Cruise Companies Are Investing Billions in New Ships Piling Up Fresh Debt
25.08.2023 - 14:05
/ skift.com
/ Royal Caribbean
/ Sherry Sun
/ Cruises
Cruise companies are still continuing with their new vessel orders despite choppy waters in an uncertain consumer spending environment — and face the risks of piling on more debt.
Take Norwegian Cruise Lines, which is planning to invest $2.4 billion in ship construction-related capital expenditures for 2023, and anticipates the figure to be $500 million and $1.8 billion for 2024 and 2025, respectively. Royal Caribbean Group also sees approximately $4.1 billion in ship construction costs in 2023 and an aggregate total of $9.8 billion for all existing ship orders. Carnival Corporation expects contracted new-builds to be $1.8 billion for 2023, and is reshaping its investment spending outlook to scale back on capital expenditures.
The three major cruise lines, with $74 billion of debt combined, according to Bloomberg, face incoming competition from billionaires and hotels hoping to start their own fleets. Betting on the luxury tier and existing customer loyalty bases, these new entrants will be vying for a chunk of the premium market.
After scrambling to renegotiate credit terms and grabbing lifelines from governments and banks to stay afloat during the pandemic, cruise companies are now in a balancing act between paying off debt and rebuilding profit streams.
The industry was exposed for its wasteful practices and detrimental environmental impact, no more so than during the height of the pandemic. Facing significant backlash and pressure to address carbon footprints, cruise lines will likely take on even heftier costs to reduce food waste and implement additional sustainability measures. Some are unwilling to give up new-build pipelines, but all are reevaluating operational structures and strategic priorities to sail back to profitable growth.
“You’ve likely seen some of the actions we’ve already taken to improve our cost structure,” said Frank del Rio, president and CEO of Norwegian Cruise Line, during the company’s most recent earnings call. “Normalization of marketing spend, corporate overhead reductions, itinerary optimization, supply chain initiatives, and thoughtful rationalization of product delivery. We will continue to leave no stone unturned as we identify and evaluate incremental opportunities.”
Norwegian served 1.7 million guests in 2022, and expects its full-year book position in 2023 to top pre-pandemic levels. It is optimistic that it can continue to ride 2022 tailwinds from marketing, pricing and service strategies despite plans for trimming down costs.
The cruise line operates through three brands, including Norwegian, Regent and Oceania Cruises, and foresees one new build per brand for a total of three new ships to join its fleet in 2023. At least one new ship is scheduled to be