Kul-24.4110 Ship Project A

Course project Ship cost and profitability Post-Panamax cruise ship with two-floor loft cabins

Aleksi Airinen, 81809S Andres Rene Kurmiste, 399915 Rainer Klein, 399779

Aalto 2014

Contents 1. Introduction ...... 3

2. Newbuild cost ...... 3

2.1. Parametric analysis ...... 3

2.2. Detailed acquisition cost estimate ...... 7

3. Profitability ...... 9

3.1. Operating costs ...... 9

3.2. Annual revenue ...... 9

3.3. Profitability analysis ...... 10

4. Bibliography ...... 11

1. Introduction

Cruise ships are among the most expensive ships in the world. Not only is their newbuild cost very high, so are also the operating costs. Because of this, economic considerations must be made carefully. A sufficient yearly revenue must be ensured so that the ship can be profitable. In this assignment the cost for building the ship will be estimated, as well as the profitability of the project.

2. Newbuild cost

Two methods were used for estimating the building cost of the ship. First, a parametric study and an overhead cost analysis that is based on the indursty guidelines and reference ships. Second, a breakdown of ship’s components and areas as done in the previous assignment when calculating the weight (NSFI method). The results of these methods will be compared and analyzed.

2.1. Parametric analysis

Starting with the parametric analysis, data from reference ship is needed. This gives out the baseline values that can be compared to the values calculated later. The preferred measure for a cruise ship in the industry is a ship’s gross tonnage (GT). As previously calculated, our ship’s gross tonnage is approximated to be 234 000 GT. From Table 2 below we can estimate our ship’s space ratio. As our ship is very luxurious, we will take the space ratio value of 70, corresponding to other luxurious cruise ships. Thus, our passenger capacity is calculated as follows:

Our GT 234000 CapacityPax = = = 3342 pax Space ratio 70

Table 2 The amount of crew required is calculated next. Taking the guest to staff ratio from below that corresponds to luxury ships, we get the value 1,5. The crew capacity is:

Capacity Pax 3342 CapacityCrew = = = 2228crew Guest tostaff ratio 1,5 The total capacity is:

Capacity Capacity Capacity 3342 2228 5570 Total = Pax + Crew = + =

The initial cost of building our ship was done on the Ship Conceptual Design course, and was calculated using a simple formula as

€ 3570 ���������� X 350 000 = � ��� ��� ��� € �. �.

This was thought to be a reasonably good estimate when comparing to the previously largest cruise ship, Oasis of the Seas. It’s slighty smaller and it’s building cost was roughly 1 billion euros.

Table 1. Largest cruise ships in the world.

DWT, Passenger Capacity, Guest to Space Ship's name Year L , m L , m B, m D, m T, m GT V, kn Staff OA PP ton decks Double staff ratio ratio

Allure of The Seas 2010 360 329,95 47 22,5 9,30 225282 19750 22 16 5400 2384 2,27 41,72

Oasis of The Seas 2009 360 330,65 47 22,5 9,30 225282 15000 22 15 5400 2394 2,26 41,72

Norwegian Epic 2010 329,45 288,8 40,64 21,6 8,7 155873 10850 20,2 15 4100 1753 2,34 38,02 Freedom of the 2006 338,774 303,213 38,592 11,699 8,8 154407 10500 21,6 15 3634 1360 2,67 42,49 Seas Liberty of the Seas 2007 338,92 303,28 38,60 11,699 8,50 154407 10500 21,6 15 3634 1360 2,67 42,49

Independence of 2008 338,72 303,171 38,6 11,699 8,8 154407 10500 21,6 15 3634 1360 2,67 42,49 the Seas

Queen Mary 2 2003 345 301,35 41 44,99? 10,3 148528 19189 26,5 13 2620 1253 2,09 56,69 Norwegian 2013 325,64 300,12 39,7 11,4 8,6 145655 21 14 4028 1595 2,53 36,16 Breakaway Royal Princess 2013 330,00 38,40 8,50 142714 12512 22 15 3560 1346 2,64 40,09

MSC Divina 2012 333,33 296 37,92 15,50 8,65 139072 13188 22,99 14 3502 1370 2,56 39,71

MSC Preziosa 2013 333,33 296 37,92 15,50 8,65 139072 13188 24,05 14 3502 1388 2,52 39,71 Navigator of the 2002 311,00 274,73 38,60 21,30 8,60 138279 9616 22 15 3114 1213 2,57 44,41 Seas Mariner of the Seas 2003 311,12 274,73 38,60 21,30 8,60 138279 9616 22 15 3114 1185 2,63 44,41

MSC Splendida 2009 335 296 37,92 8,29 137936 13413 22,5 13 3274 1332 2,46 42,13

MSC Fantasia 2008 333,3 296 37,92 18,29 8,65 137936 15000 22,55 13 3274 1332 2,46 42,13 Explorer of the 2000 311 274,7 38,6 11,7 8,3 137308 10937 22 15 3114 1185 2,63 44,09 Seas Voyager of the 1999 311 274,7 38,6 11,7 8,80 137276 11132 22 14 3114 1176 2,65 44,08 Seas Adventure of the 2001 311 275,35 38,6 11,7 8,60 137276 11033 22 15 3114 1185 2,63 44,08 Seas

Disney Dream 2011 339,8 297 37 21,75 8,32 129690 9800 22 13 4000 1458 2,74 32,42

Disney Fantasy 2012 339,8 297 37 21,75 8,32 129750 9500 22 14 4000 1450 2,76 32,44

Carnival Dream 2009 305,471 269,7 37,18 11,21 8,20 128251 13815 22,5 14 3646 1367 2,67 35,18

Carnival Magic 2011 305,471 269,7 37,18 11,21 8,40 128048 13800 22,5 14 3690 1367 2,70 34,70

Carnival Breeze 2012 305,5 269,7 37,18 11,21 8,20 128052 10250 22,5 14 3690 1386 2,66 34,70

Celebrity Reflection 2012 319 293,7 37,4 11,3 8,60 125366 9500 24 13 3046 1250 2,44 41,16

Celebrity Silhouette 2011 315 293,7 36,8 11,3 8,30 122210 9500 24 13 2886 1500 1,92 42,35

Celebrity Solstice 2008 317,192 293,58 36,79 11,3 8,30 121878 9500 24 13 2850 1500 1,90 42,76

Celebrity Equinox 2009 317,2 293,58 36,8 11,3 8,30 121878 9500 24 13 2850 1250 2,28 42,76

Celebrity Eclipse 2010 317,141 293,58 36,8 11,3 8,30 121878 9500 24 13 2850 1271 2,24 42,76

Table 2. Luxury cruise ships.

DWT, V, Passenger Capacity, Guest to Space Ship's name Year L , m L , m B, m D, m T, m GT Staff OA PP ton kn decks Double staff ratio ratio

Queen Mary 2 2003 345 301,35 41 44,99? 10,3 148528 19189 26,5 13 2620 1253 2,09 56,69

Queen Elizabeth 2010 294 265,36 32,3 8 90901 21,7 12 2092 996 2,10 43,45

Queen Victoria 2007 294 32,25 7,9 90049 7685 18,7 12 2014 900 2,24 44,71

Marina 2011 251 213,36 32,2 37,07 7,32 66084 6000 20 11 1250 800 1,57 52,87

Riviera 2012 251 32,2 37,07 7,32 66172 7662 20 11 1250 800 1,57 52,94

Mariner 2001 216 187 28,8 16,5 7 48075 4700 20 8 700 445 1,57 68,68

Voyager 2003 206,5 177,1 28,8 15,7 7,05 42363 5400 20 9 700 447 1,57 60,52

Odyssey 2009 198,19 169,2 25,6 15,25 6,40 32346 3000 19 10 450 335 1,34 71,88

Sojourn 2010 198 169,2 25,6 11,85 6,40 32346 3000 19 10 450 330 1,36 71,88

Quest 2010 198 169,2 25,6 15,25 6,40 32346 3000 19 10 450 335 1,34 71,88

Spirit 2009 195,80 26,49 5,79 36009 4000 20,3 9 540 376 1,44 66,68

Shadow 2000 185,99 24,81 11,31 6,04 28258 2977 21 7 382 302 1,26 73,97

Whisper 2001 185,99 161,8 24,81 11,31 5,97 28258 2980 21 7 382 295 1,29 73,97

Regatta 1998 181 154,85 25,46 18,1 5,95 30277 2700 18 9 684 400 1,71 44,26

Nautica 2000 181 157,85 25,46 18,4 5,95 30277 2948 18 9 684 400 1,71 44,26

Insignia 1998 180,96 25,45 5,94 30277 18 9 684 400 1,71 44,26

Navigator 1999 170,69 150,18 24,8 12,3 7,302 28803 3342 20 8 490 345 1,42 58,78

Cloud 1994 156,21 21,64 5,49 16927 2177 20,5 6 296 210 1,41 57,19

Wind 1995 156,21 21,55 5,79 16927 1790 20,5 6 296 210 1,41 57,19

2.2. Detailed acquisition cost estimate

Another method of estimating the ship’s cost is to systematically categorize it’s components and estimate the cost based on weight (NSFI method). This is especially useful in the early stages of design where the general cost structure will be known. Also, since we already used the method for estimating ship’s weight in the previous assignment, we can use the same tables for ship’s cost. With this method, not a high degree of accuracy is needed for budgeting as variations in the price are to be expected. Therefore, some approximations will have to be made.

Based on its function, a ship component can be assigned to an appropriate category for which historical data is available. As such, approximate unit costs can be applied in order to calculate a total weight for any component, subsystem, or system. During the first iterations of the design spiral, eight cost groupings are sufficient to differentiate between different items while ensuring that component costs within a single group do not differ significantly. The groups were ship general, hull (including superstructure), equipment for cargo (when applicable), ship equipment (transverse thrusters, anchoring and mooring systems, crew and passenger equipment (e.g. public areas and cabins), main machinery, supporting machinery, and common systems. For each group, a unit cost per tonne is provided based on statistical data (Watson, 1998) that was adjusted for inflation to present it’s net present value. The results are shown in Table 3 below.

Table 3. Cost per ton.

Weight Cost per ton Ship general 0.0 5700 Hull 56386.0 5700 Equipment for cargo 0.0 19000 Ship equipment 350.7 22000 Equipment for crew and passangers 27561.5 25000 Machinery main 2773.0 22000 Machinery support 750.0 22000 Common systems 145.0 7000

Though the provided grouping is adequate for defining similar costs between components, the final costs should be reported using the same breakdown structure from the weight estimate. Consistency in this regard is very important, as direct comparisons cannot be made with different methods. Therefore, the individual components from the weight breakdown were assigned to their appropriate cost group based on the aforementioned definitions. Following this, the respective unit cost per ton was applied and all components were summed for each group. The resulting total cost can be taken as the new estimation for acquisition. Table 4 below shows the cost summary.

Table 4. Newbuild cost summary.

Weight Cost per ton Total cost

Ship general 0.0 5700 0 Hull 56386.0 5700 321400200 Equipment for cargo 0.0 19000 0 Ship equipment 350.7 22000 7715400 Equipment for crew and passangers 27561.5 25000 689037000 Machinery main 2773.0 22000 61006000 Machinery support 750.0 22000 16500000 Common systems 145.0 7000 1015000 1096673600

The resulting cost, 1 096 673 600 euros (1,1 billion euros) is close to the parametrically estimated one. When adding the shipyards profit margin as well as accepting fluctuations in the prices, and taking into account the design margin (Jantunen, 2013), we can conclude that the initial estimate of 1,23 billion euros is acceptable and verifies the chosen method. The results with the margins are brought to Table 5 below. The final total cost of the ship is 1,22 billion euros.

Table 5. Total cost Estimated newbuild cost 1096673600 Shipyard's margin 65800416 Design margin 54833680 Total cost 1217307696

3. Profitability

Next the was to evaluate the profitability of the ship. The goal is to calculate the minimum ticket price needed per person in order to ensure that the ship is profitable over the entire service life. This can be accomplished with the required freight rate analysis, which can be considered a required ticket rate calculation for a passenger ship (Levander, 2004). This is a common method used for ships designed to create revenue, such as cruise ships. There are many required inputs, including the initial cost, ship service life, re-sale value, passanger capacity, daily passenger costs, cruise fare, operating days per year, annual revenues, annual operating costs and equivalent uniform annualized costs. The operating days per year is taken as 340 days to allow for ample reserve time for maintenance and the resale value is an estimated 25% of the acquisition cost. The service life was estimated as being 15 years.

3.1. Operating costs

The operating costs were divided into a six level breakdown structure that were fuel, port docking & other fees, crew payroll, maintenance & capital, consumables, miscellaneous. Of these, fuel cost is a major player. Other groups that take up high costs are crew payroll (a very large crew) and consumables.

3.2. Annual revenue

The revenues for a cruise ship are largely depended on the expected ticket fares. Table 6 below shows the expected rates. In addition to ticket fares, cruise ships make a major profit on daily passenger spending that includes wining and dining, spas, excursion to shore, etc.

Table 6. Tickets rates by tonnage and category.

3.3. Profitability analysis

When taking into account all the revenues and operating costs, the following simplified profitability calculation was obtained, shown in Table 7 below.

Table 7. Profitability analysis Estimated Annual Costs M€ Fuel costs 125 Port fees 25 Crew payroll 70 Maintenance & capital 15 Consumables 45 Miscellaneous 20 Total 300

Estimated Annual Revenues M€ Ticket sales 250 Passenger spending 150 Total 400

Annual perating profit 100

With this calculation the cruise ship would make an annual operating profit of 100 million euros, where the ticket price for a single cruise is 410 euros. 4. Bibliography DNV. (1995). Stability and watertight integrity. Jantunen, O. (2013). Passenger Ship Design, Criteria, Functions and Features. Turku. Levander, K. (2004). Passenger Ships. Ship Design and Construction Vol. II. Society of Naval Architects and Marine Engineers. Remes, H. (2014). Kul-24.4110 Ship Project A lecture notes. Espoo. Watson, D. (1998). Practical Ship Design. Oxford, Elsevier.