing for someone until the pandemic.

 

I have incredibly high regard for chief.  But maritime engineers spent millions assessing the Sunshining initiative before a cutting torch ever touched any of those ships.

 

I'm certainly no expert on cruise ships. So someone correct me if I'm wrong. However, I don't believe the battleships had 15+ levels to them. These monsters require a different level of structural integrity.

[mz-s]

53 minutes ago, jsglow said:

Can't possibly be.  Think of the navy.  WWII battleships (Wisconsin and Iowa) were in full combat service in the Gulf War 50 years after their keels were laid. The Wisconsin wasn't stricken until 2006; 65 years of proud service.  And trust me, they had been 'Sunshined' with cruise missiles and a hundred other weapons beyond their original 16in guns.

 

Sunrise's retrofit was $200MM. A new Excellence is over $1B.  That's a lot of steel plate welds and dry dock inspection costs.  Ships don't get cut up at 25 years because they're 'old'.  They get cut up because they're 'obsolete'.  See the old balcony-less Fantasy Class for reference. Heck, I think the old Holiday was sailing for someone until the pandemic.

 

I have incredibly high regard for chief.  But maritime engineers spent millions assessing the Sunshining initiative before a cutting torch ever touched any of those ships.

 

Yes I think besides COVID, the fact that there are few balconies and suites on Fantasy class ships is why they have all been sold off at or around their 30 year mark to this point. Few balconies and suites, and no opportunity to add specialty dining other than Chef's Table really makes the Fantasy class functionally obsolete.

 

52 minutes ago, shof515 said:

i think a big issue with older ships overall is the fuel consumption. Newer ships is more fuel efficient with using less fuel overall. with using less fuel there is some cost savings

 

its like having a car with 10 mpg replacing it with a new car with that gets 15-18 mpg

 

I think today it is more fuel per passenger than it is fuel per mile, that is one reason why the bigger ships are more economical for the lines. Celebration probably burns more fuel than Conquest, but it uses less fuel per passenger for a given distance so it evens out. And the larger ships can hold twice the guests but don't require twice the crew.

[cjknox]

Interesting topic. 

 

From a pure hardware standpoint Carnival made the mistake of taking a conservative route by building Destiny class variants from 2002-2019 (Conquest, Splendor, Dream, Vista classes). That's nearly 20 years of essentially the same design. Mardi Gras was really the first groundbreaking Carnival design since Destiny or Spirit. If Mardi Gras came out in 2009 instead of Dream, Carnival would be in a more competitive position.

 

Other competitors like Royal were consistently pushing the envelope with each new class (Freedom, Oasis, Quantum) giving them a more unique (competitive) fleet mix.

 

Carnival will likely do a combination of three things in response:

 

1) Further refurbishments for vessels they plan to keep for >5 years.

2) Bring newer hardware from other lines (Costa, Aida).

3) Competitive newbuilds.

Edited December 27, 2022 by cjknox

[BlerkOne]

35 minutes ago, cjknox said:

Interesting topic. 

 

From a pure hardware standpoint Carnival made the mistake of taking a conservative route by building Destiny class variants from 2002-2019 (Conquest, Splendor, Dream, Vista classes). That's nearly 20 years of essentially the same design. Mardi Gras was really the first groundbreaking Carnival design since Destiny or Spirit. If Mardi Gras came out in 2009 instead of Dream, Carnival would be in a more competitive position.

 

Other competitors like Royal were consistently pushing the envelope with each new class (Freedom, Oasis, Quantum) giving them a more unique (competitive) fleet mix.

 

 

From a business standpoint, Carnival's approach is superior. Cookie cutter ships enabled Carnival to have economies of scale on their side and lower hotel maintenance costs. It's a competitive advantage.

[icft]

5 hours ago, shof515 said:

i think a big issue with older ships overall is the fuel consumption. Newer ships is more fuel efficient with using less fuel overall. with using less fuel there is some cost savings

 

its like having a car with 10 mpg replacing it with a new car with that gets 15-18 mpg

I'm not so sure. I think Carnival is regretting making their new ships run on LNG.

 

In May of 2020 LNG was $2 per mmBtu. Now it is around $34 per mmBtu. Will it stay that way? Who knows.

 

The key is cost of fuel per passenger mile. For all I know the cost per passenger mile for small old ships burning marine diesel is now less than the cost per passenger mile for big shiny new ships burning LNG.

[BlerkOne]

Even MSC's new ship Europa is LNG powered

[notscb]

1 hour ago, icft said:

I think Carnival is regretting making their new ships run on LNG.

 

I understand what you're saying, but I doubt they're "regretting" it as RCL (and as another commenter mentioned, MSC) both have new ships that are LNG-powered. It's where the cruise industry is heading (unfortunately, really- from what I understand, LNG isn't much more economical nor is it much more environmentally friendly as the lines make it seem to be).

[DirtyDawg]

5 hours ago, BlerkOne said:

From a business standpoint, Carnival's approach is superior. Cookie cutter ships enabled Carnival to have economies of scale on their side and lower hotel maintenance costs. It's a competitive advantage.

Interesting. While I agree economies of scale are important but costs are only one side of the comparative advantage equation. The other is revenue. I might have EOS in making widgets and can produce them for $10 each vs. a less comparative producer whose cost to produce might be $12. Let's assume both me and my competitor have exactly the same capital structures so relative returns are not affected by financial leverage. If I can only sell my widgets at $15 vs. $20 for my competitor, my business strategy might not produce superior economic performance. 

 

Do you have any numbers that show Carnival's approach is superior? Profit/cash flow per square foot? Per passenger day? ROA?  Another metric? I have never bothered to look into this question for cruise companies so any numbers would help. Thanks. 

[ontheweb]

13 hours ago, BlerkOne said:

Easy enough to google. E.G.

https://www.travelweekly.com/Cruise-Travel/Carnival-Sunshine-was-set-back-by-vandalism-reveals-CEO

 

 

Why should I bother with google, when I can just ask you, the total expert of what is right with Carnival?

[Palmetto Pilot]

12 hours ago, jsglow said:

Can't possibly be.  Think of the navy.  WWII battleships (Wisconsin and Iowa) were in full combat service in the Gulf War 50 years after their keels were laid. The Wisconsin wasn't stricken until 2006; 65 years of proud service.  And trust me, they had been 'Sunshined' with cruise missiles and a hundred other weapons beyond their original 16in guns.

 

This is ridiculous comparison. Steel vs Aluminum, armor, structural integrity, ability to take battle damage. Warships are not built like cruise ships whatsoever. 

[mz-s]

7 hours ago, BlerkOne said:

From a business standpoint, Carnival's approach is superior. Cookie cutter ships enabled Carnival to have economies of scale on their side and lower hotel maintenance costs. It's a competitive advantage.

 

It's a competitive advantage until you have the CEO announcing that we're too cheap and have to raise prices because you're unprofitable, but except for your absolute newest ships your product is stale, your ships are old and outmoded, and you have the reputation of being the Dollar General of the industry.

[jsglow]

2 hours ago, Palmetto Pilot said:

This is ridiculous comparison. Steel vs Aluminum, armor, structural integrity, ability to take battle damage. Warships are not built like cruise ships whatsoever. 

I was simply making the point that cruise ships (or any ship for that matter) become financially obsolete LONG before the become structurally unsound and too expensive to maintain. The 'ancient' Carnival Holiday ably served from 1985-2020.

[jsglow]

2 hours ago, mz-s said:

 

It's a competitive advantage until you have the CEO announcing that we're too cheap and have to raise prices because you're unprofitable, but except for your absolute newest ships your product is stale, your ships are old and outmoded, and you have the reputation of being the Dollar General of the industry.

Again, Mz, he can say what he wants to Wall Street. Doesn't make it true. Carnival Corp will necessarily need to be the price leader.  Now we know from your history that you don't like the product anymore.  If too many people agree, they'll have big trouble on their hands.

[jsglow]

3 hours ago, DirtyDawg said:

Interesting. While I agree economies of scale are important but costs are only one side of the comparative advantage equation. The other is revenue. I might have EOS in making widgets and can produce them for $10 each vs. a less comparative producer whose cost to produce might be $12. Let's assume both me and my competitor have exactly the same capital structures so relative returns are not affected by financial leverage. If I can only sell my widgets at $15 vs. $20 for my competitor, my business strategy might not produce superior economic performance. 

 

Do you have any numbers that show Carnival's approach is superior? Profit/cash flow per square foot? Per passenger day? ROA?  Another metric? I have never bothered to look into this question for cruise companies so any numbers would help. Thanks. 

Fantastic analysis Dawg. It's a very complicated financial puzzle. High cap ex, lots of new debt, higher prices and probably better 'spend v. operating cost' per pax vs. low cap ex., existing debt, lower prices, etc.  There's also the 'wow' factor that can't really be duplicated (although Duffy is going to 'try' with her ball drop on NYE).

 

I think this has been an interesting discussion.  We're right in my professional wheelhouse as a financial restructuring expert although I admittedly know nothing about the inner workings of the cruise industry. Time will tell with these various approaches. 

[BlerkOne]

15 minutes ago, jsglow said:

Again, Mz, he can say what he wants to Wall Street. Doesn't make it true. Carnival Corp will necessarily need to be the price leader.  Now we know from your history that you don't like the product anymore.  If too many people agree, they'll have big trouble on their hands.

Whatever they file with the SEC had better be true. And an earning call generally follows after earnings reports are filed.

 

Debtors and potential debtors are listening.

[mz-s]

19 minutes ago, jsglow said:

Again, Mz, he can say what he wants to Wall Street. Doesn't make it true. Carnival Corp will necessarily need to be the price leader.  Now we know from your history that you don't like the product anymore.  If too many people agree, they'll have big trouble on their hands.

 

The CEO can't lie to investors. That's a big no-no, like federal prison no-no.

 

And it's true that Carnival isn't my first choice in cruises anymore. But I still cruise Carnival. I just don't blindly accept all their changes and choices or shrug off all their cutbacks as "well at least I'm on a cruise and not in the office". I work hard for my vacation dollars and want to get the most out of them I can. Sometimes that means spending a little more of them on higher quality cruises.

[BlerkOne]

4 hours ago, DirtyDawg said:

Do you have any numbers that show Carnival's approach is superior? Profit/cash flow per square foot? Per passenger day? ROA?  Another metric? I have never bothered to look into this question for cruise companies so any numbers would help. Thanks. 

One number is cost per lower berth. You can look up and compare the build costs of the various ships. Carnival's cookie cutter approach had a lower build cost compared to custom one off designs. Interchangeable parts result in lower inventory costs and maintenance costs. When ships are similar, there are lower training costs and easier to shift personnel from ship to ship. The list goes on.

[BlerkOne]

21 minutes ago, jsglow said:

 There's also the 'wow' factor that can't really be duplicated (although Duffy is going to 'try' with her ball drop on NYE).

It also can't be quantified. But I do think it is a slippery slope as far as what do they (or the competition) do next to top it? Not to mention wow factors are really fleeting moments.

 

Millions will see the ball drop. Probably not a wow moment, but that isn't how most advertising works. Carnival will have to follow up but it sounds like they have a strategy.

[jsglow]

22 minutes ago, mz-s said:

 

The CEO can't lie to investors. That's a big no-no, like federal prison no-no.

 

It's not lying to say your goal is to raise prices. Pulling that off is another thing.

[DirtyDawg]

1 minute ago, jsglow said:

It's not lying to say your goal is to raise prices. Pulling that off is another thing.

Also, even 'facts' like earnings are subject to interpretation. My old accounting prof use to say cash flows are facts, net earnings are just an opinion. (yes, he ripped off somebody who said this earlier) 😉

[jsglow]

8 minutes ago, DirtyDawg said:

Also, even 'facts' like earnings are subject to interpretation. My old accounting prof use to say cash flows are facts, net earnings are just an opinion. (yes, he ripped off somebody who said this earlier) 😉

I've had my documents be part of earnings announcements so I know how it goes.  👍

[staceyglow]

4 minutes ago, DirtyDawg said:

Also, even 'facts' like earnings are subject to interpretation. My old accounting prof use to say cash flows are facts, net earnings are just an opinion. (yes, he ripped off somebody who said this earlier) 😉

If earnings numbers are calculated using Generally Accepted Accounting Principles and are signed off on by a reputable CPA firm, they are facts. All data of any kind is subject to interpretation. 

[ontheweb]

57 minutes ago, jsglow said:

It's not lying to say your goal is to raise prices. Pulling that off is another thing.

And yet another thing is pulling it off without unforeseen consequences, for instance causing demand to go down.

[DirtyDawg]

53 minutes ago, jsglow said:

I've had my documents be part of earnings announcements so I know how it goes.  👍

👍 I was on the buy side managing pension and mutual funds for most of my investment career so me and my analysts had the pleasure of regularly interpreting company's 'opinions'.