Cost of building a new ship versus completely updating/renovating an older one?

[cruisemom42]

Recent years have seen a lot of new ships launched for most cruise lines, but it seems (at least to me -- perhaps I'm mistaken) that fewer are planned to launch in the next few years.

 

At the same time, several lines have some ageing ships that are on the market or could be soon. In the past, those ships have tended to be purchased by companies who operate successfully in different markets or with smaller/older ships.

 

But what if I company came along who wanted to take on some of these smaller, older ships and start a new line? A line with mid-size ships at a mid-size price -- as opposed to the extremely large ships of the mass market lines and the small ships of the premium/luxury lines.

 

Is there anyone who knows whether it's cheaper to fully update or renovate an existing ship versus building a completely new one? Would it even be possible to do that and compete with lines like Viking Ocean who are building new mid-size ships?

 

Just curious. I plan to limit my cruising to mid-size or smaller ships in future. It would be nice to have more choice in that range among lines at a reasonable price point.

[bUU]

Older ships have a number of problems that relegate them to other markets. The most prominent problem of those is the general reluctance of American consumers to partake of anything other than what they perceive as "the bright shiny thing". The kind of compromises that consumers in other markets are willing to accept in return for lower fares just don't play well in the American market. Rest assured if there was a market for that cut rate cruise line then one of the big three would create an under-brand, transfer their older ships to that under-brand, and gather in that revenue themselves.

 

This post may have been entered by voice recognition. Please excuse any typographical errors.

[navybankerteacher]

I share your hope - being uninterested in either the bells and whistles or the thousands of other passengers offered on most new builds.

 

Having sailed on Marco Polo (then Orient Lines) in 1996, when she was already on in years I am interested in a repeat either this year or next. Perhaps some ships were just better built, or better maintained, than others, but there does seem to be a "second life" for many of them.

[cruiserking]

Most state of the art mega-ships cost about $1 billion to build.

 

A decent partial or total ship refurbishment can go anywhere from $40 to $200 million.

 

These are typically done for ships around 10 to 30 years old.

 

Jonathan

[chengkp75]

The major cost factor for continuing to operate older ships is not with the parts of the ship that the public sees, but with the behind the scenes infrastructure, most notably the hull. When a ship, any ship, gets to the 15 year mark, the requirements for hull inspections twice every 5 years (and this is the point where cruise ships in particular can no longer substitute an underwater survey for the intermediate drydock, but must actually drydock twice in 5 years) become far more strenuous and costly. These increased inspections tend to lead to more steel replacement, frequently in difficult or costly areas of the ship to access, further driving up the operating cost. Additionally, there are certain threshold limits for when repairs/modifications require the ship to meet all newer safety and emissions standards (most maritime regulations are not retroactive to ships built before the change comes into play), so this can cause unexpected costs to soar. Insurance costs for older ships rises as well.

 

So, even spending several hundred million dollars to completely gut and refurbish the superstructure and the hotel side, you will still have a ship that costs more to operate year after year than a newer ship. So, while the upfront capital cost to refurbish a ship may be less than a newbuild, the cost over the remaining life of the older ship will most likely be far greater than a new ship over the same time span.

 

Given the economies of scale that a large ship offers, the smaller ships will only move up market in my opinion, and companies like Viking will either go to larger builds as they gain experience, or move up market in pricing.

[cruisemom42]

Thanks for the input, particularly regarding the ongoing and largely "unseen" costs. Guess I will just have to keep enlarging my contributions to my retirement fund. ;)

 

 

Edited to add: An interesting thing that I've found as a solo cruiser is that on some luxury lines, low solo supplements can make taking a luxury ship nearly as cost effective as paying double on a mass market line. However, two lines that I'd really like to try rarely offer any deals for solo cruisers. (I'm looking at you, Oceania and Viking Ocean...)

[Flatbush Flyer]

Thanks for the input, particularly regarding the ongoing and largely "unseen" costs. Guess I will just have to keep enlarging my contributions to my retirement fund. ;)

 

 

Edited to add: An interesting thing that I've found as a solo cruiser is that on some luxury lines, low solo supplements can make taking a luxury ship nearly as cost effective as paying double on a mass market line. However, two lines that I'd really like to try rarely offer any deals for solo cruisers. (I'm looking at you, Oceania and Viking Ocean...)

 

 

 

Oceania started operations by rehabbing three old R ships (Regatta. Insignia and Nautical) and adding two larger new builds (O ships - Riviera and Marina). Most recently, O purchased the Ocean Princess (R ship) and did a $40 million rehab - now sailing as Sirena.

 

 

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[jocap]

This has happened, with Cruise and Maritime. They started small, with Marco Polo, and now have five older ships- the latest being an old P&O ship which last sailed in Australia, but is new to C&M. I haven't been with them-yet- but I know plenty of people who have. The prices are lower than the shiny ships, but from what I hear, the service is excellent, and the food similar to the "middle of the road" cruise ships. They lack the deck activities of new ships, but as they are adult only, there's no need to provide for kiddie entertainment. One big attraction is that they sail from various UK ports, making them easier to reach for many.I believe the cruise line started in 2008, and has flourished.

Thomson, now known as Marella , part of Tui, also uses older ships, and you can spot those from NCL, RCI etc.

Fred Olsen has four elderly ships- one, Black Watch, was built in 1973, but is sturdy enough to do a world cruise each year. They cater to adults, although children are accepted.

[cruisemom42]

Let's think a moment about how the cruise industry operates.

It's ALWAYS, ALWAYS, ALWAYS about the money.

 

If it was cost effective or cheaper to renovate an older ship rather than spending more money to build a new one, do you think that someone working in the cruise line head offices might have already come up with that idea sometime during the past 50 years or so?

 

They toyed with the idea on the SS Norway. It was marginally successful for a very short period, then failed spectacularly with budget-breaking operating costs and dead crew members.

 

Why has the SS United States - the Pride of the American Fleet - been rusting away in Philadelphia for all these years? And why is is going to end up as a reef or razor blades?

MONEY.

 

Then how does one explain posts 7 and 8 above?

[Flatbush Flyer]

Let's think a moment about how the cruise industry operates.

It's ALWAYS, ALWAYS, ALWAYS about the money.

 

If it was cost effective or cheaper to renovate an older ship rather than spending more money to build a new one, do you think that someone working in the cruise line head offices might have already come up with that idea sometime during the past 50 years or so?

 

They toyed with the idea on the SS Norway. It was marginally successful for a very short period, then failed spectacularly with budget-breaking operating costs and dead crew members.

 

Why has the SS United States - the Pride of the American Fleet - been rusting away in Philadelphia for all these years? And why is is going to end up as a reef or razor blades?

MONEY.

 

 

 

So typical. What's missing from this thread's equation is that small group of exquisite thinkers: Conventional wisdom would have you believe that folks like Elon Musk (Tesla) are nutcases. But, did you see SpaceX's double booster landing yesterday?

In the cruise industry, one needs to look at forward thinkers like FDR and his partners who fashioned Oceania out of beat up old R ships.

 

Sometimes, you "bet the farm." God bless America.

 

 

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[Hlitner]

There is a poster here on CC that has decades of crew experience including being a Chief Engineer...and we hope he posts on this thread. So forget about money, amenities, etc. There are numerous life and safety rules, many of which fall under SOLAS (Safety of Life as Sea) that become a big problem for older vessels. Grandfathering only goes so far and eventually most older ships most be brought into compliance with the latest safety standards. And it gets worse for ships that must pass US Coast Guard Inspections (which only apply to ships that call at a US port) or inspections in the EU.

 

In many cases, bringing a ship into current compliance is not cost efficient. And the older power plants are also inefficient compared to the latest systems, Older ships like HAL's Prinsendam require a higher crew to passenger ratio because of the design. So many of those older ships cost more, per passenger day, to operate.

 

And then there are the passengers. For example, an outside cabin on an older HAL vessel might cost as much as a balcony cabin on a newer vessel (the older ships have very few balconies). The reality is that many passengers simply do not want to cruise on older ships.

 

Hank

[chengkp75]

As I posted above, maritime regulations are generally not retro-active, so older ships do not need to meet newer standards, no matter how old they are. Losing a grandfather status only comes into play when the ship has been modified to a certain percent, essentially becoming a "new" vessel. As for USCG inspections, once again I will state that the USCG does not have any more authority over a foreign flag cruise ship, nor any more stringent regulations, than the Republic of Kiribati does. The only thing the USCG can do to a foreign flag ship is to ensure that the international standards of SOLAS, MARPOL and other international conventions are met, not the more stringent USCG regulations that only apply to US flag ships. The same goes for the EU.

 

Lines that do take in older ships, Oceania, Pulmantur, Marella, either operate on a much finer profit line than the mass market lines, or move upscale in pricing, as I mentioned. The mass market lines need a healthy profit line both to attract the financing needed to build new ships and to attract investors to their stock. Another way that these lines like Pulmantur and Marella save a whole lot of money is to move the ship to a different P&I (property & indemnity) insurance "club" that has lower rates, but consequently lower coverage, and the lines hope for no serious claims for pollution or damages to other vessels or docks, etc. They also reduce the hull insurance coverage, and since each ship is its own sub-company the maximum payout for loss of the ship is the hull insurance valuation.

[bUU]

So typical. What's missing from this thread's equation is that small group of exquisite thinkers

As others have pointed out, just because they're doing things you don't like doesn't mean their thinking isn't exquisite. Very often the very best and most innovative ideas in Industry are those that consumers don't like.

 

This message may have been entered using voice recognition. Please excuse any typos.

[cruisemom42]

Yes, Elon Musk is a genius. His recycling of old NASA rockets was brilliant.

 

Wait a minute...........He developed completely new rockets and technology that perform much better at lower cost than the old ones. (Sounds familiar?)

He could have bought up NASA's old inventory for pennies - but the cost of launching those old museum pieces would have eaten up any savings he might have realized.

 

Then there is Tesla Electric Cars. He recycled GM's old plants and technology and is producing these new cars in America's Midwest.

 

Oh, hold on a sec....... Wrong story. Musk completely ignored America's outdated auto technology and processes. He Started over from scratch, and is producing a completely new generation of transportation vehicles in Europe. (Sounds familiar again?)

 

Yes, Frank Del Rio saw an opportunity to create a new cruise line by wisely investing a very small amount in older ships from a bankruptcy financed by the Italian Government. He remodelled the older vessels, started the cruise line on a small budget, then jettisoned the older money-losing ships as quickly as possible, replacing them with newer, bigger, cost-effective ones. Built in Europe.

 

Yes, posts 7 and 8. Those cruise lines are one tiny step above camping out (at least when the toilets and AC are working.

You people must be flocking to those great cruise lines with those old rust buckets. Maybe you should buy stock in these winners. Carnival and RCCL will be out of business any day now.

 

Or maybe one of those "forward thinkers" like Elon Musk or Richard Branson will start new cruise lines with those old dumpy ships.

Oh, wait a minute....Richard Branson is already starting his new cruise line - with a completely new generation of new, large, state of the art vessels. Built in Europe.

 

I'd respect your knowledge much more if it came without the extreme snark.

 

I'm not sure Pullmantur et al are "old rust buckets" or "one tiny step above camping". And I do wonder if there aren't a subset of cruisers who are completely uninterested in huge ships and who would be willing to sail on older (renovated) mid-sized ones. Times change -- what made sense in the industry 10 or 20 years ago may be different now. Look at attitudes toward smoking, for example, in that period....

 

I don't give a fig for all the "bells and whistles". I don't care if I have a balcony or inside cabin. Functioning plumbing and air are pretty much my only must haves. Itinerary is what I am interested in. Hard to imagine I am the only one with such priorities....

 

My current favorite ship was built as a ferry in 1973 and remodeled/relaunched in 2010 as a small cruise ship. She is not beautiful but offers great itineraries and enrichment activities. She is small though -- just wondering if a slightly larger ship could also make a go of it using such a model.

 

P.S. I'm not an Oceania expert, but don't they still have all of the original R-class ships they purchased and in fact have purchased an additional one -- as well as spending quite a bit to renovate them periodically? :confused:

[bUU]

And I do wonder if there aren't a subset of cruisers who are completely uninterested in huge ships and who would be willing to sail on older (renovated) mid-sized ones.

The word most often overlooked in that sentence is "subset".

[navybankerteacher]

[quote=cruisemom42;55222944

 

...

 

I don't give a fig for all the "bells and whistles". I don't care if I have a balcony or inside cabin. Functioning plumbing and air are pretty much my only must haves. Itinerary is what I am interested in. Hard to imagine I am the only one with such priorities....

 

...

 

b

 

I believe you have identified the key essentials. Then, in decreasing order of importance, I would like to add: some itinerary-relevant enrichment, a bit of a real library, some unintrusive live music, and (hopefully) good food. I would prefer balcony or outside, but for the right itinerary will sail inside.

 

Because the (small) passenger mix attracted by the above would have similar preferences, a tangential plus would be a greater likelihood of compatibility and conversation.

[SmoothFlying]

Thanks for the input, particularly regarding the ongoing and largely "unseen" costs. Guess I will just have to keep enlarging my contributions to my retirement fund. ;)

 

 

Edited to add: An interesting thing that I've found as a solo cruiser is that on some luxury lines, low solo supplements can make taking a luxury ship nearly as cost effective as paying double on a mass market line. However, two lines that I'd really like to try rarely offer any deals for solo cruisers. (I'm looking at you, Oceania and Viking Ocean...)

 

Well..:D PLEASE do not feel that you're alone in the 'lifeboat of life'. My wife also feels like you. NOT too the degree that she'd NEVER cruise again. But, she longs for a medium sized ship w/o the kiddie slides. I never knew it till we came back from the Oasis cruise in 2013. While she always said she loved and missed our very first ship, the Carnival Holiday which we cruised on in 2007. When I asked IF she'd like too do another Oasis class again, she just didn't show much excitement. I knew she enjoyed the ship and raved about how beautiful she was, that was as far as she would go:eek:. When I sensed a lack of commitment on her part I asked her why? She just said. 'TOO many people.. While I didn't feel trapped, I did feel as though I was sailing on the Mall of America'. I understood, and let it go at that. Personally, I LOVE the large mega-mall cruisers, but I know, in a marriage as well as a cruise, it takes TWO to make a cruise work !

 

Mac

[Haoie]

There is a poster here on CC that has decades of crew experience including being a Chief Engineer...and we hope he posts on this thread. So forget about money, amenities, etc. There are numerous life and safety rules, many of which fall under SOLAS (Safety of Life as Sea) that become a big problem for older vessels. Grandfathering only goes so far and eventually most older ships most be brought into compliance with the latest safety standards. And it gets worse for ships that must pass US Coast Guard Inspections (which only apply to ships that call at a US port) or inspections in the EU.

 

In many cases, bringing a ship into current compliance is not cost efficient. And the older power plants are also inefficient compared to the latest systems, Older ships like HAL's Prinsendam require a higher crew to passenger ratio because of the design. So many of those older ships cost more, per passenger day, to operate.

 

And then there are the passengers. For example, an outside cabin on an older HAL vessel might cost as much as a balcony cabin on a newer vessel (the older ships have very few balconies). The reality is that many passengers simply do not want to cruise on older ships.

 

Hank

 

That'd be Chengkp75 [AKA the Chief], and I see he's already offered his thoughts. Always insightful!

[SRF]

I think that sometimes, companies may not do the math.

 

Delta Airlines did this. Instead of buying new aircraft that were more fuel efficient, they figured they could purchase older airframes, refurbish them, and fly them a LOT and still come out ahead on the overall cost.

 

Fleet expansion with used aircraft

 

Between 2009 and 2013, Delta purchased and refurbished 49 used MD-90s, bringing its MD-90 fleet to 65 aircraft. Delta opted to buy used MD-90s rather than brand-new Boeing 737 Next Generation aircraft because the MD-90s were cheaper in terms of the total cost of ownership, which takes capital expenses and operating expenses into account.

Maybe some innovative cruise line can make the same math work.

[bob brown]

There are many cruise lines operating older and smaller ships to choose from....from the high-end all-inclusive luxury lines, to expedition type vessels, to coastal cruise ships, to river boats, and even several sail-powered hybrids.....all you have to do is search for them...

Isn't it wonderful that there are such variety to make everyone happy?:cool:

[iancal]

Keep in mind that the price of new builds is, in most instances, heavily subsidized by the country where the build takes place. These subsidies are huge. Especially in Italy.

 

Not certain if refurbished or rebuilds get the same Any subsidies.

[chengkp75]

I think that sometimes, companies may not do the math.

 

Delta Airlines did this. Instead of buying new aircraft that were more fuel efficient, they figured they could purchase older airframes, refurbish them, and fly them a LOT and still come out ahead on the overall cost.

 

[/font][/color]

Maybe some innovative cruise line can make the same math work.

 

By no means an aircraft operations expert, but a bit of googling showed that the maintenance cost between a Delta 737-800 and a Delta MD-88 (couldn't find data on the MD-90) was actually $20/hour higher for the newer aircraft. Compare this with known significant higher maintenance costs for older ships (personal experience).

 

The newer 737 saves about 20% in fuel costs over the older plane, while the newer ship, will not save appreciably over the older ship, simply because marine engines do not advance that significantly even over long periods.

 

The numbers I've found also say that the depreciation of the newer plane is greater, so that the overall cost to operate is $2744/hour, while the older plane is $2541/hour. So, not only does the new plane cost twice as much ($96m v $48m), but costs more to operate, when all factors are considered, not just fuel economy. There is probably a cost per passenger/hour that may swing this the other way, not sure, but the newer plane carries more passengers, so it might.

 

I don't for a minute think that any company, when contemplating a billion dollar outlay, on one asset, hasn't "done the math" regarding recycling older tonnage.

[davecttr]

Total cost of ownership is the key. This summer Marella cruises will have 6 ships all built before 2000 and 3 built in the 1980's!. Their older ships are still popular which is why they are still operating. The business model obviously works for them and the passengers are happy.

[bUU]

I think that sometimes, companies may not do the math.

A very bad assumption. Whenever you get the inclination to think this, immediately change that assumption into one within which you are missing some critically important insights and/or information about the situation.

[SRF]

By no means an aircraft operations expert, but a bit of googling showed that the maintenance cost between a Delta 737-800 and a Delta MD-88 (couldn't find data on the MD-90) was actually $20/hour higher for the newer aircraft. Compare this with known significant higher maintenance costs for older ships (personal experience).

 

The newer 737 saves about 20% in fuel costs over the older plane, while the newer ship, will not save appreciably over the older ship, simply because marine engines do not advance that significantly even over long periods.

 

The numbers I've found also say that the depreciation of the newer plane is greater, so that the overall cost to operate is $2744/hour, while the older plane is $2541/hour. So, not only does the new plane cost twice as much ($96m v $48m), but costs more to operate, when all factors are considered, not just fuel economy. There is probably a cost per passenger/hour that may swing this the other way, not sure, but the newer plane carries more passengers, so it might.

 

I don't for a minute think that any company, when contemplating a billion dollar outlay, on one asset, hasn't "done the math" regarding recycling older tonnage.

 

Yes, but until Delta started doing it, no one in the airline industry had managed to figure this one out. Now others are doing it.

 

Too many times, "common wisdom" is wrong and no one actually checks the math.