Cruising through Brexit
On 23rd June the British people voted in a referendum to leave the European Union. It is unknown what the British exit from the European Union may look like. However most predictions show the UK heading for a recession and a long term devaluation of the pound, with this in mind what would this mean for the British Cruise Industry.
It has been argued that international perception of Britain has changed, and that the country is now seen as isolationist and unwelcoming. It remains to be seen if the vote for Brexit has damaged the British brand enough to make people stay away.
However the fall of the pound has made Britain a cheaper cruise destination, both for passengers and the ships docking at our ports.
In the recession we seen a boom in Ex-UK cruises, there is the potential that this could continue going as flight costs rise. The British tourist’s pound is now worth less than what it was before, this could hit their spending while on holidays and focus them on lower cost holidays.
There is the potential that the economic shock will mean people will cut back on big purchases, passengers may also choose to trade down, picking a shorter cruise, a lower category of cabin, cutting back on add on spending such as shore excursions or surcharge restaurants.
As mentioned the fall of the pound is good for tourists visiting the UK, however with Cruise Lines costs generally being in USD this may see UK operations suffer, as well as pressure on margins.
UK Shipyards could benefit as the fall of the pound sees them become more competitive, and could see them involved further in vessel maintenance and refurbishment.
Several cruise lines have significant UK offices, if the UK was to remove itself from the single market it would make sense for some of the wider European focused work, to migrate to the European Union. This would not be in the style of a mass exit, but more as a slow evolution of the practicalities.
The leading British Cruise Lines all have options on how to deal with Brexit, and their response would be measured based on the demands of the market.
P&O could deal with a significant negative environment by shrinking its fleet, Oceana to a brand in Australia or the Middle East & Asia. Arcadia could also be reallocated to Cunard or to Holland America, fitting in well with its sister ships. P&O however is division of Carnival Corp & PLC who have the financial strength to sustain P&O as is through a turbulent period.
Fred Olsen has remained a stable line for several years, however aspects of its fleet are aging and if push comes to shove the former Royal Viking twins could be disposed of, significantly reducing the lines capacity. Fred Olsen also has the support of a strong parent company.
CMV, while a UK based cruise line CMV does have an office in South Africa and Australia which would reduce exposure – with the vessels being chartered the company could work to shrink its fleet quickly by returning vessels to their owners.
Thomson Cruises – the line is currently migrating to the TUI brand as well as receiving new cruise ships. The withdrawal of the older fleet as well as the slower migration of ships from TUI Cruises, Mein Schiff 1 and Mein Schiff 2 would manage any capacity concerns in the short term.
All in all it is unlikely that the cruise lines would be required to make such significant changes, but as floating assets in an international business the cruise ships are free to move as the market demands. It may not be that the vessels make a loss, more that they could be more profitable elsewhere.
What do you think the effect of Brexit will be on the cruise industry?