When will the orders pick up again? “As soon as the exchange rate moves in the right direction, the building pace will pick up immediately,” predicted Enrico Buschi, executive vice president of Fincantieri’s cruise ship business unit. “The major lines all have plans for new tonnage for the medium term,” he added.
“The cruise industry is a growth business that needs to continue to expand in order to grow earnings and share values,” said Yrjo Julin, president of Aker Finny Yards.
Even with his new $700 million order from Royal Caribbean Cruises, Julin said he could best describe today’s newbuilding market as “tough.”
“The strong euro has made cruise ships more expensive,” he said. And while future exchange rates are unknown, Julin struck a cautionary note about short-term optimism citing analysts’ speculation that the euro may grow even stronger vis-a-vis the dollar in the near future.
But the four major European yards that build cruise ships are at least competing on a level, though extremely difficult, playing field, according to Julin. But regardless of the cruise industry’s need to grow, he does not think there will be enough newbuildings to keep all four yards busy.
Buschi concurred: “I think you will lose some the players in terms of supply,” he said.
“This past summer has seen very positive cruise demand,” Buschi continued. But while market demand is growing, he said the dollar-euro rate of exchange was a negative factor.
Until last year, European yards enjoyed a nine percent subsidy level, according to Buschi. Now they have to recover not only the nine percent, but also another 20 percent because of the exchange rate.
“I am very skeptical that any shipbuilder can recover as much as 30 percent by becoming more efficient,” he said.
“In addition, the new ships being discussed are always more sophisticated and more complicated. If the owners continue on this course, they have to be prepared to pay higher prices,” Buschi added.
When asked to comment on Royal Caribbean’s order, which was placed despite the seemingly unfavorable exchange rate, Buschi said that there are always pros and cons to every order. Royal Caribbean’s dilemma is that if they do not order, they will not grow, and will lose even more market share to Carnival, which can afford to wait, he said.
But while the European brands are euro-neutral, according to Buschi, he said that the downside is that Europe also has weaker growth prospects than North America.
Buschi said there are some “serious projects for vessels larger than 115,000 tons (the largest ships constructed by the Italian shipbuilder so far),” and that Fincantieri is working through design exercises and the operational aspects of the new ships.
He added that he believes all the major players are looking at post-Panamax ships. Carnival Corporation has previously indicated plans for ships as big as 180,000 tons. Disney Cruise Line has also been reported to be considering two new ships.