Cruise lines are increasingly focusing their capital
investments on renovating older ships as fleet sizes grow and attitudes evolve
about the kinds of returns they get from new ships versus refurbished ones.
In Europe, where most new ships are built, 20.3% of what
cruise lines spent at shipyards last year was for refurbishment, up from 5.7%
in 2008, according to a new white paper from Seatrade.
Last year, Carnival Corp. spent more on improvement and
replacement of its ships than it did building new ones.
For passengers and travel agents, that translates to having
a broader selection of up-to-date vessels from which to choose and new features
on older ships, not just on newbuilds.
Cunard Line’s Queen Mary 2 provides a recent example.
The QM2 pulled into its pier in Brooklyn in July after a
$132 million “remastering,” one of the most expensive refurbishments ever
undertaken. In 25 days at the Blohm & Voss shipyard in Hamburg, Cunard
added 30 balcony cabins and 15 solo traveler cabins and completely redid a
restaurant and lounge.
It also overhauled the King’s Court buffet restaurant,
upgraded the Queens and Princess Grill restaurants and expanded the dog
kennels, a feature unique to Cunard.
The atrium of the Ruby Princess, a ship that was refurbished last December. Photo Credit: Tom Stieghorst
The QM2 was one of 40 cruise vessels renovated during the
first six months of the year, according to the white paper, which estimated
their combined cost of renovation at $1 billion.
That’s more than what the QM2 cost when it was launched in
There are several reasons why refurbishment is a growing
business segment for shipyards.
For one, the fleets keep getting larger. There were 448
ships last year owned by CLIA-member cruise lines. Safety rules dictate that
ships go to drydock at least once every five years. Since ships can have a
useful life of 30 years or more, each one could get at least six
Some cruise lines are also slowing the pace of new
construction. Carnival Corp., with 100 ships already, is sticking to growth of
two or three ships a year. So the proportion of its capital spent on
refurbishment is growing.
Last year, Carnival spent $981 million on new ships, chiefly
the P&O Cruises ship Britannia, and $1 billion on ship improvements and
replacements, according to its annual report.
Other cruise lines said the financial returns from
refurbishments can equal or surpass those of newbuilds.
Frank Del Rio, CEO of Norwegian Cruise Line Holdings, has
roughly doubled the amount budgeted for the drydocking of Norwegian Cruise Line
ships, to about $35 million per ship, according to the Seatrade white paper.
In comments to Wall Street analysts last November, Del Rio
described it as an alternative strategy to simply churning out new ships to
“We think the return on invested capital on these kinds of
choices outpaces the [return] and the payback of new vessels,” he said. “We’ve
got billions of dollars invested in these ships. You have to maintain them at
the highest standards if you expect to achieve these higher yields.”
As a result, all of Norwegian’s ships except one will
undergo refurbishments between 2016 and 2018.
Norwegian and other cruise lines use drydock to add to older
vessels features that have proven to be hits on newbuilds. This fall, Norwegian
will add Margaritaville restaurants to the Norwegian Breakaway and Getaway
after the concept was successful on the Norwegian Escape.
Carnival Cruise Line’s $500 million Fun Ship 2.0 program is
largely about adding features to older ships that keep them competitive and
consistent with its latest vessels.
“They’re looking to have a homogenous brand,” said Tony
Peisley, a cruise industry analyst who authored the Seatrade paper.
Cruise lines also struggle with what to do with their oldest
ships, which still have value but are no longer very competitive in North
America. Ten years ago, they were often transferred to European lines, but as
Europe has struggled economically that trend has been reversed.
Patterned gray carpet was installed throughout the Azamara Journey during its drydock earlier this year. Photo Credit: Tom Stieghorst
Royal Caribbean International this year took back the
Empress of the Seas from its Spanish subsidiary, Pullmantur, and spent $50
million renovating it for potential use in Cuba, an emerging market.
Also sailing to Cuba is the Adonia, an aging P&O ship
that Carnival Corp. transferred to the Fathom brand following a drydock in
March that included both technical work and some redecorating.
The Adonia was refit and made available to Fathom, in part,
to find a use for a ship that wasn’t doing well for P&O.
“That’s what they’ve been doing, they’ve been refurbishing,
not retiring,” said Vince Ciepiel, an analyst at Cleveland Research who has
expressed concern about lines having too much capacity.
Peisley said cruise lines are loath to sell ships to
competitors, because, “It’s not so much that they can’t get rid of them as they
don’t want to sell them to their rivals. So that kind of limits their options.”
The Seatrade white paper identifies four levels of
refurbishment, ranging from adding new paint and carpets at a minimal cost of
between $4 million and $5 million to a redo the size of the QM2.
Most fall in the $30 million to $50 million range and
involve a combination of technical upgrades, such as new air scrubbers, and
retrofits of popular features, such as bars and restaurants.
While new ships are built almost exclusively in Europe,
refurbishments are done there as well as in Canada, the U.S., Singapore and the
Bahamas. This year, the Grand Bahama Shipyard in Freeport is by far the busiest
yard, with 19 cruise ship drydocks on its schedule.
Carnival Corp. and Royal Caribbean Cruises Ltd. both have a
40% ownership stake in the yard, which was founded in 2000, and its location
cuts transit times for refurbishment of ships based in the Caribbean.
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