The Economics of Cruising
Published Friday, July 4th 2008The Economics of Cruising
But I'd like to note that as our great nation faces many challenges today, the cruise business is certainly not immune to them. In fact, in addition to rising fuel costs, the cruise industry is especially exposed to another problem most of us do not worry so much about - the weakened dollar.
About ten new cruise ships per year are scheduled to debut by U.S.-based cruise lines in the next three years; most of them brand new designs that are bigger and more extravagant than ever.
Ships are built in Europe, and it takes two years to build one. When the purchase decisions were made the cost of fuel had only risen a blip and the dollar was only slightly weakened. Today, the cost of a new ship after currency exchange rate changes, is some 40% higher than just two years ago. Meanwhile, the cost of diesel, which cruise ships burn, has also risen by about 50% in the same period.
So, the cruise lines are feeling your pain, and more. The challenge for them is the ongoing need to fill their ships, and they cannot just pass the cost on to the consumer when our relative ability to pay is less now than than before. And so dozens of beautiful new ships with innovative features are ready to debut, and the chances are that the cost of cruising will still not go significantly higher.
Here is some big cruise exec’s to answer some questions Micky Arison (CEO of Carnival Corp.) and Stein Kruse (President of Holland America).
In response to a question about alternative fuel, Arison replied, "Well, I've already answered the 'nuclear" question several times, and the answer is that we are NOT looking into building nuclear cruise ships." -- An idea that had never even occurred to me. "but, naturally, we do need to factor in the amount of fuel required for every new itinerary we plan."
Fuel factors include how much distance a ship must cover to get to the next destination, but also how fast the ship must travel as ship engines become much less fuel-efficient as they reach top speed.
Naturally, we all hope for an end to the constant rising of oil prices. The fact is such economic anomalies happen all the time. Remember the Internet and real estate bubbles? Those were "good" bubbles, while the rise in fuel prices is a bad one.
Like those other bubbles, they felt permanent while we were experiencing them. But in fact, all economic bubbles eventually burst. We know how that happens, but the problem is that we never know when. Also, bubbles burst in different ways; while Internet stocks lost almost all their value, real estate has been a much more modest decline. Internet stock values never came back, real estate will.
Economic bubbles, like the current fuel prices and the strength of the Euro, end when the speculators lose confidence. Then the bubbles usually pop faster than they grew. These current bubbles are like festering blisters sensitive to the slightest touch. Relief is coming, but it is a question of how soon and how much. In this case, it couldn't happen too soon.
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