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Cruise Business Commentary - Next few weeks in Ukraine hold key to Black Sea season

Details: Written by Kari Reinikainen Kari Reinikainen; Category: Top Headlines Top Headlines; Published: 03 March 2014 03 March 2014

The cruise industry is waiting on its toes to see what way events in the Ukraine will develop and the next few weeks in the region will play a decisive role for the cruise season in the Black Sea, an industry expert says.

"So far, the events (in Ukraine) haven't had an impact, because the cruise season hasn't started yet. The next few weeks will be decisive," said Peter Wild, head of G.P. Wild (International), the UK based consultancy company.

"I am fairly sure that cruise lines are reviewing their itineraries," he told Cruise Business.

In case that the situation does not calm down, lines may be forced to redeploy vessels at a short notice. This has happened quite a few times in recent years as political unease in Northern Africa, from Tunisia in the west to Egypt in the east, has compromised plans of cruise operators.

A continued turmoil in the Ukraine is unlikely to affect the Mediterranean as such, because the Black Sea is viewed as a separate market. In addition, Turkey remains on the map of international tourism despite political upheavals there too.

The Eastern Mediterranean market continues to suffer from developments in Egypt, whereas the much more violent situation in Syria has not had much of an effect as that country has not been a mainstream destination of cruise lines, Wild pointed out.

The recently concluded winter Olympics in Sochi brought the Black Sea region into the spotlight and several ports in the area have actively promoted themselves as cruise destinations. Yalta in Crimea is one of the marquee ports in the region and it is located in the area affected by current turmoil. Odessa in the Ukraine is another core destination of Black Sea cruise itineraries.

Cruise Business Commentary - FOCL impairment charge highlights valuation concerns

Details: Written by Kari Reinikainen Kari Reinikainen; Category: Top Headlines Top Headlines; Published: 27 February 2014 27 February 2014

KEY POINTS:

1.Company books NOK411 million impairment charges against fleet of four ships

2. These include 1993 built Braemar and 1988 built Balmoral

The decision of Fred. Olsen Cruise Lines to book an impairment charge against the value of its ships did not come as a surprise after All Leisure group in the UK had earlier this month booked a £6.7 million impairment against the value of its 1972 built Discovery of 20,636 gross tons.

However, what is noteworthy in the decision of Olsen is that it includes two ships that younger than 30 years, which is regarded as the depreciation time of major capital assets like ships. The company has reported losses for some time and as the valuation of any asset is ultimately dependent on its ability to generate profits for its owner, this could be understood.

Furthermore, all ships in the Olsen fleet have received major upgrades in the past decade, the two oldest units have been re-engined, while Braemar and Balmoral have been lengthened. This must have increased their book value.

A question that arises from today's news is whether the book values of third generation cruise ships, such as the Fantasy class of Carnival Cruise Lines and Sovereign class of Royal Caribbean Cruises Ltd. will require an impairment.

These ships that largely lack balcony cabins must obtain markedly lower yields than more modern tonnage that features more balconies. The question of valuation may, therefore, refuse to go away from the agenda.

Fred. Olsen books NOK411 million impairment charge against fleet

Details: Written by Kari Reinikainen Kari Reinikainen; Category: Top Headlines Top Headlines; Published: 27 February 2014 27 February 2014

Fred. Olsen Cruise Lines (FOCL), which is jointly owned by Olsen family's two listed holding companies Ganger Rolf and Bonheur, has booked an NOK450 million impairment charge against its fleet of four vessels, Ganger Rolf said in a statement, adding that this dragged both the final quarter and full year 2013 results deep to the red.

"After an evaluation of estimated market values versus booked values of the vessels at year-end, FOCL has written down the book values of MV Braemar by NOK 145 million, MV Balmoral NOK 179 million, MV Boudicca NOK 46 million and MV Black Watch NOK 40 million," Ganger Rolf said.

Braemar is of 24,000 gross tons and it was built in 1993, while Balmoral is five years older and measures at 45,000 gross tons. Boudicca and Black Watch are of 28,000 gross tons and date to 1972-73. All ships are operated on the British market.

The news came about a week after All Leisure group, the listed British boutique cruise shippng company, had booked a £6.7 million charge against the 1972 built Discovery of 20,636 gross tons. The company said the values of mature cruise vessels had fallen markedly in recent times.

FOCL operating revenues in the final quarter of 2013 were NOK 349 million (NOK 337 million in 2012), while operating result before depreciation (EBITDA) was NOK - 9 million (NOK 15 million) and net result was NOK - 537 million (NOK -44 million). "Net result in the quarter is significantly influenced by an impairment of NOK 411 million on the cruise vessels," Ganger Rolf said.

For full year 2013,, FOCL had operating revenues of NOK 1,470 million (NOK 1,628 million). EBITDA were NOK 65 million (NOK 193 million) and net result was NOK - 637 million (NOK - 85 million), Ganger Rolf stated.

"The UK cruise market’s difficult economic conditions and overcapacity continued to result in lower sale and occupancy. The number of passenger days totaled 292 542 (301 935) for the quarter. Net ticket income per diem was 1 % lower compared to the corresponding quarter last year. The average spot price of fuel oil in the quarter was in line with 4 quarter 2012" Ganger Rolf commented.