Will New Cruise Ship Construction Slow Down Because of the Pandemic?
The cruise industry's nearly non-stop program of constructing new cruise ships may be slowing to a stop, as the cruise lines face increasing debt levels from the COVID-19 coronavirus pandemic. The industry's new ship building spree dates back to the mid-1990's, when Carnival ramped up production of its Fantasy Class ships; Royal Caribbean brought out it Vision Class; and Princess Cruises drew up plans for Grand Princess and subsequent vessels. Since then, every major cruise operator has increased their global fleets at a rapid pace, with newer, larger, and increasingly snazzier tonnage moving to render even recent vessel launches as being somewhat out-of-date. That trend could be slowing down, however. During Carnival Corporation's 2020 fourth-quarter earnings call with investors held on January 11, 2021, Carnival Corporation CFO David Bernstein expressed optimism that, with just one newbuild on order for 2024 and single vessel due to debut in 2025, the company's debt obligations would even out, allowing the corporation to pay down necessary loans taken out during the pandemic. Carnival Corporation, like other cruise lines, has committed to building all of its existing vessels that have confirmed orders currently placed with shipyards. What happens after that, however, is less clear. Confirmed Orders Likely to Stay, Options Remain A Question Mark  Orders for vessels that are confirmed -- signed off on by both cruise line and shipyard and with financing in place -- are likely to stay due to the way these deals are structured. Newer ships also have the added advantage of being more efficient, cost-effective and environmentally-friendly to operate versus older tonnage, and play an important role in fleet renewal programs. But so-called "options" -- essentially reservations for building slots at the shipyard that are secured at agreed-upon terms, but which are not yet converted into firm orders -- could be waived as lines look to decrease expenditures and focus on renewing their existing fleet. Tempering that, however, is the fact that construction slowdowns as a result of the global pandemic have pushed the industry's orderbook further into the future. Carnival Corporation announced it would only take delivery of Holland America Line's Rotterdam in fiscal 2021, with other vessels, like Discovery Princess, pushed back into 2022. There are also a raft of 2020 newbuilds like Carnival's Mardi Gras, P&O's Iona, Silversea's Silver Moon, and Virgin Voyages' Scarlet Lady that were completed last year but never entered full revenue passenger service due to the ongoing global health pandemic. Because of that, when cruising resumes, there will be more new vessels for passengers to choose from than ever before. Reduced Newbuilds Not Necessarily A Bad Thing  Though cruisers have had nearly three decades to get used to sailing aboard the latest-and-greatest ships afloat year after year, a reduction in the number of new ships hitting the waves every year -- however temporary -- isn't necessarily a bad thing. Massive refit programs for existing vessels have become more popular than ever. These range from mid-sized drydocks that add new dining venues and attractions, to full-blown conversions like the one Carnival Cruise Line put the former Carnival Triumph through when it converted it into the (nearly) new Carnival Sunrise. Ditto for Royal Caribbean's sweeping conversion of Navigator of the Seas, which saw a number of new features and enhancements installed onboard the popular ship, which launched in 2002. Also helping matters: the fact that the industry's global cruise fleet is the youngest it has ever been. Even in the mid-1990's and early 2000's, many existing cruise ships were vessels built in the early 1980's or 1970's that had been constructed during a different era. Some lines still utilized ex-ocean liners from the 1960's that had been pressed into cruise service, with uneven results. Today, nearly every major cruise ship afloat offers balcony staterooms, multiple dining venues, full-blown suites, and any number of diversions such as Broadway productions, onboard waterparks, innovative entertainment, expansive kid's clubs, and other fun diversions -- something that could hardly be said of the global fleet 30 years ago.