Is There a Break Even Point for A Ship Cancellation?

[teacherman]

Just wondering....  None of us know for sure what is going to happen when cruising resumes.  It appears that cruise companies are raising prices over what they were a year ago when it ended.  Some of this is expected, as much income has been lost.  But, what I am wondering is whether or not there is an income point when a cruise gets cancelled.  What if a ship gets to the point that there are not enough paid customers to make it economically feasible to sail?  Is it possible that we could make our final payments, and weeks later we are notified that the ship is not cruising?

 

We would get a choice of refund or FCC, but the problem comes when you have purchased your own costly airfare to the cruise.  Unless you have purchased expensive "cancel for any reason" insurance, that money is not being refunded.   I have been in a situation where we were canceled for maintenance problems and offered a replacement cruise at the same week.  That resulted in some grief of flying to the original departure city and driving rental cars to the new city.  All of this had to be re-arranged within about a month.  And last spring, many of us were affected by cancellations, and some did lose out on airfare refunds, although they may have received air credits for future flights.

 

Just wondering if cruise companies may get to the point of saying "not enough paid passengers, so we are cancelling".  Do any of you have knowledge of this?

[thepla]

I really have no idea for ships but I've flown millions of miles and I do know airplanes fly almost empty but they are normally needed at next location to fly someone else, maybe even back to same place. For a ship it seems mostly they go back to same port so that issue does not exist. But in cruise where would ship "hang out" during time of trip?

[teacherman]

I don't know.  Where are they hanging out now?  I do know that many airplanes also carry cargo, especially on international flights.  I am thinking that some of the price increases may be due to possible limitations on how many passengers can go  (50%).  And some increases to make up for lost revenue.  But I have never been on a cruise that was only half full.  Like I say, the big thing, to me, would be losing my paid airfare.

[thepla]

Just now, teacherman said:

I don't know.  Where are they hanging out now?  I do know that many airplanes also carry cargo, especially on international flights.  I am thinking that some of the price increases may be due to possible limitations on how many passengers can go  (50%).  And some increases to make up for lost revenue.  But I have never been on a cruise that was only half full.  Like I say, the big thing, to me, would be losing my paid airfare.

Great catch, I did not think of cargo, big revenue for airlines. Good thing now for airfare is besides seems cheap they do not have change fees to cancel or reinstate miles. At least AA does not. I just canceled a Miami trip and now don g a Cancun resort. Business class one way was so cheap I was able to use full value of Miami (which was cheap like $200 bucks round trip) for Cancun. Used miles for trip down there..

[Cruise Wonderland]

10 hours ago, teacherman said:

Just wondering if cruise companies may get to the point of saying "not enough paid passengers, so we are cancelling".

 

I believe it is rare, but I have seen. More than 10 years ago, Costa Cruises had a short sailing in Asia with only less than 100 passengers booked. Eventually that cruise was cancelled and the ship stayed at the pier for a few days until the next voyage. But the passengers may not know the real reason for cancellation.

[Captain_Cruising]

Finally getting some use out of a college Cost Accounting course. 

 

Any business has variable and fixed costs.  The variable costs (salaries, meals, fuel, etc) can be adjusted, whereas the fixed costs are aptly called "fixed" (debt on ship purchase, long term leases & contracts etc.)  Not withstanding above reference of needing the equipment (airplane or cruise ship) at the destination site,  I believe the answer you seek is when the cruise has enough paying passengers onboard to generate enough revenue to cover the variable costs of the voyage.  At that level of revenue it then makes sense to continue doing business (sail the itinerary.)  Conversely when there is not enough revenue generated (lack of passengers) to at least cover the variable costs, then fiscally it makes sense to cancel the cruise.

[hallux]

There has been discussion of this in other threads.  There were some fairly high numbers tossed about (I seem to recall as high as 75% booked being one, unless I misunderstood it).  I was talking to someone else that said a different cruise line can sail at 30% or something like that and still at least break even.

 

Of course, this is all based on the fares paid and the salaries of those working on that particular sailing.  Higher fares would mean a lower break-even capacity.  Fewer crew members would mean less salary paid so a lower break-even results.

[FreestyleNovice]

Interesting thought, which was never an actual event for the cruise lines before.

 

Keep in mind that the revenue management systems work automatically to fill every sailing, with dynamic pricing, in a similar way hotels and airlines do.

[ziggyuk]

As they will initially be sailing with massively reduced passengers anyway I can only imagine they would have to be almost empty to be worse than the cash burn they have right now with ships anchored and doing nothing. 
Even a small loss is better than now and I suspect showing a positive image and a successful return to the sea with be more important than cancelled cruises.

[Named-Tawny]

Given their fixed costs whether the ship sails or not (including staff salaries, since we're only talking an individual cancellation here) and the increased costs of now needing to moor it somewhere, the question isn't 'how full to break even', but rather 'will running it lose us less money than cancelling'

Also the reputational damage of cancelling a sailing once cruising has resumed for no reason other than 'not enough people like us' (which is how it'll play in the media).

Ships are going to have to be really empty for them to cancel an individual sailing. 

Given all the pent-up demand for travel right now, I really can't see it happening at all.  If it does, the Cruise lines have bigger things to worry about.

[sanger727]

Once cruising is able to resume I don’t think youll have any sailings cancelling due to low bookings.

 

1. Cruise lines have been playing ‘fill the ship’ games for years and know how to do it. They know a non-revenue booking still

creates onboard spend so use casino offers and TA offers to get people on the ship

2. cruise lines will probably start at lower capacity anyway so won’t have the same income targets they normally have

3. cruise companies know they have to get back to sailing to get people to book again. So I think they will be fine running at a loss to rebuild their reputations and regain customers

[casofilia]

I would hope that airlines would be as helpful regarding (possible) ship cancellations or the changing of embark/debark ports as Singapore Air were to us when the Norwegian Spirit firstly changed from Singapore to Athens as debark port and then changed to Cape Town as final port.   They were absolutely brilliant about changing bookings and also an actual cancellation too.

 

That said I cannot see the major cruise lines cancelling just because the bookings are "too low".   I think any cancellations from now on may well be because certain countries' borders are remaining closed.   Like Canada's are till 2022; as Australia's and New Zealand's are likely to be similarly.

 

If either Australia or New Zealand say they will not open the border till 2022 I cannot see a major line sending a ship down here for just half a season.

Edited February 26, 2021 by casofilia