Cruising’s epic building boom

By Greg Miller

A wave of new cruise ships is about to hit the high seas. Are the ports of the Caribbean ready?

The cruise industry – already rapidly expanding and evolving – is about to go into overdrive. The pace of newbuilding deliveries over the next half-decade will be unprecedented.

In the Caribbean, expect higher revenues for island businesses and governments and more exposure that could translate into future hotel stays: but at the same time prepare for more overcrowding, more infrastructure investment requirements and more intense competition for calls.

Excluding river vessels and ships that primarily serve as ferries, and assuming a minimum occupancy of 100 passengers, there were firm contracts for 114 cruise ships totaling 10.34 million gross tons (gt) with an aggregate capacity for 253,800 passengers as of mid April.

Newbuildings will be debuting over the four-year stretch between 2020 and 2023 at a sustained clip that has never been seen before. Over 1.6 million gt of new capacity will hit the water in each of these years, with a record 1.84 million gt set for delivery in 2021.

The big four

Breaking down the contracts by ownership, the order book is overwhelmingly weighted towards the world’s Big Four cruise groups. The brands of Carnival Corporation account for 29 per cent (3.02 million gt), the brands of Royal Caribbean Cruises Ltd for 21 per cent (2.18 million gt), MSC Cruises for 15 per cent (1.54 million gt) and the brands of the NCL Group for 12 per cent (1.25 million gt). Between them, these four owners account for 77 per cent of all tonnage on order.

Analyzing the order book in terms of ship size, the trend is clear: cruise ships, already gargantuan, will become even more so.

Between April 2019 and the end of 2023, 86 per cent of tonnage on order is either large (1,201 to 3,100 berths per ship) or very large (3,801 to 5,650 berths). Very large ships represent by far the most popular category, accounting for 56 per cent of tonnage to be delivered during that period. Newbuildings to be launched through the remainder of this year average 1,440 berths; the average for 2020 is 2,022. For ships delivering in 2024, it’s 3,388 berths – more than double this year’s average.

Deployments

In 2019-20 confirmed Caribbean deployments include Royal Caribbean’s 4,250-passenger ‘Spectrum of the Seas’, NCL’s 4,200-passenger ‘Norwegian Encore’, Princess Cruises’ 3,660-passenger ‘Sky Princess’, Carnival Cruise Lines’ 5,280-passenger ‘Mardi Gras’ (which will be powered by LNG), Celebrity Cruises’ 2,900-passenger ‘Celebrity Apex’ and newcomer Virgin Voyages’ 2,800-passenger ‘Scarlet Lady’.

Royal Caribbean has been positioning all of its largest newbuildings, known as the Oasis class, into the Caribbean; the first three are in service, with three more to come through 2023. The even larger Icon-class ships (carrying 5,650 passengers each, a new record, with deliveries in 2022 and 2024) will almost certainly be deployed in the Caribbean as well.

While MSC Cruises has focused most of its capacity in Europe, its Caribbean aspirations are increasingly apparent. In April it announced the approval of a new terminal in PortMiami to support its Caribbean itineraries and handle 28,000 passengers per day. MSC Cruises executive chairman Pierfrancesco Vago confirmed: “With another 13 cruise vessels due to join our fleet in the next eight years, our ambition is to have our most innovative ship classes represented at PortMiami.”

A mitigating factor for Caribbean capacity is that mega ships are only part of the story. There are a high number of small exploration and luxury vessels on order that will spend most or all of their time outside of the Caribbean. The order book also includes vessels being purpose-built for the Chinese market. In all, 28 per cent of 2020 deliveries and 36 per cent of 2021 deliveries are slated for owners other than the Big Four, many of which are less Caribbean-centric.

Yet another factor that should mitigate Caribbean overcrowding: newbuildings will be partially counterbalanced by removals as older vessels are cascaded into other regions or sold. According to Robin Farley, an analyst at investment bank UBS, net supply growth is always lower than gross supply growth because newbuildings have a longer lead time than removals. She estimated that the gross annual increase in global cruise capacity is averaging 5.1 per cent, while the actual net increase is only 3.7 per cent.

Largest rival

The Caribbean’s largest rival for global deployments has been Europe, but in recent years European deployments have suffered multiple setbacks, including political unrest in Turkey, a recession in Italy, protests in France, terrorist attacks and Brexit pressures in the UK.

The Caribbean faces extreme hurricane risks, but not the political and security issues seen in Europe. As NCL president Andy Stuart explained on his company’s latest quarterly conference call: “Pricing is up and load factors are up and we’re seeing that broadly across the region. We really don’t see any hangover [from the 2017 hurricanes] at all. We just see acceleration and we feel very good about the outlook.”

The Cruise Lines International Association estimates that 11.3 million people cruised in the Caribbean last year, up six per cent from 2018, with the Caribbean representing 40 per cent of the global total of 28.5 million cruisers.

Ms Farley projects that Caribbean cruise capacity will be up six per cent this year and that the region will account for 36 per cent of global itineraries in 2019, with Europe accounting for 27 per cent. She expects Royal Caribbean to increase its Caribbean capacity by 11 per cent this year, significantly outpacing its rivals. Carnival Corporation is upping 2019 Caribbean capacity by two per cent and NCL is keeping its regional capacity steady. The Caribbean represents 53 per cent of Royal Caribbean’s global deployments (versus 51 per cent in 2018), 35 per cent of NCL’s deployments and 32 per cent for Carnival.

Optimism

In response to questions from Caribbean Maritime, Carnival Corporation senior vice-president and chief communications officer Roger Frizzell expressed optimism on the Caribbean’s ability to handle the looming wave of newbuildings.

“We have continued to operate our fleet with a strategy of measured capacity growth across each of our markets,” he said. He explained that newbuildings positioned to the Caribbean would be balanced by withdrawals, while he believes “there continues to be room for incremental growth” because demand should further increase.

Mr Frizzell is confident that Caribbean infrastructure will be able to handle upsized vessels. “Several of our ports in the region now support larger ships, so we feel we have made important progress here,” he affirmed. “The Caribbean did a terrific job in recovering relatively quickly from the hurricanes from a couple years ago in order to continue to support cruising. Like in other parts of the world, there is always the opportunity for improvements and refinements, but on the whole the region is performing well. We have always placed a high priority on the Caribbean and it will continue to be an important market for us.”

Going forward, the cruise lines’ frenetic newbuilding pace is more likely to be the norm than the exception. Cruise executives do not view ship capacity in a vacuum, but rather as just a small part of the global hospitality industry.

Oversupply

If cruising faced an oversupply issue, lines would be forced to discount during years when capacity spiked. According to Ms Farley, the opposite is true. “The data shows that when yield grew above average, supply growth was also above average,“ she said. “The highest yield increases were in the years with the highest supply growth.”

This is a recipe for even more orders – implying that the Caribbean will have to digest ever-higher passenger counts for years to come.