Top Headlines

Cruise Business Commentary – Why Discovery impairment could be significant

Details: Written by Kari Reinikainen Kari Reinikainen; Category: Top Headlines Top Headlines; Published: 17 February 2014 17 February 2014

Last week, All Leisure group in the UK that owns three niche cruise brands and four ships, said it would book an £6.7 million impairment charge against the 1972 built cruise ship Discovery.

“The market value of mature cruise ships has reduced significantly in the last 12 months and it has been decided that the loss-making mv Discovery will be disposed of at the end of this summer,” All Leisure said in a trading statement issued prior to the release of its 2013 results, which is due on 24 February.

What makes the statement of importance is that despite the fact that several first generation cruise ships, such as Discovery, have been sold for scrap in recent times, many remain in service.

Fred. Olsen Cruise Lines, another UK company, has two units of the long since defunct Royal Viking Line’s 1972-73 original trio, while Phoenix Seereisen in Germany operates the third ship, on charter. Other German and also British tour operators employ several further mature ships.

Another question is that what exactly does the term refer to? If it means ships beyond the age of 30 years, the period in which the asset is expected to be depreciated when ordered, then it also applies to several second generation ships built in the 1980s.

Indeed, in not too distant future, it will also embrace the third generation ships of the late 1980s and early 1990s, much bigger at some 70,000 gross tons or so than the second generation ships of about 40,000 gross tons .

It is interesting to note that excluding intra-group transfers by Carnival and Royal Caribbean, not a single third generation ship has changed hands as yet.

It lies very much in the interest of the cruise shipping industry’s leading players that no such transaction will take at low values: should this happen, then the valuation of similar vessels in the fleets of these companies would probably have to be reviewed as a result.

All Leisure group puts Discovery up for sale after £6.7 million impairment

Details: Written by Kari Reinikainen Kari Reinikainen; Category: Top Headlines Top Headlines; Published: 13 February 2014 13 February 2014

All Leisure group, the listed British niche cruise shipping company, has decided to put the 1972 built Discovery up for sale after booking a £6.7 million impairment charge against the 20,636 gross ton ship and forecasting a deep loss for 2013.

"Following the annual valuation of the Group’s fleet, the board agreed that market conditions made it necessary to recognise an impairment of approximately £6.7 million to the value of mv Discovery. This non cash item will also be included within separately disclosed items in the results for the twelve months to October 2013," the company said in a statement.

"The market value of mature cruise ships has reduced significantly in the last 12 months and it has been decided that the loss-making mv Discovery will be disposed of at the end of this summer. Following the planned disposal, the company’s underlying profits should benefit from the elimination of mv Discovery trading losses which are currently in the region of £4m per annum," All Leisure said.

This, together with certain other one off items, will lead to a reported unaudited IFRS loss before taxation of between £13 million and £14 million, an increase from 2012 profit before taxation of £0.8m million. Most of the anticipated 2013 losses will stem from non cash items.

Trading has continued as the board had anticipated, the company said. Discovery is operated for most part of the year by Cruise & Maritime Voyages, another British niche cruise shipping company. All Leisure operates cruises under the Swan Hellenic, Voyages of Discovery and Hebridean Island Cruises brand names. The company will publish its 2013 results on 24 February, it said.

TUI's cruise losses mount on continued weakness of Hapag-Lloyd

Details: Written by Kari Reinikainen Kari Reinikainen; Category: Top Headlines Top Headlines; Published: 13 February 2014 13 February 2014

TUI AG, the German travel company, has reported a deepening of underlying operating losses for its cruise operations on continued weakness of Hapag-Lloyd Kreuzfahrten, the luxury and destinational brand, while TUI Cruises continues to improve its strong performance.

In three months to 31 December 2013, the first quarter of the group's financial year, turnover by Hapag-Lloyd Kreuzfahrten rose by 7% year-on-year to €55 million due to the capacity increase achieved with the launch of Europa 2. "No turnover is shown for TUI Cruises as the joint venture is measured at equity in the consolidated financial statements," the company said.

"Due to the low occupancy and increased capacity in Hapag-Lloyd Kreuzfahrten and the two dry-dock periods of Europa, the operating result of the Cruises Sector decreased to a loss of €16 million (previous year a loss of €11 million). TUI Cruises continued to show a positive development in the period under review. Demand for the two winter lanes, Caribbean and Canaries, was strong," TUI said.

Occupancy of Hapag-Lloyd Kreuzfahrten decreased by 7 percentage points to 60.8% (previous year 68.1%). The average rate per passenger per day fell slightly by 1.3% to €368. " Both indicators were strongly impacted by the time in dock, which caused changes in the cruise programme,the company said.

“In Hapag-Lloyd Kreuzfahrten, we have initiated the turnaround by means of a change in management. In total, I am therefore far more optimistic for this segment than I was a year ago,” said Friedrich Joussen, group ceo, in a statement.

Thomson Cruises, which operates five ships on the British market, is not included in these figures as it is part of TUI Travel plc, a London based company that is listed there and in which TUI AG is the biggest shareholder.

Britannia to sail on maiden voyage 14 March 2015, to spend winters in Caribbean

Details: Written by Kari Reinikainen Kari Reinikainen; Category: Top Headlines Top Headlines; Published: 12 February 2014 12 February 2014

P&O Cruises, the UK focused contemporary cruise line in the Carnival Corp & plc group, says its 143,000 gross ton newbuilding Britannia will sail on its first cruise on 14 March 2015 from Southampton and after a season of cruises from there, the ship will spend winters in the Caribbean.

"When the biggest ship built for the British cruise market sets sail on its maiden voyage from Southampton to the Mediterranean on March 14 2015 it will mark a step change in holidays at sea.
Britannia’s maiden season will see the ship sail from Southampton to the Mediterranean, Norwegian Fjords, Canary Islands and the Baltic Sea, as well as offering a range of short breaks and a special round Britain cruise," the company said in a statement.

The ship will then transfer to the Caribbean for the winter season sailing a range of 15 night fly/cruise itineraries from Barbados.

P&O Cruises marketing director Christopher Edgington said: “Britannia will introduce cutting edge design combined with a range of innovations uniquely styled to appeal to those who may not have considered a cruise holiday before as well as our many loyal past passengers.

“Combining the excitement of cruising with the sophistication of a five star hotel, Britannia is not only the biggest ship built for the British market but the most glamorous too. We have set out to make Britannia the biggest and the best and we are confident passengers will be wowed by the experience.

Edgington added: “Britannia will showcase an incredible array of facilities for children and teenagers including dedicated teens pool area and we have ensured that our prices remain constant throughout the year irrespective of the timing of the peak school holiday periods. We are conscious of the hardship families face when taking holidays at these time and are therefore committed to fair pricing throughout the year.”

Genting Hong Kong signs contract for second newbuilding with Meyer Werft

Details: Written by Kari Reinikainen Kari Reinikainen; Category: Top Headlines Top Headlines; Published: 10 February 2014 10 February 2014

Genting Hong Kong has signed a preliminary agreement to build a second cruise ship at Meyer Werft in Germany for its Star Cruises brand, the company said in a statement.

The second vessel will cost €697.2 million and final contract is subject to settlement of certain terms and conditions. On 7 October, Meyer Werft said it would build a 150,000 gross ton vessel for Star Cruises that will have 1,680 cabins and which is scheduled for delivery in autumn of 2016.

"For the further development of its cruise and cruise related business, the Group reviews its fleet portfolio and deployment options from time to time. Construction of the First Vessel and the Second Vessel is in line with the Group’s long-term strategy in modernising and expanding its fleet for continuing business development and also to strengthen the Group’s market penetration in the Asia Pacific Region. It is our present intention that the Second Vessel will be designed to cater for the unique demands of Asian clientele, in particular, Singapore, Malaysia and Thailand," Genting Hong Kong said.

"The Board believes that the First Vessel and the Second Vessel, upon delivery and operation, will further strengthen the Group’s cruise brand, enable the Group to compete more effectively in the cruise industry, and enable the Group to take advantage of growing demand for cruise business in the Asia Pacific market and further improve on its operating efficiency and revenue potential.'

'The Board considers the terms and conditions of the Second Shipbuilding Contract (including the Contract Price) to be determined on normal commercial terms and to be fair and reasonable and in the interests of the Company and its Shareholders,'' Genting Hong Kong said.