Seatrade Whitepaper on Refurbishment in the cruise industry A billion dollars spent on refurbs in six months Published August 2016 Whitepaper: Refurbishment Halfway through this year the cruise ship orderbook reached record levels with 59 vessels on order, representing a total industry investment of more than $44bn. But this was not the only good news for shipbuilders as the first six months of 2016 also confirmed that the cruise sector’s recent drive to refurbish its existing fleet has not only been maintained but has even accelerated significantly. A Seatrade study reveals that 40 ships – about 10% of the global fleet – underwent refits and refurbishments of varying scale and complexity between January and the end of June. Exact costings have only been revealed for about a quarter of these but that alone produced a combined total of $432m on 11 ships and - as most of the others were part of ongoing fleet upgrade programmes which have been costed by the different brands – Seatrade has been able to estimate an industry spend on refurbishment of $1bn in just six months. This underlines the scale of fleet revitalisation that is taking place as cruise lines race to ensure that their existing ships are not overshadowed and their yields damaged by their newbuild programmes which are characterised by ever-larger and more sophisticated ships offering a much richer mix of dining and entertainment options. 2 Whitepaper: Refurbishment This trend was highlighted in the recent CLIA (Cruise Lines International Association) economic impact study for the European cruise sector. This showed that €932m was spent on cruise ship refurbishments at European shipyards in 2015. This was more than treble the amount (€305m) spent in 2008 and 58% more than the €591m invested in 2010. And, as this was during a period when new ship-ordering stalled due to the economic slowdown that followed the 2008 credit crunch, it meant that the share of the industry’s shipbuilder spend allocated to refurbishments increased sharply from less than 6% in 2008 to more than 20% in 2015. CRUISE LINES SPEND AT EUROPE’S SHIPBUILDERS 2008-15 Source: CLIA 20.3% 19.9% 2014 2015 €906m out of €4,552m €932m out of €4,604m was refurbishment was refurbishment 14% 5.7% 2010 2008 €591m out of €4,222m €305m out of €5,322m was refurbishment was refurbishment 3 Whitepaper: Refurbishment That rise in share may slow with the current increased rate of newbuild orders but – even as it stands – it already underestimates the real growth of refurbishment spending as – unlike newbuilding – the European shipbuilders do not have a virtual monopoly on such contract work. In fact: More than half of the ships which had refits or full 23 refurbishments carried out between January and the end 40 of June this year were sent to shipyards outside Europe and one of these – Grand Bahama in Freeport – was the clear market-leader with 14 ships (plus another five scheduled for the second half of the year). Unlike with newbuilds, time out of service has to be taken into the cost equation for a refit so the location of the ships vis a vis the shipyards is an important factor – hence Grand Bahama’s market-leading share of the refit business reflects the continued market-leading deployment dominance of the Caribbean. In the same way, the current focus on Asia is helping SembCorp win more refit contracts – three in the first half of this year including the $30m upgrade of Sun Princess (Princess Cruises). 4 Whitepaper: Refurbishment Seven Seas Navigator - Compass Rose While Victoria BC, which has benefited as a transit cruise port from the emergence of Seattle as a homeport for Alaskan cruises, is also utilising its location to entice ships (two between January and June) for small-scale refits at its shipyard. In Europe, one of the emerging frontrunners in the cruise refurbishment niche is Navantia in Cadiz which worked on three ships during that period, including the $50m facelift for Empress of the Seas (Royal Caribbean International). Another is Marseille, which saw its new focus on refurbishments pay off with two $40m-plus contracts for sister brands Oceania Cruises and Regent Seven Seas Cruises. These covered the conversion of the newly-acquired Sirena for Oceania and - the first of three such upgrades for the brand – the Seven Seas Navigator for Regent Seven Seas Cruises. 5 Whitepaper: Refurbishment Queen Mary 2 pictured at Blohm+Voss shipyard during her 25-day major refit Cunard Line was renowned for the scale of its refits well before the current trend was established with hundreds of millions of dollars being spent on its most famous transatlantic liner, QE2 and the latest one – on Queen Mary 2 – continues to dwarf all others in 2016. Cunard spent $132m during a 25-day stay for the ship at Blohm & Voss in Hamburg. This covered the addition of 30 balcony cabins and 15 single cabins plus the replacement of one lounge and one restaurant, the upgrade of the Queens and Princess Grill restaurants along with that of the qualifying suites and the complete overhaul of the Kings Court venue. It was still not the largest-ever refurbishment bill, which still belongs to Carnival Cruise Line which spent $155m on Carnival Destiny in 2013 to turn it effectively into a new ship (with a new name, Carnival Sunshine). But generally the numbers are getting larger all the time. Holland America Line was arguably the first to establish an ongoing commitment to fleet upgrades with its Signature of Excellence programme. This continues to this day with $300m earmarked between now and the end of 2018. But Royal Caribbean International quickly responded with its own “revitalisation” of its existing ships while the success of the new Solstice class for Celebrity Cruises has led to the “solsticisation” of others ships in the fleet. 6 Whitepaper: Refurbishment Carnival Cruise Line is now part-way through its $500m plan for its so-called “Fun 2.0” upgrading of its ships, which meant it had the most ships – seven (including six at Grand Bahama) – of any brand in shipyards in the first half of the year. At the same time, Royal Caribbean International had five ships in for revitalisations costing between $30m and $60m apiece while Norwegian Cruise Line is just starting its two year “Norwegian Edge” plan to spend $400m on its private island plus nine ships, with three going through the process at the start of the year. The Norwegian Cruise Line programme reflects a significant change for the brand following the merger with the two-brand Prestige Group with new CEO Frank del Rio deciding that the average refit costs for their ships should effectively double to about $35m. At the end of 2015, MSC Cruises had completed its €200m Renaissance project to upgrade its Lirica-class ships so that they could be marketed more effectively alongside the much larger and more sophisticated ships it has built since – and is continuing to build. Part of this programme involved “stretching” the ships to increase both their capacity and public areas. This is an extreme solution which is still only sparingly used within the sector – even with the much-increased focus on refurbishment and unity of fleet offerings. For the majority of refits, the brands usually take one of four options: a refit involving basic elements such as routine technical maintenance and re-carpeting; a technical upgrade such as the addition of scrubbers or wastewater systems; a retrofitting exercise where a few of the most popular features (bars, dining venues, water-slides etc) on a brand’s new ships are added; and a full refurbishment or revitalisation which might also involve creating new accommodation. The cost variation for the majority of refits is roughly from $5m up to $150m with the majority falling in the $30m-$50m range 7 Whitepaper: Refurbishment During the two years to the end of this year, about 20% of the ships - 34 in all - within the fleets of the top three companies (Carnival, RCC and NCLH) will have received these major refurbishments. And, with nearly two-thirds of the ships in those fleets being more than 10 years old, this trend is set to continue especially as the three companies also dominate the newbuilds orderbook. OCEAN CRUISE SHIPS REFURBISHED JAN-JUNE (SHIPYARD) Carnival Cruise Line TUI Cruises Saga Cruises Carnival Fantasy (Grand Bahama, Mein Schiff 3 (Valletta, Malta) Saga Sapphire (Blohm & Voss) Freeport) Carnival Inspiration (Portland, Oregon) Carnival Magic (Grand Bahama) Carnival Splendor (Grand Bahama) Thomson Cruises Carnival Sunshine (Grand Bahama) Holland America Line Thomson Spirit (Valletta) Carnival Triumph (Grand Bahama) Maasdam (Grand Bahama) TUI Discovery 1 (Navantia, Cadiz) Carnival Valor (Grand Bahama) Oosterdam (Palermo, Sicily) Seabourn Royal Caribbean International Seabourn Quest (Mariotti, Italy) Empress of the Seas (Navantia, Cadiz) Cunard Line Jewel of the Seas (Grand Bahama) Queen Mary 2 (Blohm & Liberty of the Seas (Grand Bahama) Voss, Hamburg) Majesty of the Seas (Grand Bahama) Windstar Cruises Radiance of the Seas (SembCorp, Star Pride (Trimline, Barcelona) Singapore) Princess Cruises Coral Princess (Grand Bahama) Regent Seven Seas Cruises Sun Princess (SembCorp) Seven Seas Navigator (Marseille) Norwegian Cruise Line Norwegian Dawn (Grand Bahama) Pride of America (BAE Systems, San Francisco) AIDA Cruises Crystal Cruises Norwegian Sun (BAE Systems, AIDAcara (Navantia) Crystal Serenity (Victoria, BC) San Francisco) Fathom Residensea Adonia (Grand Bahama) The World (Wartsila, Finland) Azamara Club Cruises Azamara Journey (Grand Bahama) Azamara Quest (SembCorp) Oceania Cruises Hurtigruten Sirena (Marseille) Polarys (Fosen, Norway) King Harold (Fosen) Nordkapp (Fosen) Celebrity Cruises Spitsbergen (Fosen) Celebrity Millennium (Victoria, BC) Celebrity Summit (Grand Bahama) 8.