The economic sector hardest hit by the Covid-19 pandemic is undoubtedly tourism. International tourist arrivals fell by 93% globally in June and by 65% during the first half of the year compared to 2019, according to the World Tourism Organization (UNWTO). This drop in international tourism represents losses of $460 billion. If we compare these figures with those from 2009, following the economic and financial crisis triggered by the collapse of Lehman Brothers, the impact is five times greater.
Article from CruisesNews magazine no. 55 – December 2020
The prediction is that there will be 440 million fewer tourists this year, 2020, although the summer brought a ray of hope, with a growing number of destinations open, and the first cruises.
By the beginning of September, 53% of destinations had lifted their entry restrictions. According to the UNWTO, the tourism sector in Asia has suffered the most, with a 72% drop in tourists in the first six months of the year. Europe is second, with a 66% decline in the same period. Africa and the Middle East show a 57% drop, while the Americas have fallen by 55%. The UNWTO forecasts a 70% decline in international tourism for the full year, with a recovery period of between two and four years to reach 2019 tourism levels.
Reduction in current spending:
2019 was the best year ever for the cruise industry. Demand was so high that shipowners could easily fill their fleets to over thirty million passengers and turn a profit, regardless of a ship's age or level of amenities. The devastating impact of Covid-19 has also affected the cruise industry. It is projected that by the end of the year, the number of cruise passengers will barely reach 25% of those recorded in 2019, and furthermore, in 2021, perhaps depending on the success of vaccines, cruise passenger numbers will hardly exceed 50% of the 2019 figures.
Until the recovery arrives, shipowners have to keep their fleets operational, even if only in a dormant state, which represents a heavy monthly operating expense of hundreds of billions of dollars.
A Greek fast ferry operator, Seajets, has bought six cruise ships at bargain prices in the last six months.
A logical way to reduce operating costs is to downsize the fleet. Naturally, the first candidates are the oldest and least efficient ships: those that consume the most fuel, require the largest crews, are approaching their five-year overhaul, and so on. Thus, in recent months, the oldest ships belonging to major cruise operators have been sold for scrap, a trend that appears set to continue in 2021.
A cruise ship is generally designed for a lifespan of 20 to 30 years. However, technical lifespan should not be confused with commercial lifespan. A ship built in the 1990s, with cabins lacking balconies, engines without scrubbers, or alternative dining options, could find its niche market in destinations off the beaten track (like Pullmantur's Monarch sailing from Panama), with homeports such as Mobile or Charleston in the USA, Hull or Liverpool in the UK, with an immature source market (for example, India), or by competing on lower prices with owners of more modern ships.
But these shipowners who took advantage of these market niches do not have the necessary financial resources to survive the prolonged suspension of cruises in 2020, and some of them, such as Pullmantur in Spain, Cruise & Maritime Voyages in the United Kingdom, FTI in Germany, and Jalesh Cruises in India, have gone bankrupt or are in receivership.
The US CDC's executive order of April 9, prohibiting cruises for 90 days, was the starting gun for fleet reductions. Between June and August, twelve ships changed hands, including four Panamax vessels (two from Carnival Cruise Lines and two from Pullmantur), which were sold for scrapping. On July 16, the CDC again prohibited cruises until September 30, triggering a surge in the sale of many ships, with as many as sixteen transactions taking place in September alone. The Carnival group sold fifteen ships, Royal Caribbean only three, Fred Olsen two, and so on.
In 2020, nine cruise ships will be scrapped, compared to only three in 2019, which were also much smaller in size.
In total, shipping companies have announced the permanent retirement of 17 vessels. Adding up all cruise ships retired since 1970, those retired in the last ten months represent, in terms of gross tonnage, 18.39% of the total number of retired ships, and 14.06% of the lower berths. For example, Panamax-sized ships (with around 1,000 cabins and approximately 2,000 passenger capacity) had never been scrapped before, and so far this year, six vessels of that category have been decommissioned.
Cruise Fleet Renewal
In contrast, other shipowners have taken advantage of the pandemic to adjust their fleets, in terms of quality, quantity, or both. The paradigm of this strategy is Fred Olsen: it has purchased two magnificent ships of around twenty years from Holland America Line, and sold its two oldest vessels, the Boudicca and the Black Watch, both nearly fifty years old, to be used as floating hotels to a Turkish shipowner. Another British shipowner, Marella Cruises, has accelerated its fleet renewal, sending its two oldest ships, the Marella Celebration and the Marella Dream, both over thirty-five years old, to a severe cold lay-up in Greece.
Greek shipowner Celestyal Cruises has increased its fleet with the Celestyal Experience, formerly the Costa NeoRomantica; and Portuguese shipping company Mystic Cruises, another specialized "start-up" now in the adventure cruise segment, has bought the Vasco da Gama from Cruise & Maritime Voyages at auction.
Finally, a new Chinese company, Sanya International Cruise Development (SICD), purchased the Sea Princess from Princess Cruises, becoming the second domestic operator in that market. The ship will begin sailing in 2021 after being renamed Charming, following the transfer of its management to V.Ships Leisure.
On June 22, Pullmantur Cruises became the first cruise line to disappear, a victim of the Covid-19 pandemic. That day, the joint venture between Royal Caribbean Group and Cruise Investment Holding filed for bankruptcy protection. Its two largest ships were sold for scrap in Turkey, while the Horizon is dismantled near Piraeus, Greece, awaiting the same fate barring a major surprise.
On July 28, the German tour operator FTI Group closed its cruise subsidiary FTI Cruises, which had been operating the small Berlin since 2012 on Caribbean cruises in the winter and European cruises in the summer. In September, the Berlin was sold to Dreamliner Cruises to be converted into a megayacht in Croatia.
On August 24, Blount Small Ship Adventures announced its closure at the end of August. This small American shipowner only had three small coastal vessels with a capacity of one hundred passengers each. Its owners decided to concentrate their efforts on their shipyard division, Blount Boats.
In India, Jalesh Cruises, a local cruise line that began operations in 2019, announced the cessation of its activities on October 9. Subsequently, in November, a court ordered the sale of the Karnika to a local shipbreaking yard in Alang to pay off its owners' debts. This Panamax vessel, built in Italy in 1990, was acquired in 2018 by Jalesh Cruises, an Indian startup specializing in short cruises from India and Dubai, which began operations in 2019. However, with the onset of the pandemic, the ship ceased operations and was impounded in Mumbai. Its owners announced they would resume offering cruises after the summer, but ultimately the second wave of the pandemic led to the cessation of operations and the abandonment of the ship and its crew. It will be scrapped in Alang soon.
There are many rumors circulating about the financial situation of operators like Bahamas Paradise Cruises, SunStone, etc. Therefore, this list of cruise lines facing bankruptcy or insolvency proceedings could grow in the coming weeks.
The Japanese operator of "missionary" ships, Peace Boat, which at the beginning of 2020 was operating the Ocean Dream, a 35-year-old vessel that once belonged to Costa and then to Pullmantur, has renewed its fleet twice. First, it bought the Zenith from Pullmantur in 2019, only to dismantle it in Greece without ever having used it, after acquiring the Sun Princess from Princess Cruises at a bargain price. In 2021, it will sail as the Pacific World.
This unprecedented move in the cruise ship market is based on two fundamental factors common to all such market movements: Carnival Corp.'s policy of selling Panamax ships built between 1990 and 2005 at bargain prices, and the bankruptcy of Cruise & Maritime Voyages.
Seajets: Speculation or Dedication?
But the main novelty of the last six months has been the entry of the Greek shipping company Seajets, owned by shipowner Marios Iliopoulos. At the beginning of the year, Seajets' fleet consisted of fourteen fast ferries and three conventional ferries, covering routes in the Aegean, without any cruise ships. However, in July, it surprised the maritime world when it acquired the Oceana from P&O Cruises, which was renamed Queen of the Oceans. In August, Seajets bought the Veendam and Maasdam from Holland America Line, which were renamed Aegean Majesty and Aegean Myth. In September, its target was the Pacific Aria, which had been left without a buyer due to the bankruptcy of C&MV, and which in November became the Aegean Goddess.
The auction of the Cruise & Maritime Voyages fleet included its two latest acquisitions: the Columbus and the Magellan. To date, Seajets has not disclosed the reasons behind the purchase of these six cruise ships. Rumors are circulating that it's a speculative purchase, intended to be sold at a higher price once the ban is lifted and the cruise industry resumes operations.
The pandemic also led to the sale of Royal Viking's three original ships, and all three, after nearly fifty years as cruise ships, have found a second life as floating hotels. The two ships outfitted by Fred Olsen are currently decommissioned in Tuzla, while the Albatross, owned by Phoenix Reisen, is already in the Red Sea after being sold to an Egyptian hotel chain.
With the sale of these units, the cruise ships built in the eighties and nineties practically disappear from the fleets of the four major shipowners.
The bankruptcy of Cruise & Maritime Voyages
has shaken the foundations of the UK cruise market, as it was the largest independent operator in that market. Its downfall began on June 19, 2020, when the Maritime and Coastguard Agency (MCA) detained the Astoria in Tilbury during an inspection. The MCA then detained the other five ships belonging to the British operator: Magellan, Astor, Columbus, Vasco da Gama, and Marco Polo, in Tilbury and Bristol.
A month later, on July 20, Cruise & Maritime Voyages filed for administration in the UK and in Germany, where it operated as TransOcean Tours, after attempts to rescue it failed. Cruise sales were suspended. Furthermore, two ships that Carnival Corp. had sold to Cruise & Maritime Voyages in 2019, the Pacific Aria and the Pacific Dawn, were once again on the market. And CMV's planned entry into the French market in 2021 was thwarted.
The bankruptcy of Cruise&Maritime Voyages is the most serious bankruptcy of a cruise line in
recent years.
On September 9, 2020, it was announced that the five ships of Cruise & Maritime Voyages would be auctioned by the broker CW Kellock & Co between October 8 and 22, as the Astoria was chartered. As a result, the Astor and the Marco Polo, the two oldest and smallest ships, were sold for scrap, with the former already en route to Turkey where it will be burned. Two others (Magellan and Columbus) were sold to the Greek shipping company Seajets; and the Vasco da Gama was acquired by Mystic Cruises.
Impact on shipyards, delay in ship delivery
For shipyards the Covid-19 pandemic has had two devastating consequences: the first is that the ships that have been able to be delivered this year, the Celebrity Apex and the Silver Origin for Royal Caribbean Group, the Seven Seas Splendor for Norwegian Cruise Line Holdings, and the Scarlet Lady for Virgin Voyages, have not been able to offer their first commercial voyage due to the Centers for Disease Control and Prevention's ban on cruise ships in mid-March.
The second is the freezing of new orders, to the point that only one new cruise ship has been ordered since March, the third of the Vega class for Swan Hellenic at Helsinki Shipyard; and the delay in the delivery of new cruise ships, both this year and in the future.
Shipowners are negotiating with shipyards to delay the delivery of new vessels scheduled for the coming years.
This third effect has had a short-term consequence: all the ships that should have been delivered this past summer were received by their owners in the fall: this is the case of the Iona, from P&O, the Enchanted Princess, from Princess Cruises, the Costa Firenze, and the Silver Moon, from Silversea. Even refurbishments have been delayed, as is the case of the lengthening of the Star Breeze in Palermo, which lasted more than a year before its delivery.
In 2021, the cruise industry will transport, at best, 50-60% of the passengers it carried in 2019. Therefore, shipowners are in no hurry to take delivery of the vessels that were scheduled for this fall/winter. Thus, the MSC Virtuosa, which should already be sailing, will be delivered next spring by Chantiers de L'Atlantique, and the Odyssey of the Seas will be delivered next year by Meyer Werft.
Regarding NCL Holding, on May 14, 2020, Frank del Rio announced that the nine ships ordered by NCL Holding would suffer delays of between 12 and 18 months.
For Royal Caribbean Group, the Odyssey of the Seas was delayed from November 5, 2020, to April 17, 2021. Royal Caribbean Group will only receive three ships between July 2020 and the end of 2021, down from the original five. Jason Liberty, the company's executive vice president and chief financial officer, stated that they would only receive the Silver Moon, the Odyssey of the Seas, and the Silver Dawn in 2021. Liberty stated that the other ships in the company's order book originally expected in 2021 will each be delayed by ten months. Thus, the Wonder of the Seas and the Celebrity Beyond will be delivered in 2022.
In July 2020, Carnival Corporation announced it expected to receive only five of the nine new ships scheduled for delivery in 2020 and 2021. Carnival stated that due to shipyard delays and the COVID-19 pandemic, it also anticipated delays in deliveries of ships originally expected in 2022 and 2023. Arnold Donald, CEO of Carnival Corp., commented that they had been negotiating to delay up to sixteen deliveries and indicated that he expected to stagger new deliveries to a rate of two to three new ships annually going forward. However, Donald clarified that they did not intend to cancel any orders. The first to be delayed was the Mardi Gras, originally scheduled for delivery on August 31 in Copenhagen. Its debut was then postponed to November 14 from Cape Canaveral, but its maiden voyage will finally begin at Port Canaveral on February 6, 2021.
In November, Disney Cruise Line announced the delay in the delivery of the second and third ships in the series of three it is building in Meyer Werft from 2022 and 2023, to 2024 and 2025, respectively.
MSC Cruises' new flagship, the MSC Seashore, will not arrive until August 1, 2021, and will be replaced until then by the MSC Fantasia.
Other shipowners, such as Seabourn Cruise Line, Dream Cruise and Crystal Cruises, have also announced significant delays in the delivery of their new ships.
