Predictions for the Cruise Industry Part III - Why Are Cruise Ships Being Scrapped?
|Cruise Industry Predictions -Cruise Lines are scrapping cruise ships well before their useful lives are over.|
Now that the pause in cruise operations enters its fourth month, the future of cruising this year does not look good. As predicted earlier cruise lines are starting to dispose of ships well before the end of their natural lives. This action is being driven by a number of underlying circumstances. One is the lack of demand for cruises in the near future. In addition, some of these older ship's accommodations do not offer balcony cabins. Forward looking most passengers will desire balcony cabins due to the fear of an outbreak of coronavirus and fear of being quarantined in their cabin.
It is expected that the demand for inside and outside cabins will definitely be less and the cruise lines will be forced to sell those at a much steeper discount. For these older ships, which do not offer many balconies, the revenue generated will be far less than those of ships which consist mostly of balcony accommodations.
In addition, these older ships tend to be more expensive to operate since they do not have the economies of scale that the much larger ships offer today. It is more beneficial for cruise lines to operate a high-capacity ship than a lower capacity ship, because some of the costs are fixed such as captain, crew, fuel, food etc. The profit margin on the older ships in these bad times just does not exist. They did exist though before the introduction of the coronavirus when most ships sailed full and the cruise lines did not always have capacity to meet demand.
With fuel prices expected to rise, these older ships are less fuel efficient and also cost more to sail and operate.
The cruise lines need cash to survive the pandemic and stay out of bankruptcy. Selling the ships bring an immediate influx of cash. Also limiting capacity overall will help to create demand and not erode the pricing structure. In other words, if too many ships are sailing and not full, the cruise lines will be forced to discount their prices driving down their profits. This has been an approach practiced by the airlines. Keep capacity low and prices high.
To date Carnival Corporation has announced the potential sale of six cruise ships. These cruise ships are in the age range of 20 to 30 years old which is younger than most companies consider to scrap ships. According to Carnival, they are close to an agreement to eliminate six ships. It is unclear whether they will be sold to other companies or be out-right scrapped. With the poor economy and lack of demand for cruise capacity - unfortunately scrappers seem like the most likely destiny for this aging ladies.
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