Tallink Grupp, the Estonian ferry company, said on 21 July that it had chartered the 1993 built cruise ferry Silja Europa to Bridgemans Services Ltd, the Canadian floating accommodation services provider. This is positive for the cruise ferry market in the Northern Baltic, which has suffered from persistent overcapacity, and for ferry owners as it confirms a trend that ever larger ageing vessels can be employed in this way.
Silja Europa is the second vessel that Bridgemans has chartered from Tallink: the first unit was the 1986 built 34,000 gross ton Silja Festival, which is now employed in the West Coast of Canada. It was converted to accommodation vessel use so that it now has 575 single cabins.
Silja Europa is much larger at 59,912 gross tons and it has 1,152 cabins that can accommodate 3,123 persons. It is likely that all single accommodation will be introduced on this ship as well, which again would mean that its return to cruise ferry service in the future is unlikely.
Cruise ferry business in the Baltic in general and in the northern part of it in particular used to be highly profitable up to the late 1980s. However, early in the 1990s Finland, the main source of passengers, plunged into a deep recession that wiped 15% off its gdp in the three years 1991-93. While recovery after that was rapid, sinking of the ferry Estonia in September 1994 with heavy loss of life derailed recovery in the fortunes of the ferry companies.
As the decade progressed, the travel offerings become more varied as cheap air travel became possible also in northern Europe. Abolition of duty free sales in 1999 in intra-EU travel did not impact major cruise ferry routes in Northern Baltic as most of these could be diverted to call at the Aland Islands, which are Finnish territory but outside the EU’s tax regime.
A major newbuilding boom took place in the turn of the 1980s and 1990s, which resulted in overcapacity at a time when the demand was already drastically weakening due to a recession in Finland from 1991 onwards. Tallink embarked on a newbuilding programme early in the last decade, but its 18 strong fleet still includes some old ships from the early days of the company plus the 2006 acquisition of Silja Line, perhaps the best known mame in the cruise ferry business.
In the years 2008-13, Tallink has generated total revenues of €5.41 billion, but only made €169 million in net profit. Viking Line, its smaller Finnish competitor that has two modern ships in its seven unit strong fleet, produced revenues of €3.10 billion and net profit of a mere €67.9 million in the same five year period.
It is obvious that companies like these two must improve their profitability in order to allow them to replace ageing units in their fleets with modern tonnage. To reduce overcapacity, a curse that has plagued the business for almost a quarter of a century, must be a key element in achieving this. Closing some routes may follow as a consequence, but with new emission control rules due to take effect from the start of 2015 that will result in a marked rise in fuel costs or trigger need to invest heavily in scrubber technology, leaves operators with little choice.
Stockholm, the Swedish capital that has a population of 2.0 million, may be the cruise ferry capital of the world, but Swedes are not excessively keen to sail on the ferries to ports on the eastern side of the Baltic. As some major vessels are close to 30 years old, they certainly have no novelty value. Many customers from the Baltic countries, such as Estonia and Latvia, will probably travel on a stringent budget.
In the past, owners made lots of money by selling tonnage only a few years old to buyers elsewhere in Europe at prices that sometimes exceeded the cost of the ship when new. This funded large part of the cost of newbuildings that followed each other at a quick pace.
This has not, however, been the case for many years any more. If anything, buyers have been difficult to find. With emergence of companies like Bridgemans Services and C-Bed that buy old ferries for use as flosating accommodation, a new window has opened for cruise ferry owners to find employment, and in some cases buyers, for unwanted, aged tonnage.
