When you’re at the quacks for a regular medical and (s)he tells you should really lose a few pounds as you are in the ‘overweight’ category I am sure most of us think “Yeah but could be a lot worse” and take no remedial course of action as there has been no health impact. In the past 12 months this has also been the state of most developed Western Economies.
First we had the Credit Crunch, then we are in recession, then out of recession and in the past few months it’s all been talk of deficit and debt. But what real impact has this had to the (wo)man on the street? Most ‘hard working families’ have probably been a bit better off with record low interest rates knocking hundreds of pounds a month of their mortgage commitments and allowing a pain-free spending spree for many.
As a result in 2009 when the motor industry and cruising had a dire start to the year, by the time we got the second half of the year, people were used this extra cash in their pocket and generally feeling better off. Job cuts had not been as bad as feared, there was no housing market crash, so why worry? Yes the TV news rambled on about deficits and borrowing but it was not actually affecting many people. In the UK a General Election meant no party was going to do anything rash to begin to balance the books ( and hence make themselves unpopular) so the country continued signing blank cheques to cushion the recession blow.
So in 2009 and 2010 there has been a surge on spending and the cruise industry has been a very happy chappy. Bookings up 10%+ early this year, bright shiny new ships capturing new interest, and in response (and with more than a little arrogance) the cruise lines RAISED their prices to cash in on the boom.
However, the General Election has passed, we’ve seen an Emergency Budget that will take a couple of hundred pounds a year out of most working people via TAX and VAT rises. And in the Autumn the spending review will start seriously cutting public funding that can only result in public sector job losses. This will also cut major infrastructure and IT projects so there will also be hundreds of thousands of private sector jobs under threat as well.
“Yeah but we keep hearing this on the news every day, so what”, I hear you ask; well I remember writing a similar blog back in 2008 about the outlook for the first half of 2009 and we certainly did have a very problematic 6 months. But this post is titled “The Perfect Cruising Storm” so let me focus on this big market in the travel sector.
There has been a glut of new ships being launched this last year and this year, all of them ordered 2 or 3 years ago when the economic climate was still good. Decadent luxury with Celebrity Equinox and Eclipse, the enormous 6,000 passenger Oasis of the Seas and her sister Allure of the Seas (launching December), some ‘more of the same’ with P&O’s Azura and Ventura. Cunard’s twin sister Queen Elizabeth to pair up with Queen Victoria and the ‘ugly outside, pretty inside’ NCL Norwegian Epic. Come the end of this year there are very few new boats being launched. The ship yards order books for new cruise ships are very empty. The net effect of all these new cruise ships coming on-stream is an uplift in capacity of over 25,000 extra people. These ships need to be 95%+ full 365 days of the year to break even.
“But more people are cruising you said?” Yes that has been the story over the past 12 months as people have become more affluent, pain free. It’s not just the “newly wed and nearly dead” who have been the traditional cruisig types but families seeing the advantage of one price; all food, accommodation and entertainment. With the upcoming spending cuts, and the inevitable job losses, would you comit yourself to a family holiday that costs 50% the price of a new car? It sounds a lot but let me give you a real example from the cruise.co.uk this morning; a family of 2 adults and 2 kids on a fortnights cruise on Independence of the Seas on 6th August 2011 would have to pay £6,444.44 for an outside cabin. Now that’s not even a balcony. This is also a discounted price and not the cruise line brochure fare. Now if you have not familiar with cruise ships or brands Royal Caribbean’s Independence of the Seas is a 4,700 passenger cruise ship sailing out of Southampton that is equivalent to a Center Parcs land based holiday; that is; it is aspirational, but not luxury, but is also considerably more than a Butlins type experience!
According to the Office of National Statistics in 2009 the average UK wage was just over £25k a year in 2009 so to take a family of 4 on this cruise you would require a family to save £537 a month, and that’s before you add on excursions or spending money.
As I write this article on 1 July 2010 there seems to be a growing detachment from the price of a cruise and the economic reality that’s approaching. This has been the boom time for cruising but I have substantial questions about the viability of SOME ships over the next 5 years. Now I am not a doom peddler at all, indeed if what I outline pans out over the next 12 months there will be some amazing bargains to be had. In the past 2 weeks I have seen some very good discounts for cruises this summer with some of the ‘also ran’ cruise ships. That is; cruise ships that are not aimed at families or brand new crowd pullers. One brand consistently appearing on these lists is P&O who seem to be struggling to fill ships right now in the face of stiff competition from Royal Caribbean, Celebrity and Cunard.
Now before we all start rubbing are hands in collective glee with the prospect of bargains, keep in mind that cruise ships are not tied to any country or market. As the developed western economies try to balance the books other parts of the globe are booming and cruise ships can swiftly re-locate. My advice is to hold back until first quarter next year. The cruise conglomerates will be reviewing capacity and potentially discounting to shift cabins, combined with some people who may have booked in the rush this year but can no longer afford the final payment of thousands of pounds. All of the above is written on the assumption that interest rates stay at the record low level, well we all know they can’t and imagine if they begin to rise in 2011…….2011 The Perfect Storm.



