SHIPPING SECTOR REPORTS
2.6 CRUISE SHIPS 9 new cruise ships have been delivered thus far
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Having weathered a very difficult 2009 with
results that were better than had been
anticipated, the cruise industry entered 2010
with considerable optimism. The industry
believes that the value proposition of cruises
was confirmed during the recession, and will
provide the basis for modest growth when
economic conditions improve. Aggressive
deployments in Europe for the summer season
reflected continued optimism as to the strength
and growth potential of that market, as well as
the expectation for continued high fare yields.
At some point that aggressive addition of vessel
capacity will exert downward pressure on fares,
but the cruise lines are banking that the low
penetration rates (potential customers that have
taken cruises) in Europe and high repeat
customer rates achieved throughout the industry
will militate against that occurrence for some
time.
The year began with a rapidly dwindling
orderbook and some shipyards facing the
prospect of no work by year’s end. That has
since been replaced by a slowly expanding
orderbook, with a trickle of orders in cautious
response to lower prices and strategic decisions
to move forward with globalisation strategies.
Twelve new cruise ships are being delivered in
2010, with another ten in 2011 and eight in
2012, providing a steady flow of new capacity
for market expansion, albeit at a lower rate than
in recent years. Indications are that some new
ordering is likely in the near future to begin to
fill delivery positions in 2013 and 2014.
Balance sheet constraints, cost discipline and
the need to absorb recently delivered large new
ships with capacities as high as 6,000
passengers are among the factors limiting a
return to peak ordering levels from several
years ago.
The Cruise Fleet
As of 1st September 2010, the global fleet of
active cruise vessels (1,000 GT and above and
not including vessels that have been laid up for
a considerable period and/or are unlikely to see
further service as cruise ships) totaled 335 ships
of 15.7m GT and finally passed the 400,000
berth mark, reaching 410,000 lower berths.
Clarkson Research Services
Autumn 2010
in 2010, with two more scheduled by the end of
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the year. Together, they will add in the region
of 1.1m GT and 28,000 lower berths to the fleet,
and they represent an annual growth of 7%,
identical to the previous year’s increase. As the
impact of the global recession is fully felt by
the shipyards, 2010 is the last year of seven-
digit tonnage growth. The majority of deliveries
in 2010 are in the megaship category, averaging
115,000 GT and a passenger capacity of 2,974
berths.
The largest of this year’s deliveries are the
second Royal Caribbean 220,000 GT 5,400
passenger ship and Norwegian Cruise Line’s
largest ship to date, the 4,200 passenger
“NORWEGIAN EPIC”. At the other end of the
size spectrum were the first of CMA-CGM’s
high-end subsidiary Iles du Ponant newbuilds,
the 214-passenger “LE BOREAL” and an
American coastal cruise ship for American
Cruise Line. Half of the new ships delivered in
2010 are being operated by Europe-based cruise
lines, reflecting the parity that has been
achieved there as it has become the largest
growth area for the industry.
THE CRUISE MARKET
MEGASHIPS
(>2000 berths)
88 ships, 231K berths, 8.99 M GT
MIDSIZE
(1000-2000 berths)
76 ships, 118K berths, 4.51M GT
SMALL
(200-999 berths)
100 ships, 53K berths, 1.97 M GT
NICHE
(50-200 berths)
71 ships, 7K berths, 0.21 M GT
>1,000 GT. Does not include ves s els in long term s torage.
93
 SHIPPING SECTOR REPORTS
2.6.1 Cruise Ship Market
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Summary
End -09 Sep-10
Capacity (no. ships)
Fleet 328 335
Orderbook 29 25
Capacity (pax)
Fleet 391 410
Orderbook** 60 56
Fleet Developments *
Deliveries 9 9
Demolition 6 2
Contracting 1 5
Second-Hand Sales 8 1
Includes cruise ships >1,000 gt.
* 2010 figures are year-to-date, % +/- based on annualised figures
** Some orderbook capacity numbers based on estimates
The composition of the current cruise fleet
continues to reflect the growing dominance of
megaships (>2,000 berths), as the 88 ships in
that category account for 56% of the lower
berth capacity of the global cruise fleet. The 76
midsize ships (1,000-2,000 berths) account for
another 29% of capacity (none in this category
are being delivered in 2010), while the 171
remaining ships with less than 1,000 berths
account for only 15% of the lower berth
capacity. The preponderance of passenger
capacity built in this century has been in the
megaship category. Of the 126 ships built since
2000, 72 with 81% of the capacity built are in
service. Together they account for 47% of
global fleet capacity. There are now 42 vessels
in the global fleet larger than 100,000 GT,
accounting for 32% of the berth capacity.
The age profile of the global fleet continues to
demonstrate its youth and growth in average
size. The 126 cruise ships delivered in this
century average 76,458 GT and 1,898
passengers. The 104 ships that were delivered
during the 1990’s average only 41,635 GT and
1,076 passengers, while the remaining 105
cruise ships that were built prior to 1990
average just 16,857 GT and 543 passengers.
The Cruise Ship Orderbook
The end of the 20-month drought for new ship
orders late in 2009 has been followed by only a
94
trickle of new orders as the cruise lines,
constrained by their balance sheets and the need
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for cost discipline, in light of a slow economic
recovery, have sought to take advantage of
declining shipyard prices and pursue with
+/- this year
cautious optimism their global expansion
2.1%
schemes. Carnival Cruise Line’s order for one
-13.8% new 130,000 GT 3,600-passenger ship to be
built at Fincantieri for delivery in 2012 has been
4.8% followed by orders for Princess Cruises (two
-5.5% 139,000 GT 3,600-passenger ships at
Fincantieri for delivery in 2013 and 2014) and
0.0% Aida (another in the series of 71,000 GT 2,174
-67% passenger ships at Meyer-Werft. STX France
400.0% has received two orders for remarkably similar
-87.5% ships from MSC Cruises and Libya’s GNMTC
(140,000 GT and 4,000 passengers) leading to
speculation that MSC will actually be operating
the Libyan ship.
Prior to the orders at St. Nazaire, the French
had no new work on their books and were
finishing their last project, the “NORWEGIAN
EPIC” for mid-year delivery. The Finnish STX
yard currently has no newbuilds after delivery
of the “ALLURE OF THE SEAS” to Royal
Caribbean. A recently uncovered internal
Fincantieri study suggests the possibility of
closing two yards, one of which is involved in
some cruise work.
Rumours earlier in the year regarding the
potential for building in Asia, involving an
order from Louis Cruises for a $600m ship (its
first new ship ever) from Daewoo Shipbuilding,
and another for a 105,000 GT luxury
residential/hotel ship for $1.1bn at Samsung
Heavy Industries for delivery in 2012 have not
been finalised. However, at the recent SMM
Conference in Hamburg, in light of the recent
drop in prices (down as much as 20-25% from
the peak and back at 2003-2004 levels), with
costs per berth as low as $185-195,000 per
berth, there were serious rumours concerning
several newbuilding projects in the near term.
Norwegian Cruise Line is said to be close to
ordering two with an option for a third at Meyer
Werft. They will supposedly be not as large as
the “EPIC”, but larger than their existing fleet
(perhaps along the lines of the new Celebrity
ships that have been built there). Hapag-Lloyd
is said to be in talks with STX France for a
Clarkson Research Services
Autumn 2010
 SHIPPING SECTOR REPORTS
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Cruise Fleet Development Cruise Fleet Development
18 m. GT, end yr/ytd 450 ,000 berths, end yr/ytd
The Cruise fleet has grown at
5.5% p.a. since 2004 Berth capacity has grown at
16 400
5.1% a year since 2004
14 100,000+ GT 350
60-99,999 GT 3,000+
10-59,999 GT 2-2,999
12 300
1-1,999
<10,000 GT < 1,000
10 250

8 200

6 150

4 100

2 50

0 0

2010*
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010*

Source: Clarkson Research Services Source: Clarkson Research Services

Figure 2.6.1 Figure 2.6.2

Cruise Vessels - Age Profile Cruise Fleet Expansion

1.2 m. GT 5.0 m.GT
1st Septemb er 2010
4.5
100,000+ GT
1.0 Orderbook
60-99,999 GT 4.0
Deliveries
10-59,999 GT
3.5 Contracts
0.8 <10,000 GT

3.0
0.6 2.5

2.0
0.4
1.5

0.2 1.0

0.5
0.0
0.0
<= 1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010

1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010*

Source: Clarkson Research Services Source: Clarkson Research Services

Figure 2.6.3 Figure 2.6.4

Clarkson Research Services

Autumn 2010 95
 SHIPPING SECTOR REPORTS
30,000 GT ship. With no ships being built in
Finland, where large ships are the specialty,
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there is talk that there may be an announcement
soon from Royal Caribbean. Since the RCI
Chairman has indicated there are unlikely to be
any more than the two OASIS-class ships,
perhaps new ships closer to the 154,000 GT
FREEDOM-class are more likely. The Carnival
Chairman has said that he will probably be
ordering only 2-3 ships per year. With two in
2013 and one in 2014 already ordered for
Carnival, there seems to be some but not a lot
of potential in those years.
The consensus view seems to be that because of
financial constraints, and despite the decline in
ship prices, there is likely to be about a 50%
drop in the number of new orders, compared to
those achieved in the last decade before the
recession - from 12 to 5-6 per year after 2012.
The Carnival Chairman has also said that “yard
sales” don’t sway what is essentially a strategic
decision to order a newbuild.
Nevertheless, there is also the view that while
ordering will be noticeably down over the next
years, a longer term overly conservative
approach to fleet expansion is inconsistent with
the industry’s past successes, the value
proposition of its product and its strategic plans
for globalisation.
After the recent orders, as of 1 September 2010,
the cruise ship orderbook stood at 25 ships with
a capacity of 56,000 lower berths and an
estimated value of around $14bn (Euro-
denominated contracts converted at one
euro=$1.34). The average size of ships on order
is 98,000 GT with a capacity of 2,433 berths.
The current orderbook is down 400,000 GT,
9,300 berths and $3.2bn y-o-y.
The dearth of new orders caused the orderbook
to decline precipitously. In the early part of
2008, the orderbook amounted to 31% of the
existing fleet. One year ago it was 23%, and
currently stands at only 14% of the existing
fleet capacity. There are currently a total of ten
ships (16,400 berths) for delivery next year, and
with the recent new orders, a total of eight ships
scheduled for delivery in 2012.
As the orderbook has continued to decline,
96
there are still 14 separate brands represented.
However, only Aida has more than two ships on
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order, and the days of operators with more than
10,000 berths on order are gone for now. Six of
the Carnival family of brands account for 53%
of the new berth capacity currently on order,
while Royal Caribbean brands have a 20%
share. Italian shipyards have a 46% share of the
current orderbook and German yards account
for another 31% (see Figure 2.6.6).
In the meantime, the outlook for refurbishment
remains very strong. In addition to work for
normal wear and tear, and upgrades for older
ships to provide consistent features within each
brand, there is the need to adapt older ships
being cascaded from one related brand to
another to the new brand’s standards. The
movement of a second Celebrity ship to TUI
Cruises and a Costa ship to Iberocruceros are
examples of this phenomenon.
Cruise Industry Concentration
The global cruise industry continues to be
dominated by two major owning groups –
Carnival Corporation and Royal Caribbean
Cruises. Carnival owns 96 ships across ten
brands with nearly 188,000 berths (1,960
average), 46% of global capacity. With 40 ships
across five brands, Royal Caribbean controls
87,000 berths (averaging 2,176), another 21%
of global capacity. The ships operated by both
the industry giants are substantially larger than
the average size of the global fleet which stands
at 1,207 berths. No other owning group controls
even 10% of the global fleet.
The high level of concentration at the parent
company level is mirrored at the individual
brand level. Royal Caribbean is slightly larger
than Carnival. Between them, they currently
operate 28% of global berth capacity. The top
five brands account for 52% and the top 10
operate 75% of total capacity (see Figure 2.6.8).
There has been only one change y-o-y in the
ranking by size of the largest carriers as MSC
Cruises moved into fifth place, passing Holland
America Line.
Cruise Passenger Traffic
Following a slowing of growth rates in recent
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Autumn 2010
 SHIPPING SECTOR REPORTS
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Cruise Ships N/B Prices Orderbook by Builder Country
320 $000/brth Index 200 % Share, 1st September 2010
Prices in $,000/berth for Total 56,280 lower berths
300 190
Cruise ships > 2,000 berths
280 180

260 170
240 160 France
13% Finland
220 150 9% Other
<1%
200 140

180 130
160 120

140 110
120 100 Germany Italy
Clarksons Newbuilding Price Index 31% 46%
100 90
1992

1994

1996

1998

2000
2002

2004

2006

2008

2010

Source: Clarkson Research Services Source: Clarkson Research Services

Figure 2.6.5 Figure 2.6.6

Top Cruise Brand Operators

Global Cruise Demand % Share, As of 1st September 2010
2009
Brand Operator No. ,000 gt Lower berths
Total 17.5 million passengers
Carnival Cruise Lines 23 2,052 55,974
Royal Caribbean 21 2,311 56,571
Princess Cruises 19 1,637 40,506
Rest of
Europe, Costa Crociere 15 1,193 31,658
World,
28.6%
12%
Norwegian Cruise Line 12 1,070 28,004
Holland America line 15 993 22,874
MSC Cruises 11 900 24,474
Celebrity Cruises 10 872 20,373
P&O Cruises 7 577 15,020
North Aida Cruises 7 402 12,002
America,
59.4% All Other 195 3,721 101,272
Total 335 15,728 408,728

Source: Clarkson Research Services

Source: Clarkson Research Services
Figure 2.6.7 Figure 2.6.8

Clarkson Research Services

Autumn 2010 97
 SHIPPING SECTOR REPORTS
years, reflecting a maturity of the North
American cruise passenger market, and the
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actual decline in absolute terms in the last two
years, passenger traffic in that market has
grown significantly during the first six months
of 2010, reflecting increased capacity deployed
there. The 5.2 million passengers carried in the
first six months are a record for the North
American market, and are at a pace to surpass
the peak year of 2007, when more than 10
million passengers were carried for the first
time.
The top five cruise lines accounted for 88% of
the North American market in the first half of
2010, (with 37% by Carnival and 24% by Royal
Caribbean). Norwegian Cruise Line, Princess
Cruises and Celebrity Cruise Line rounded out
the top five.
In the first half of 2010, Miami, Fort
Lauderdale and Port Canaveral accounted for
52% of North American passengers. The most
popular destinations for North American cruise
passengers are the Caribbean and Bahamas
(75%). 58% of all passengers cruising to the
Caribbean chose Western Caribbean itineraries.
Early results confirm projected significant
declines in seasonal traffic to Alaska, and more
modest declines in cruises to Hawaii and
Pacific Mexico. In Europe, there are no mid-
year results reported by the European Cruise
Council (ECC), although it is clear that there
were significant increases in capacity deployed
in Europe for the summer season.
Economic Impact
Both the North American Cruise Line
International Association (CLIA) and the ECC
have recently released their annual studies on
the contribution of the cruise industry to the
economies of the United States and Europe in
2009. When the reports are available for the
same period, side-by-side comparison of the
results yields some interesting observations, and
this year also demonstrate the impact of the
recession. The CLIA study reported $17.2bn in
direct spending in 2009 by cruise lines and
passengers, and, including indirect impacts, a
total of $35.1bn in total outputs. This, in turn,
generated 358,000 jobs throughout the U.S.,
paying a total of $14.2bn in wages and salaries.
This was a 10% reduction in direct spending,
98
reflecting both the decline in passenger
spending and cost-cutting measures to help
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weather the impact.
The ECC study reported 14.1bn euros in direct
spending in 2009 and 34.1bn euros in total
outputs. The industry generated 296,000 jobs
throughout Europe, paying 9bn euros in
employee compensation. Using the average
2009 dollar/euro exchange rate (1 euro=$1.39),
the total output figure equals $47.4bn, and
reflects a widening of the European preeminent
position over the United States that first
appeared in 2007. European prominence is, of
course, due largely to Europe’s dominant
position in cruise shipbuilding.
In 2009, 33% of direct industry expenditures
went to European shipyards for newbuildings
and maintenance of existing cruise ships, down
from a 37% share in 2008 (reflecting a 13%
decline in that sector). In euro terms, the total
outputs generated in Europe increased by 6% in
2009, reflecting increases in all sectors but
shipbuilding. In terms of passenger traffic, the
United States remains the predominant source
market with about twice the number of
passengers as sourced in Europe. Its share of
global cruise traffic has been declining in recent
years as a result of rapid growth in Europe and
increasingly global deployment of the cruise
fleet.
Outlook
The cruise industry continues to face a wide
range of challenges as the world emerges from
difficult economic conditions. Continued high
fare yields in Europe and fare stability (with
hopefully some strengthening) in North
America are essential to a return to profit levels
necessary to support newbuilding programmes.
Profits will be enhanced by maintenance of cost
discipline that was necessary for survival at the
height of the recession. The pace of new orders
in the near term is likely to be modest.
However, because of the underlying value
proposition of the cruise product, the low
penetration rates in developed cruise markets,
and that vastness of the untapped markets
which are in sight of the industry’s
globalisation strategies, the longer term outlook
remains positive for an industry with a solid
record of growth and expansion.
Clarkson Research Services
Autumn 2010