Finance geeks

[Mary229]

This fascinating YouTube video breaks down what it costs to operate a cruise ship and why a room is cheaper on a ship than at a hotel. 
He also shows the stats that a cruise ship has a 7 year payout 
 

https://youtu.be/9z0WHpTU_94?si=40bVTby8ZE4lSH-T

Edited April 7 by Mary229

[ski ww]

Interesting.

[Gail & Marty sailing away]

Thanks for sharing.

[LocoLoco1]

So… WHY has HAL cut back so drastically on things such as Piano Players, Poolside attendants for Water Aerobics…skimpier Dinner entree, etc. Are they still that $BROKE$ or are competitors forcing Fare cuts??  Post-Covid HAL is anemic once you’re aboard and forego Pinnacle Dining and Penthouse upgrades. Whyso??

[mcrcruiser]

16 hours ago, Mary229 said:

This fascinating YouTube video breaks down what it costs to operate a cruise ship and why a room is cheaper on a ship than at a hotel. 
He also shows the stats that a cruise ship has a 7 year payout 
 

https://youtu.be/9z0WHpTU_94?si=40bVTby8ZE4lSH-T

Thanks Mary .We found this viseo & other of their videos quite interesting . Definitely worth watching their videos for future cruising 

[Eric from San Diego]

The reason a cruise room is cheaper than at a hotel is that the employees are paid $600 per month and work 12 hours a day 7 days a week.  You go to Vegas or Hawaii and the employees are Americans paid $2000 - 3000 per month and work 8 hours per day 5 days per week.   

 

If you go to a resort in the Philippines you can get luxury hotel room for $125 per night and the food is cheap too.  

 

 

[TRLD]

3 hours ago, LocoLoco1 said:

So… WHY has HAL cut back so drastically on things such as Piano Players, Poolside attendants for Water Aerobics…skimpier Dinner entree, etc. Are they still that $BROKE$ or are competitors forcing Fare cuts??  Post-Covid HAL is anemic once you’re aboard and forego Pinnacle Dining and Penthouse upgrades. Whyso??

I suspect more because they needed the crew berths for another function. One of a ships biggest limitations is the number of crew cabins/berths.

 

While expenses can be increased, rather hard to change the number of crew cabins.

Edited April 8 by TRLD

[TRLD]

19 hours ago, Mary229 said:

This fascinating YouTube video breaks down what it costs to operate a cruise ship and why a room is cheaper on a ship than at a hotel. 
He also shows the stats that a cruise ship has a 7 year payout 
 

https://youtu.be/9z0WHpTU_94?si=40bVTby8ZE4lSH-T

Pretty easy to generate this for each of the 3 US cruise holding companies  The SEC filings contain sufficient information to look at both revenue and expenses per passenger per day. Very interesting to look at that data vs pre Covid as well as trends over time.

[TRLD]

1 hour ago, Eric from San Diego said:

The reason a cruise room is cheaper than at a hotel is that the employees are paid $600 per month and work 12 hours a day 7 days a week.  You go to Vegas or Hawaii and the employees are Americans paid $2000 - 3000 per month and work 8 hours per day 5 days per week.   

 

If you go to a resort in the Philippines you can get luxury hotel room for $125 per night and the food is cheap too.  

 

 

Not quite. The income on board is higher and most contracts cap hours at 75 hours per week, not 84. Most are under the 75 hour cap more like 65 to 70. In addition the salary portion is supplemented by the gratuity allocation. Considering the room, board and medical the crew members are probably doing better than the basic hotel service staff. Especially related to the incomes in their home countries.

 

 

Edited April 8 by TRLD

[chengkp75]

1 hour ago, Eric from San Diego said:

The reason a cruise room is cheaper than at a hotel is that the employees are paid $600 per month and work 12 hours a day 7 days a week.  You go to Vegas or Hawaii and the employees are Americans paid $2000 - 3000 per month and work 8 hours per day 5 days per week.   

 

If you go to a resort in the Philippines you can get luxury hotel room for $125 per night and the food is cheap too.  

 

 

Your facts are not quite correct.  The $666/month is the minimum wage for seafarers, and is based on a 40 hour work week.  Hours in excess of 40/week have to be paid at 125% of the base wage ($3.84/hour base x 125% = $4.80/hour overtime).  So, given that the average cruise ship crew works about 90 hours/week, that is around $1500/month.  Both you and TRLD are somewhat correct about the hours worked.  Cruise lines can choose to adopt either the STCW "work hours" regime, or the STCW "rest hours" regime.  The "work hours" says a maximum of 10 hours per day of work, while the "rest hours" regime says that the crew must have a minimum of 77 hours rest in any 7 day period (or 90 hours of work).  So, the deck and engine departments will work about 84 hours/week, while the hotel crew will work between 84-90 hours/week.  Regardless, each crew member is paid for each hour worked, whether at base wage or overtime, even though it does not show on their contract or pay voucher as being "per hour", it is calculated by the cruise line into a monthly salary based on how many hours of work are specified in the contract.

 

The salary calculation is not "supplemented" by the daily gratuity, the DSC is factored in as a part of the monthly salary.  This is specified in the crew's contract as their salary is made up by X% salary, and X% DSC.  And, until the removal of DSC drops the monthly salary below the minimum of $666, the cruise line does not have to make up the difference.

 

I didn't find anything new in the video, as it has been known in the industry for decades that the cruise fare basically covers the ship's operating expenses, and the profit comes from "onboard revenue".  And, as the writer says, the "economies of scale" are what is driving the cruise lines to larger and larger ships.

[chengkp75]

44 minutes ago, TRLD said:

Considering the room, board and medical the crew members are probably doing better than the basic hotel service staff.

The room and board issue comes up every time crew compensation is discussed.  Unless the crew member is single, and living with his/her parents, then he/she has an apartment or home that is either unoccupied, or occupied by the crew member's family, while the crew member is on the ship, so they are still paying rent/mortgage while on the ship, and if they have a family, they are still paying for utilities and food while on the ship.  As for medical, that only applies to the crew member, not family, nor to the crew member when not on the ship.

[TRLD]

Just now, chengkp75 said:

Your facts are not quite correct.  The $666/month is the minimum wage for seafarers, and is based on a 40 hour work week.  Hours in excess of 40/week have to be paid at 125% of the base wage ($3.84/hour base x 125% = $4.80/hour overtime).  So, given that the average cruise ship crew works about 90 hours/week, that is around $1500/month.  Both you and TRLD are somewhat correct about the hours worked.  Cruise lines can choose to adopt either the STCW "work hours" regime, or the STCW "rest hours" regime.  The "work hours" says a maximum of 10 hours per day of work, while the "rest hours" regime says that the crew must have a minimum of 77 hours rest in any 7 day period (or 90 hours of work).  So, the deck and engine departments will work about 84 hours/week, while the hotel crew will work between 84-90 hours/week.  Regardless, each crew member is paid for each hour worked, whether at base wage or overtime, even though it does not show on their contract or pay voucher as being "per hour", it is calculated by the cruise line into a monthly salary based on how many hours of work are specified in the contract.

 

The salary calculation is not "supplemented" by the daily gratuity, the DSC is factored in as a part of the monthly salary.  This is specified in the crew's contract as their salary is made up by X% salary, and X% DSC.  And, until the removal of DSC drops the monthly salary below the minimum of $666, the cruise line does not have to make up the difference.

 

I didn't find anything new in the video, as it has been known in the industry for decades that the cruise fare basically covers the ship's operating expenses, and the profit comes from "onboard revenue".  And, as the writer says, the "economies of scale" are what is driving the cruise lines to larger and larger ships.

The cap I was referencing came from a Princess hotel side contract where hours were capped at 75 and if they were required to work  anything above that was additional.compensation though even that was limited by a max hours per day. 12 if I recall correctly.

[TRLD]

22 minutes ago, chengkp75 said:

The room and board issue comes up every time crew compensation is discussed.  Unless the crew member is single, and living with his/her parents, then he/she has an apartment or home that is either unoccupied, or occupied by the crew member's family, while the crew member is on the ship, so they are still paying rent/mortgage while on the ship, and if they have a family, they are still paying for utilities and food while on the ship.  As for medical, that only applies to the crew member, not family, nor to the crew member when not on the ship.

Yes but a percentage are single, even those that are married still do not add to the grocery bill at home. Their families living expenses in their home countries are far less in most cases then a single or married hotel worker in the US. 

 

In a direct comparison I would expect that a shipboard worker drawing their total income is probably doing as well if not better married or single than their US equivalent married or single hotel worker if on each case that represents their sole income.

 

A good friend of mine was a steward for many years. Put his daughter through college and medical school in the PI from his shipboard income. He has two sons neither are married yet that have both chosen shipboard careers. He refused to let his daughter work on board ship.

 

He is where I saw his contract and what he said what he usually worked as a steward on Princess. As he put it 4 to 5 hours each morning and evening. Less in the evening that morning. Plus training plus being on call but not actually working.

Edited April 8 by TRLD

[chengkp75]

19 minutes ago, TRLD said:

Their families living expenses in their home countries are far less in most cases then a single or married hotel worker in the US.

I'm not disputing that a typical cruise ship crew member makes an "upper middle class" income in their home country.  Just that the "room and board" savings is not quite as large an aspect as some would think.

[TRLD]

just looked at the last ccl filing for the last quarter. Across all of the CCL lines the aggregated data shows (per passenger per day)

 

ticket revenue 153.9

Onboard  76.2

 

cruise and tour expense

157.7

 

Looking at some specific categories

payroll  26.5

Fuel  21.5

Food  14.7 (I believe that this reflects all food purchases including that for the crew, not just food purchased for passengers)

Edited April 8 by TRLD

[chengkp75]

5 hours ago, LocoLoco1 said:

So… WHY has HAL cut back so drastically on things such as Piano Players, Poolside attendants for Water Aerobics…skimpier Dinner entree, etc. Are they still that $BROKE$ or are competitors forcing Fare cuts??  Post-Covid HAL is anemic once you’re aboard and forego Pinnacle Dining and Penthouse upgrades. Whyso??

Because nothing in the video accounts for the massive amount of debt load the cruise lines accrued during Covid.

[TRLD]

25 minutes ago, chengkp75 said:

Because nothing in the video accounts for the massive amount of debt load the cruise lines accrued during Covid.

While that is an easy target when it comes to discussing changes. I do not believe it is a major driver of change.

 

Let's look at CCL filing for the last quarter before Covid on a per passenger per day basis

 

Ticket revenue  141.1

onboard revenue  67.9

 

operating expense  153.7

Payroll  26.6

Fuel  17.3

Food 12.1

 

overall passenger days  22.9 million vs 23.5 million in most recent quarter.

 

The overall spend is up with the biggest change in fuel and food.

 

While payroll spend is flat the average ship size has increased between those two periods with older smaller less efficient ships from a payroll point of view retired and more passengers carried on larger ships which would be why costs have not increased as much in that category.

 

The debt level primarily impacts ability to fund new builds  not so much operational spend.

 

I would expect food and fuel inflation more of an impact than debt level. with food spend up 21% in 4 years and fuel up 24%.

 

 

Edited April 8 by TRLD

[chengkp75]

38 minutes ago, TRLD said:

The debt level primarily impacts ability to fund new builds  not so much operational spend.

Not being an accounting or finance wizard, let me get this straight.  The debt the line has only affects whether they can borrow more to build new ships?  Who is paying the interest on this debt?  Where in the revenue and cost analysis does this interest come into play?  Since you are looking at the SEC filings, how much interest does CCL pay on their debt, and what does that work out to in terms of debt/passenger-day?  How much has debt service gone up between pre-Covid and now?

[TRLD]

10 minutes ago, chengkp75 said:

Not being an accounting or finance wizard, let me get this straight.  The debt the line has only affects whether they can borrow more to build new ships?  Who is paying the interest on this debt?  Where in the revenue and cost analysis does this interest come into play?  Since you are looking at the SEC filings, how much interest does CCL pay on their debt, and what does that work out to in terms of debt/passenger-day?  How much has debt service gone up between pre-Covid and now?

The cruise lines passed the milestone on being able to cover the debt last year  They are now showing a bottom line profit after depreciation and debt payments.  Since basically depreciation is money already spent, that gives them a fair amount of money for debt reduction.

 

Certainly the debt impacts stock price and capital investment and the companies would like to pay it down faster, but clearly the per passenger per day spend does not reflect any kind of a major cut to spending to divert to debt.

 

Ship operating expense is up and when adjusting  for the move to retire older less efficient ships, the increase in food and fuel spend, the debt level is not a major driver of the changes

 

The biggest impact of the debt now that passengers are back, occupancy levels back within 2% of same quarter pre covid, is the lack of new ship orders, restraining overall capacity growth for the next 4 to 5 years.

 

If the economy were to make a major shift downward then that might change and cash flow might become a driver of on board changes, but at this point it does not appear to be the driver.

 

Currently sitting on a Oceania ship and will need to go pull up that data. Debt and interest payments are certainly up substantially, but cash flow can cover it fairly easily at current level and fares are going up. What is different is money being spent and additional capital investment and borrowing on new ships. Which in CCLs case was substantial during the years prior to Covid.

 

Low cost loans and subsidies might start coming out of the countries where cruise ships are built as the last of the pre covid orders are getting finished and those shipyards start going idle.

Edited April 8 by TRLD

[TRLD]

4 hours ago, chengkp75 said:

Not being an accounting or finance wizard, let me get this straight.  The debt the line has only affects whether they can borrow more to build new ships?  Who is paying the interest on this debt?  Where in the revenue and cost analysis does this interest come into play?  Since you are looking at the SEC filings, how much interest does CCL pay on their debt, and what does that work out to in terms of debt/passenger-day?  How much has debt service gone up between pre-Covid and now?

Last year ccl reduced total debt by 4.276 billion to 31.339 billion.

 

According to last year's 10 k CCL had 4.326 billion in free cash flow with a total interest expense of 2.066 billion. So their free cash flow is twice the level of their interest expense. This year the numbers should be quite a bit better.

 

First quarter LY had an interest expense of 539 million and only had free cash flow of 410 million since occupancy was still recovering.

 

This year the same quarter generated  over twice the free cash flow at 889 million in free cash flow, and a lower interest expense of 471 million.

 

This full year should have even better free cash flow. Not as large an improvement as q1 over q1 because the occupancy numbers got better as they went q2 through q4. but will still be better. Especially as revenue per passenger day are likely to increase as well as occupancy.

 

CCL is paying off their most expensive interest first. The size of the free cash flow means that unless something changes dramatically they should have fairly easy access to the credit market if they need to refinance any of the notes.

 

when one looks at revenue, relative changes in cost categories and the ability to cover interest and pay off debt over time, is why I consider debt to not be a major driver of onboard changes. Fairly minor compared to the competitive nature of the travel industry, changes in what customers value, and what attracts the customer mix they want.

 

To put it simply many of us here on CC may not be the customer that the cruise line really wants. Too old, too demanding based upon the past, too little onboard spend. They will take our money but are also looking to replace us over time.

Edited April 9 by TRLD

[AL3XCruise]

I don't have time to go through all the notes and quarterly data so apologies if I'm missing something you saw, but as far as "passing the point of covering debt" the 4.3B is substantially exceeded by the 7.7B in long term debt repaid in 2023.  It looks like at least some of that was paid back ahead of schedule to avoid the ~10% interest rate on notes due in future years (as mentioned, I don't have time to dig in to the notes too much) so they may have had cashflow to cover maturing debt, but keep in mind they also issues 3B in new debt. This did contribute to the cash on hand dropping from 6B to 2.4B. 

 

All in all they are in a much better place than some thought they would be, but I think that 2B in interest expense on the income statement has a big impact on the numbers investors generally care about the most. A 4% reduction in interest expense would have made 2023 profitable for CCL.  Pumping more cash from operations will help retire that debt faster (not to mention cut operating expenses).  If anything, the fact that they have a stronger cashflow and more options to get cash if needed is going to decrease concerns about liquidity and move the focus more to income.

 

[AL3XCruise]

5 hours ago, chengkp75 said:

Since you are looking at the SEC filings, how much interest does CCL pay on their debt, and what does that work out to in terms of debt/passenger-day? 

Just glancing at the income statement and "statistical information" it looks like in 2018 there were about 89.7M passenger days with 200M in interest, so about 2.23/day/pax.  In 2023 91.4M passenger days with 2B in interest, so 21.88/day/pax.  So while interest isn't the number one cost, its big enough that getting rid of the high interest debt ahead of schedule could make the company try and squeeze some extra cash out of operations.  

 

Of course, they'd probably squeeze anyway...

[TRLD]

15 minutes ago, AL3XCruise said:

Just glancing at the income statement and "statistical information" it looks like in 2018 there were about 89.7M passenger days with 200M in interest, so about 2.23/day/pax.  In 2023 91.4M passenger days with 2B in interest, so 21.88/day/pax.  So while interest isn't the number one cost, its big enough that getting rid of the high interest debt ahead of schedule could make the company try and squeeze some extra cash out of operations.  

 

Of course, they'd probably squeeze anyway...

They certainly could but their per passenger expenses compared to pre covid do not show such a squeeze they have certainly increase food and fuel due to inflation and they have certainly taken advantage  of the retirement of older smaller ships to leverage the cost efficiency of the larger newer ships.  

 

So while there is a reason they might want to they do not have an absolute need to so at current time, and no real indication that they have done so. 

 

They initially focused on increasing onboard spend. Next the focus should be on fare revenue. If successful one would expect if less need to squeeze operations. Though with CCl one would expect similar cost management as demonstrated prior to covid.

Edited April 9 by TRLD

[TRLD]

The current cruise line pricing power is more a matter of cruise line pricing vs other forms of travel including land based options the current gap is much wider than historical norms with cruise pricing lagging land vacation increases.  That would indicate either cruise fares will go up or land vacation prices drop significantly. I would wager on cruise pricing increasing over land vacation prices dropping to narrow the gap to historic norms.

[sfaaa]

Judging from the quick cancelation refunds processed by CCL these days, it appears its cash flow situation is in decent shape.