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Next Generation Cruise Ships Might Not Be the Best

Next Generation Cruise Line, PF

A fundamental change is happening in the cruise industry right now that could affect cruise travelers.

The major lines are still building new ships, but the long-standing belief that the newest ships are always the best might no longer be true. The next wave of cruise ships set to arrive in 2012 and 2013 will be optimized for the new economic reality.

Many of us thought the economy was fundamentally sound until late 2008 and the cruise industry was no different, believing any setback would be short term. Clearly they were all wrong.

The cruise industry is more pliable than many travel businesses, but cruise lines still have to plan several years in advance to design and build new ships. Between 2000 and 2006, several cruise lines designed and hired shipyards to construct the biggest, most elaborate ships ever including the Celebrity Solstice, Marina by Oceania, Royal Caribbean's Freedom of the Seas, Holland America's Eurodam, Silversea's Silver Spirit, Seabourn Odyssey and Disney Dream. This new generation was capped by the two largest and most impressive cruise ships ever, sister ships Oasis of the Seas and Allure of the Seas from Royal Caribbean.

These new ships were not only much larger than previous ones, but the added room was generously allocated to provide more space per passenger - rather than crowding more people into each vessel. These ships were designed to attract a constantly-growing and financially-stable cruise audience--a group the cruise lines assumed they had.

Ironically, the most ambitious ships of this generation were placed on order around 2005, but the building process takes years, and the first of the new breed was delivered in late 2008--just after the economy tanked.

Even more critical, some lines ordered multiple ships of the same design; the shipyard's bid is based on a commitment to build between two and five of each vessel. For example, the original Celebrity Solstice order was for three identical ships, with an option for two more. The deadline to exercise the option for the final two ships came when the recession was still thought to be just a blip. The option to build the fourth and fifth ships was taken, bringing even more high-quality tonnage online at a time when the economy continued to slip.

Here is the big picture: We have just witnessed the introduction of dozens of new ships that are frankly too good for the current economy. They should command higher cruise fares than they are getting, but cruise lines can only set prices that the market will bear. The people who are fortunate enough to afford to cruise right now are finding bargains everywhere.

Changes in Future Ships

The wave of ships just introduced is the greatest generation, because they were conceived during the optimistic pre-2008 economy. But don't expect to see grand ships like these hitting the waters in the coming years.

A new generation of ships based on the "new reality" is already on order from NCL, Princess and Royal Caribbean. As you might expect, these new ships will carry far more passengers per square foot in order to optimize fuel efficiency and return on investment per passenger.

Consider the Celebrity Solstice, designed in 2005 as a 128,000-ton ship (at the large end of the scale for cruise ships) that carries a mere 2,850 passenger berths. (Cruise ship "tonnage," by the way, is a measure of a vessel's interior space, not its weight.) This ship was delivered in November 2008. Compare this to the new ships ordered for delivery in 2012 and beyond.

But things have changed. NCL has two ships on order, "Project Breakaway" vessels slated for delivery in 2012 and 2013. These ships will have 4,000 passenger berths within 144,000 tons. This is about 30% more passenger capacity for a ship that is only about 11% larger. A far cry from Celebrity Solstice's space offering. In fact, when you consider third and fourth passengers in cabins, the total capacity for Project Breakaway ships could be far higher than 4,000.

The new Royal Caribbean order, "Project Sunshine," calls for a 158,000-ton ship that will hold 4,100 passenger berths. Compare it to another Royal Caribbean ship of a similar size--Freedom of the Seas--which is smaller at 160,000 gross tons, but only carrying 3,634 passengers.

The new Princess ships (2013) will come in at 141,000 tons and carry 3,600 passenger berths. Compare this to the line's Diamond Princess class of ships at 116,000 tons and a passenger capacity of 2,670.

What Does This Mean to You?

2009 was the first year in recent history when no new ships designs were ordered by major cruise lines. They already had too much new capacity coming online and were preoccupied with figuring out where to deploy and how to price these ships.

During the last two years, we have even seen a few bursting price bubbles when the cruise lines put too many ships in a specific region that subsequently suffered from lower-than-expected demand.

In 2009, for instance, cruises to Mexico were incredible bargains. There were twice as many staterooms in that market as there are now, but demand for those cruises evaporated almost overnight. In 2010, Alaska cruises were also going for deep discounts. This summer, in an effort to reduce their exposure to Alaska, more cruise lines positioned ships in the Mediterranean Sea, but now that region is suffering from overcapacity and reduced demand.

Many cruise lines are banking on Australia for 2012 and 2013, drawn by the strong currency (just as they were drawn to Europe for the stronger euro in 2010). But the number of ships going to Australia could easily outstrip demand, and 2013 could be the best time yet to cruise in Australia.

While the cruise lines will inevitably market the forthcoming cruise ships most ardently, in fact the "greatest generation" of ships is already here. For decades, the rule of ship selection had been "newer is better," but with this coming generation of new cruise ships starting in 2012 and 2013, that will no longer be true. The best ships will still be those of the 2008 2011 vintage and they could become relative bargains.

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CruiseMates Cruise Glossary

I started writing about stock market investing for Motley Fool in 1995, but previously I worked aboard cruise ships. I co-founded the CruiseMates.com cruise travel guide on the Internet in New York City in 1999. CruiseMates was acquired by Internet Brands in 2006. Once CEO, I am now the editor of CruiseMates.

Paul Motter is the editor of CruiseMates.com, an online cruise guide. Follow him on Twitter @cruisemates.