Break-Even point?

[AtlantaAlly]

What capacity must a ship sail to “break even” and make sense setting sail again? Do the lines lose less money if they stay as is than if they sail at 40%? Any idea where the break even point is? Realizing that cruising in the US is a long ways out, just wondering if they can return before 80-100% capacity booked?

[CruiseMH]

It does not depend on load factor,it depends on revenue.

If the average price paid per person is 5000 USD,then also 20-30% of the capacity will be enough.If cruise price is 400 USD then even 80 % might not be enough.

ANd also it depends on how much money the guests do spend on board.(casino,shops,speciality dining,etc.)

So there is for sure no fixed capacity where you can clearly say breakeven or not breakeven.

 

 

[tallnthensome]

I was reading today that on certain smaller ships on Royal Caribbean it was 30%. Details of what kind of cabins and passenger makeup that is was unknown. 30% made up of suite guests is more profitable than 30% inside cabin guests, etc. 

[njhorseman]

54 minutes ago, tallnthensome said:

I was reading today that on certain smaller ships on Royal Caribbean it was 30%. Details of what kind of cabins and passenger makeup that is was unknown. 30% made up of suite guests is more profitable than 30% inside cabin guests, etc. 

That's just break even on operating costs for the cruise...items like food, fuel and crew salaries. It doesn't include items such as corporate overhead, depreciation and debt service...and debt service is the 800 pound gorilla in the room.

Edited August 9, 2020 by njhorseman

[Trimone]

You must remember these percentages were taken before Covid-19.

Now I suspect that many exclusive suppliers have gone out of business during shutdown, they probably had very low margins, now finding new suppliers isn’t easy, some will be reluctant to take on cruise companies after covid, no doubt .

[chengkp75]

17 hours ago, njhorseman said:

That's just break even on operating costs for the cruise...items like food, fuel and crew salaries. It doesn't include items such as corporate overhead, depreciation and debt service...and debt service is the 800 pound gorilla in the room.

Yes.  Those occupancy rates gave a "break even" point on an EBITDA basis, as was stated by the RCI official.  That is before interest, taxes, depreciation, and amortization.  It is like saying, my paycheck will match my expense budget, if I don't pay the mortgage.

16 hours ago, Trimone said:

You must remember these percentages were taken before Covid-19.

Now I suspect that many exclusive suppliers have gone out of business during shutdown, they probably had very low margins, now finding new suppliers isn’t easy, some will be reluctant to take on cruise companies after covid, no doubt .

Most of the cruise lines use major wholesalers like Sysco for their food and beverages, and last I checked, Sysco is still in business and in a strong position to weather the pandemic.

[Trimone]

What for fresh salad and vegetables in Greece and Spain? 

[chengkp75]

44 minutes ago, Trimone said:

What for fresh salad and vegetables in Greece and Spain? 

They still use a wholesaler, someone who provides masses of product to restaurants, catering, grocery stores, and cruise ships, and who are unlikely to fold up when only one type of customer stops demand.  Only small expedition or luxury ships will use the local markets for supplies, the large lines prefer the consistent quality a wholesaler provides.

[ew101]

The cruise line annual reports are online.  You can build a model of what breakeven looks like:  

https://nclhltd.gcs-web.com/static-files/d77f02cc-5864-42f9-a7c3-4b0ab7837c80

 

I think many cruise line expenses are fixed.  So office leases, ship financing, insurance and repairs go on regardless.  So if you decide to operate a cruise these days, there is just one decision to make.  Are we bringing in more new cash vs new bills?  So if we plan to get say $1M in revenue from a 5 day cruise, if we can get by with $600,000 in new, incremental expenses for the trip the rest goes in the bank.  This is compared to leaving the ship anchored someplace. 

 

When the ships were full, gross margins were around 16-18%.  If the ships are now 60-75% full this will likely require a new business model.   

 

Chengkp has correctly pointed out that if you have net revenue flowing in this helps stop the financial bleeding.  Even if it is not actually profitable.  

Edited August 10, 2020 by ew101

[otherme]

At this point breakeven isn't part of the worry. it will be a test to see if cruising can continue to operate at as we remember it to have been. some income beats no income even at a loss for a limited time. Cost will be relevant to us as we will actually be guinea pigs ( I'm ready to go ) . As my winning lottery has yet to appear i must put cost as a factor in choosing my next vacation. 

[Lupush]

Impossible to say.  I've been in the hospitality business for over 20 years and have seen land based hotels break even at 30% occupancy, and some others need 70-80% to break even.  So many factors both static and non-static that affect this number.

[drvmywifecrzy]

You also have to remember they collect revenue well in advance of sailing so they use your cash to buy the head of lettuce you desire

[MoCruiseFan]

On ‎8‎/‎9‎/‎2020 at 10:30 AM, AtlantaAlly said:

What capacity must a ship sail to “break even” and make sense setting sail again? Do the lines lose less money if they stay as is than if they sail at 40%? Any idea where the break even point is? Realizing that cruising in the US is a long ways out, just wondering if they can return before 80-100% capacity booked?

 

 

This all depends on how one defines terms like "break even" and "lose money".  As long as a merchant covers all of the variable cost of operating and makes at least 1¢ towards the fixed cost, they are "making money" by operating.

[deliver42]

I believe it will depend on the ship. Newer ships are more economical to run, so they may need less % capacity than older ships.They also carry more passengers, so 50% on a new ship is better than 50% on one of the smaller and less economical older ships. It would also be easier to social distance the cabins.