Wednesday, 26 January 2022

The Amazing Race 33, Episode 4

Altstätten (Switzerland) - Ticino (Switzerland) - Lugano (Switzerland)

[Algérie Ferries trans-Mediterranean overnight ocean liner from Algiers steams past the Château d’If toward the entrance to the harbor at Marseille, France. There are surprisingly few direct flights between Marseilles and the Maghreb, and I think there’s a viable market for more passenger ferry service if suitable ships were available on the cheap — as they now are.]

[Cruising the Inside Passage in the summer of 2002 on an 18-hour journey from Port Hardy to Prince Rupert on B.C. Ferries’ “Queen of the North”. I travelled “deck class”, but there were also cabins available. The Queen of the North sank in 2006 and has been replaced, but there’s demand for additional walk-on passenger service on this route for which a small expedition cruising ship would be well suited. Photo by Ruth Radetsky.]

This week’s episode of The Amazing Race 33 took the reality-TV racers through the Gotthard Road Tunnel under the Alps from north to south. There are actually three “Gotthard Tunnels”: the original rail tunnel, the newer road tunnel (only two lanes and a bottleneck prone to massive traffic jams on what is otherwise a limited-access divided highway, with blasting of a second parallel bore only begun in late 2021), and the newest lower-altitude “Gotthard Base” high-speed rail tunnel, the longest (yes, longer than the Chunnel) and deepest rail tunnel in the world.

It looked like even the teams that said they had taken “the scenic route” — a mistake in a race if not in real life — went through the tunnel. But the real scenic route is the seasonal road over the Gotthard Pass that all the tunnels were built to avoid. The old road is paved with miles of rough-cut but well-maintained stone pavés. But the tight, narrow switchbacks over the pass are perhaps best left for the bicyclists who aren’t allowed in the road tunnel.

The broadcast of this episode that I watched featured an ad for Norwegian [sic] Cruise Lines. Notwithstanding its name, NCL is based in the USA and incorporated in Bermuda, while its ships fly the flag of convenience of the Bahamas. Other cruise lines including Carnival Cruise Lines are also still advertising heavily (through not yet on this season of “The Amazing Race”) in spite of, or perhaps because of and to try to counter the effects of, a recently-upgraded CDC advisory against all cruise travel.

Just days earlier, the corporate parent of another major but smaller cruise line, Crystal Cruises, filed for bankruptcy liquidation. Crystal Cruises canceled all future sailings, and one of its ships returning to its home port in Florida was diverted to the Bahamas with hundreds of passengers aboard to avoid a U.S. court order to seize the ship for unpaid fuel bills.

Aside from the questions of what sort of repo man gets sent to seize such a vessel or who buys tickets from a bankrupt company for a cruise during a global pandemic, this prompts me to consider the larger issues of the future of cruising and of former cruise ships, many of which are idle.

Predicting the future of pandemic and post-pandemic cruising requires a basic understanding of the economics of the cruise industry.

Despite the language of the CDC advisory against “cruise travel”, most cruise vacations at sea aren’t primarily a form of travel at all. River cruises are typically quite different, and a small minority of ocean cruises are to destinations that are otherwise difficult to get to, such as Antarctica, some small and/or remote islands, or the fjordlands of Southeast Alaska and Norway. But most ocean cruising, by the numbers, isn’t a form of transportation at all. Cruisers are paying to be on the ship, not to get from one place to another.

If you are taking a 3-night cruise from Florida to the Bahamas, Galveston to the Yucatan, or Los Angeles to Baja California, the point of the cruise isn’t the nominal port call in Grand Bahama, Cozumel, or Ensenada. Most “passengers” on such a cruise are paying for three days in an all-inclusive resort that could, from their point of view, be anywhere or nowhere, on land or at sea, as long as the price is right for onboard food, accommodations, entertainment, and other services.

Why is the price of a cruise so attractive compared with a similar package holiday at a land-based resort in the USA? Because foreign-flagged vessels transporting international passengers are exempt from the labor laws of the countries they serve. This loophole has been pointed out to Congress by critics of cruise ship owners, but Congress has not chosen to close it. Why would members of Congress want to stop super-exploitation of cruise ship workers, most of whom are from the global South with the largest fraction from the Philippines, so that cruise line owners can make more money and U.S. tourists can take cheaper vacations?

The value proposition and competitive advantage that has led to the explosive growth of cruising and to its domination of the package holiday market in the U.S. derives almost entirely from the laws that enable international cruise lines to arbitrage international differences in labor costs.

It would probably be cheaper to build a resort on cheap land in the desert in Nevada, or in a swamp in central Florida, as developers of other destination resorts that compete with cruise lines for package-holiday business have done, rather than to build it on a seaworthy floating platform. It would be cheaper to moor a floating hotel in the harbor or close offshore, or to cruise slowly to nowhere, than to cruise to a foreign port.

But foreign-flag vessels aren’t allowed to carry passengers between points within the USA. And no cruise line could compete in the U.S. market if it flagged its ships in the USA and therefore had to pay its workers U.S. minimum wages. The only reason to burn enough bunker fuel to push the whole hundred-thousand-ton resort back and forth across an international border to a foreign port every couple of days with each load of guests is to escape from U.S. minimum wage and other labor laws.

Where does that leave cruising in the time of COVID-19?

Coronavirus infections have been detected on every recent cruise from and/or to the USA. That’s scarcely surprising. Even if there are fewer guests, so they can be less crowded in dining rooms and other onboard spaces, passengers inevitably share the ship with service workers for whom social distancing is impossible in cramped crew quarters. Regardless of pre-departure testing, anyone onboard can easily be exposed and infected in mid-voyage.

So regardless of what you think about the health risks of a cruise to yourself or others including the ship’s crew, its value during the pandemic has to be discounted by the unavoidable risk that you might have to spend the entire cruise shut in your cabin even if the ship makes any port calls, which it might not. Cruise lines always reserve the right to change or eliminate port calls or quarantine potentially contagious passengers. So you won’t be entitled to a refund or any compensation if all port calls are cancelled and/or you are confined to your cabin for the duration of the voyage.

That’s bound to reduce the amount the average customer is willing to pay for a cruise, which translates into reduced daily revenue per cabin for the cruise lines. It remains to be seen which cruise lines can afford to keep sailing, or for how long, on their present itineraries.

If the pandemic continues, either (1) cruise ships will be scrapped for the salvage value of their steel, (2) existing cruise lines will find new business models to keep their ships financially afloat, perhaps on new routes and/or with a different mix of customers, or (3) other companies will buy up some of those ships and put them to new uses.

Many cruise ships idled by the pandemic decline in demand for cruises are already being broken down for scrap, and there is already speculation that Crystal Cruises’ ocean-going ships may meet a similar fate.

Other cruise ships have recently been sold to new owners, mostly other, perhaps more optimistic, cruise lines.

I’m more interested, though, in what new business models might be possible, and what new services might be provided, by companies that can buy up recently-built cruise ships for barely more than scrap-metal prices.

As I’ve noted before in assessing possible new business models and uses for distressed surplus inventory of cheap airplanes and hotels, the risks of pandemic travel have reduced discretionary recreational travel most of all, and travel to visit friends and relatives — the “VFR” travel that most people perceive as most essential — least. Business travel is somewhere in the middle between vacation and VFR travel: much more generally disliked by workers than before the pandemic, and recognized as less necessary or valuable than it had been thought to be, but still demanded by some employers.

If there is little demand for cruises purely for the onboard experience, might some of the surplus of cruise ships be repurposed for ocean transportation? Ships have largely lost out to planes for trans-oceanic travel. But there are still a scattering of overnight or longer-duration ocean-going ferries in service around the world. If second-hand ships can be bought for a song, are there some of these routes on which service might profitably be expanded, or new routes on which the price might be right?

The world’s largest operator of ocean-going passenger ships is the Indonesian national shipping company PELNI (Pelayaran Nasional Indonesia). In recent years, PELNI has modifed some of its ships to carry more cargo and fewer passengers. With passenger demand down during the pandemic, PELNI converted one of its ships into a floating COVID-19 isolation hospital.

In addition to competition from airlines, PELNI has suffered from a vicious circle: With aging ships built for economy-class mass transportation, PELNI hasn’t been able to charge high enough fares to afford to buy newer, more luxurious vessels that would command higher fares. A few second-hand ships with first-class accommodations might be just what PELNI needs to attract enough of a market sliver of higher-paying passengers, if it picks a few of the right high-volume routes, to operate those vessels profitably.

It’s hard to say what might be the best such routes. One possibility would be to offer premium service on some of the existing PELNI routes with the most wealthy travellers, such as Singapore-Jakarta-Surabaya-Bali and vice versa. A more exciting possibility might be to expand PELNI’s international connections — currently limited to Singapore, Malaysia, and Brunei — to other countries.

I think PELNI could make money operating a repurposed cruise ship back and forth on an “island-hopper” route between Singapore and Darwin (Australia) via Jakarta, Surabaya, Bali, Lombok, Labuanbajo, Kupang, and other intermediate ports.

I know from my experience fielding inquiries for around-the-world tickets that there is demand for a service like this, from travellers who have money and aren’t in a hurry. Airlines don’t really offer a ticket — at any price — that could compete with an ocean line on a route with these stopover options. The biggest barrier to setting up such an ocean line would likely be Australians’ fear that it could be a vehicle for Indonesian immigration.

It might also be profitable to offer deluxe PELNI services on a few key routes to Borneo and Sulawesi, and/or to extend PELNI service to some of Indonesia’s ASEAN neighbors, especially the Philippines.

This is just one fantasy. What are others? For example, Brexit has increased demand for direct transport between Ireland and continental Europe, to avoid U.K. customs and immigration delays and hassles. Might there be a market for additional service on existing or new overnight ferry routes between Bilbao (Spain), Brittany (France), and Ireland? For an ocean liner between Penang and Chennai? Mumbai and Mombasa? Piraeus and Alexandria (if the Greek government isn’t too afraid of it bringing in refugees)? An island-hopper through the Antilles between Miami and Venezuela?

Where do you think that cruise ships could make money as ocean liners, if they could be acquired — as seems now to be the case — for little more than scrap value?

Link | Posted by Edward on Wednesday, 26 January 2022, 23:59 (11:59 PM)

Five years ago my father and I took the Queen Mary II from Brooklyn to Southampton. The price was an amazingly reasonable $700/person for an outside cabin with a balcony, including meals but not booze or tips. It was so cheap because it was January but we lucked out and the weather was mild and the seas not rough. It was quite pleasant, and having turned our clocks forward an hour five times already, no jet lag or ship lag when we got to the UK.

The food wasn't great other than in the extra-cost restaurant, but it was perfectly adequate. The on-board library was amazing, 8000 books and comfortable chairs and desks to read or work.

I don't imagine that jet travellers will switch back to ships en masse but I could see the North Atlantic routes tying into vacations: the vacation starts as soon as you get on the boat, and you're ready to go when you get there. The satellite wifi they offered was expensive and terrible but I could imagine that with Starlink and Kuiper they could pitch it as your deluxe floating office on your way to your conference.

John Levine

Posted by: John Levine, 30 January 2022, 10:13 (10:13 AM)
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