Inside Opinion: Answer on a Postcard

Cast your mind back to 2008; the bad days of toxic sub-prime, of Fannie, of Freddie, of Lehman and of the financial sky then literally about to fall in on us all. Few really knew how the shipping markets would react.

What about the cruise market? A popular viewpoint at the time was that as it was then dominated by the U.S. consumer, the cruise market would be subject to the vagaries of the U.S. economy. With consumer spending down everywhere, as those who could tightened their belts and those who could not ended up losing their houses, the picture looked bleak.

Surely a cruise is the definition of a big-ticket luxury item? Surely people would give their annual cruise a wide berth until things calmed down? Surely therefore, the huge cruise companies were in serious trouble?

That was the thinking for many.

Impressive Success

It is all the more impressive then, to note the success the sector has had since that time. It was doing well until 2008 and if anything has done even better since then.

The big lines have mastered the art of adjusting ticket price to maintain 105% occupancy, regardless of how bad things are financially. Passenger numbers in the U.S. market continued to grow, despite the economic problems at the time.

Passenger numbers from the non-U.S. market have almost doubled as a percentage since 2008. Lines are basing ships in Europe and Asia now. Occupancy rates have climbed and the secret has always been (for the mainstream lines at least) to use onboard spend (retail, food & beverage and tours, photos etc) as the real cashcow.

It is a remarkably robust business model.

Things that Happen at Sea

Then of course came the tragic loss of one of the Costa megaliners in which more than 30 people died. This demonstrated the vulnerability of even the state-of-the-art floating cities to "things that happen at sea" and publicity for the line and the sector as a whole was very poor for a time as every little mishap was seized on and blown out of all sane proportion by media tragically desperate for catastrophe.

The cruise industry's response? Order more megaships.

I've speculated before that one of the key barometers of economic health,  prosperity and growth is shipping companies ordering large tonnage. The cruise companies ordered very little new large tonnage during the 2008-2011 period of financial hardship, but have begun to flock back to Meyer-Werft, Fincantieri, STX and the rest for ever larger and more innovative vessels.

It is telling that the "big three" – Carnival, Royal Caribbean and Norwegian Cruise Lines - all have their largest vessels yet on order. All three enormous conglomerates are carrying more passengers from the global market, visiting more new ports and doing more new itineraries than ever before, widening global demand.

It has been a fascinating study in how to take on an economic externality - imagine if the commodity companies faced with problems across the product price / demand landscape for iron ore or coal could just widen their business in the same way the likes of Carnival have done?

Crystal Clear Transparency

It is tempting to put one's money where one's big mouth is and buy a few thousand's worth of shares in the big cruise companies (and I'm categorically NOT telling you to go out and do this, nor do I guarantee returns if you do, blah blah blah) but from someone who looks at shipping companies every day there is a lot to like and admire about the way the business is structured and how the dollars are made.

There is tight financial control, there is crystal clear transparency and there is a discernible business plan if you look close enough. There is a lot of safety here as well - the industry post-Concordia is safer now than ever before.

There could be safety for the investor as even a global financial near-meltdown barely made a metaphorical dent. The resilience has been astounding.

I have to ask myself - what, if anything, can stop the cruise juggernaut now? And if the answer is (and I think it is) - "not a lot, actually" - then how big might the cruise sector become?

Answers on a postcard (from Aruba/St Thomas/Juneau/Bahamas/The Maldives/Civitaveccia/Grand Cayman/Phuket/Dubai/The Whitsundays) please.