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Fuel Surcharge


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I remember them saying years ago that they could charge a fuel surcharge when oil surpassesed $70 a barrel.  I don't ever remember paying it though. Sadly, that was back in 2008 when oil went over $100.

Edited by BB1
Incorrect
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With people jumping at the chance to cruise again with less Covid protocols I am torn on how the masses would respond.

In my view, adding it on might be bad “PR”, but I think all the cruise lines would do it at once to lessen that impact. People will cruise regardless now. If it costs a little bit more, then it does. For one, I’m not liking the idea of possibly paying $100 more per person or so, but if that’s what I have to pay I understand.

Costs on everything are going up and there’s not a way to avoid them. These companies can only sustain so much before it becomes a losing proposition to operate as if the costs haven’t doubled.

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10 hours ago, FF86 said:

With people jumping at the chance to cruise again with less Covid protocols I am torn on how the masses would respond.

In my view, adding it on might be bad “PR”, but I think all the cruise lines would do it at once to lessen that impact. People will cruise regardless now. If it costs a little bit more, then it does. For one, I’m not liking the idea of possibly paying $100 more per person or so, but if that’s what I have to pay I understand.

Costs on everything are going up and there’s not a way to avoid them. These companies can only sustain so much before it becomes a losing proposition to operate as if the costs haven’t doubled.

Cruising is a luxury and totally optional.  If I get priced out of cruising there are alternate ways to vacation or stay-cation at home.

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I took a quick look through the message boards to find a dearth of commentary on the impact of Russian's invasion of Ukraine on us cruisers and the cruise lines.

We haven't seen anything yet. Putin's Stalinization of Russia is going to essentially remove Russia from the global economy for years if it ever returns. Even though it only provides a small amount of oil and gas to the US, that is not the case in Europe. The larger problem is Russia's export dominance in key metals and the combination of Ukrainian and Russian exports of grains. Why haven't we seen price volatility at the retail level except gasoline? It's because probably a months worth of stuff is in transit and will be delivered saving that which western buyers won't touch (e.g., oil and gas) for fear of secondary sanctions. 

The cruise industry, like the airlines sign futures contracts for energy products months in advance so, those deliveries will be made (except as above) for probably the next 60-90d. After that the proverbial sh** will hit the fan. I appreciate the sanguine comments that the lines will probably reduce sale offers before tacking on a fuel surcharge. That would be nice but the fuel costs of operating a cruise liner at the current cost of fuel - just one - is about $185 per passenger per day.  Hmmm quick napkin calculation? 2000 guests, x $185 = $370K/d x7 = $2,570,000 in fuel costs for a week long cruise.

So, tell me that the cost of a barrel of fuel going from say, $60pb to over $200 (what some experts think the PPB will get to this summer) won't produce drastically higher fuel operating costs that will get passed on to the consumers. It's going to be a rocky cruise experience for a while.

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You know that just about 2 years ago we were the largest oil producing country in the world with a huge amount of extra capacity? I'm not one that puts much faith in predictions but i.find that scenario highly unlikely. 

25 minutes ago, JeffB said:

I took a quick look through the message boards to find a dearth of commentary on the impact of Russian's invasion of Ukraine on us cruisers and the cruise lines.

We haven't seen anything yet. Putin's Stalinization of Russia is going to essentially remove Russia from the global economy for years if it ever returns. Even though it only provides a small amount of oil and gas to the US, that is not the case in Europe. The larger problem is Russia's export dominance in key metals and the combination of Ukrainian and Russian exports of grains. Why haven't we seen price volatility at the retail level except gasoline? It's because probably a months worth of stuff is in transit and will be delivered saving that which western buyers won't touch (e.g., oil and gas) for fear of secondary sanctions. 

The cruise industry, like the airlines sign futures contracts for energy products months in advance so, those deliveries will be made (except as above) for probably the next 60-90d. After that the proverbial sh** will hit the fan. I appreciate the sanguine comments that the lines will probably reduce sale offers before tacking on a fuel surcharge. That would be nice but the fuel costs of operating a cruise liner at the current cost of fuel - just one - is about $185 per passenger per day.  Hmmm quick napkin calculation? 2000 guests, x $185 = $370K/d x7 = $2,570,000 in fuel costs for a week long cruise.

So, tell me that the cost of a barrel of fuel going from say, $60pb to over $200 (what some experts think the PPB will get to this summer) won't produce drastically higher fuel operating costs that will get passed on to the consumers. It's going to be a rocky cruise experience for a while.

Y

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2 hours ago, JeffB said:

The cruise industry, like the airlines sign futures contracts for energy products months in advance so, those deliveries will be made (except as above) for probably the next 60-90d. After that the proverbial sh** will hit the fan. I appreciate the sanguine comments that the lines will probably reduce sale offers before tacking on a fuel surcharge. That would be nice but the fuel costs of operating a cruise liner at the current cost of fuel - just one - is about $185 per passenger per day.  Hmmm quick napkin calculation? 2000 guests, x $185 = $370K/d x7 = $2,570,000 in fuel costs for a week long cruise.

So, tell me that the cost of a barrel of fuel going from say, $60pb to over $200 (what some experts think the PPB will get to this summer) won't produce drastically higher fuel operating costs that will get passed on to the consumers. It's going to be a rocky cruise experience for a while.

From: https://www.royalcaribbeanblog.com/2020/05/21/royal-caribbeans-newer-ships-break-even-quicker-older-ships

"For our newer ships, you need about 30 percent load factors to kind of break even. And then they skew to about 50 percent load factor on onto our older ships."

-Royal Caribbean Cruises Ltd. Chief Financial Officer Jason Liberty

The source I'm seeing of the $185 / pp / day appears to be from: https://cruisemarketwatch.com/financial-breakdown-of-typical-cruiser/ . It's rather confusing, but the chart appears to be the average costs for a 7-night/8-day cruise based on the numbers given in the paragraph at the top. "The average per passenger per day cruise expense is projected to be $214.25, with $152.12 per person per day ticket price and $62.13 per person per day on board spending (average cruise duration 8.0 days, median duration 7.0 days)." $152.12 times eight happens to be the ticket price listed in the chart at $1,217. Therefore, to arrive at the actual estimate for an 7-day cruise we divide by 8 then multiple by 7, (185/8)*7 which yields $161.88. If fuel prices jump 400% since this study was released, then Royal needs to make up $485.64 per passenger for the same profit per person. Royal could impose a fuel surcharge, they could also make up the difference with lesser discounts, or accept less profit per ship in fares to get more people aboard and spending since the average onboard spend, based on this table, was $497 (about $11 higher than the fuel price per person above). 

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We can throw about all sorts of numbers. If the ship doesn’t contain the passengers to meet their “per person” figure for their fuel costs then they’ll be short..  is their per person calculation at full capacity? 75%? 65%

Additionally if the costs for everyday living continues to go up at the rate it has been (and I do think it will be way worse if this “non war” doesn’t end soon) then people might cancel with the added fuel costs further bringing them down financially. Are there people who can afford all of these increases  of course! However not everyone can afford the cost of living increases topped off with a fuel surcharge (should one be imposed).  Time will tell. 

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Someone brought up fuel at the Captain's Corner on Wonder this week. I don't remember exactly what the response was, as the Captain got off on a bit of a tangent, but I do remember him commenting about the fact that obviously RC isn't paying market price for oil and so will be fine at least in the short term.

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32 minutes ago, GKMCruising said:

Someone brought up fuel at the Captain's Corner on Wonder this week. I don't remember exactly what the response was, as the Captain got off on a bit of a tangent, but I do remember him commenting about the fact that obviously RC isn't paying market price for oil and so will be fine at least in the short term.

If they were smart (and probably were) they bought a bunch of futures when oil was rock bottom

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2 hours ago, smokeybandit said:

If they were smart (and probably were) they bought a bunch of futures when oil was rock bottom

According to the TPG article it appears as though Royal came into 2022 with more than half of its fuel needs for all of 2022 locked in at much lower prices.  On the other hand NCL has only hedged 42% of their 2022 fuel needs and unfortunately Carnival didn't hedge their 2022 fuel needs at all.  Royal Caribbean isn't hurting as bad as NCL or Carnival are with these soaring fuel prices. According to the article Royal hedged their fuel far below the current market price the author didn't disclose Royal price, but did disclose NCL's 42% hedge is at $48.13 per barrel.  This  is far below $130 per barrel high price we saw in recent days. I am shocked Carnival decided against any hedging they have to be kicking themselves right now, they had to have known oil prices would not / could not stay at those rock bottom prices.

I don't think anyone dreamed oil would be this expensive (high of $130 per barrel) yet again especially after 2008 but here we are and Royals bet to hedge over 50% their fuel is paying dividends. 

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They will certainly be looking to recover their additional operating costs (and not just fuel, inflation will mean many of the good and services they buy will be increasing and of course the increase in fuel costs will fuel (sorry) inflation even more.

If they add a distinct surcharge I’m not sure. Will we pay more for the total cost of the cruise (fare, food, drinks, excursions)? Of course. It is either that or Royal reduces their margins which I am not sure they are in a position to do.

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Fuel is one item that will have to dealt with but food costs are also soaring so that too will have to dealt with. Most economists are predicting a 3rd-4th quarter of this year to see the full brunt of inflationary values to hit the market. There is no way any business, much less cruise lines, not to pass on increases to their customers. I'm sure the cruise lines will have to bake that into cruise price increases. Fuel surcharges is not the way I'd expect them to handle it as it is too harsh for consumers to see. Better to raise the price of the overall cruise; kind of a take it as it is versus pay more now in an unexpected expense so we'll let you on the ship - too disruptive.

We might as well get used to higher prices for all things...there are lots of podcasts where they interview farmers on how their prices are increasing and they are going through the roof.  And, fuel and food touch almost everything in our economy.

As the old adage used to say, when the US sneezes the rest of the world gets a cold is still very true. We are just in the very edge of the beginning of inflation - sorry to have to say that but it is true. Economists are saying a recession will show by the latter part of this year but by then we will have lived it for the 2 quarters of negative growth and by then we will know full well it's here. Takes a while before the statistics catches up to the reality.

 

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The difference is a fuel surcharge if tact on would effect the first and second passenger booked in every cabin even if you've paid your cruise in full you would still have to pay the fuel surcharge. The price of food (not including specialty dinning) is already baked into the price of the cruise depending on how many people have already booked their cruises in advance verse how many book last minute?  Cruise lines may have to eat the majority of the increased cost of food depending on how those scales balance out.

I can't see a cruise line coming back to passengers who've already booked and saying we are adding a food surcharge like they can do with a fuel surcharge. They can raise their prices but everyone who is already booked would be exempt. They could certainly raise prices for speciality dinning, and they have already raised their prices for most liquor packages, good luck finding a DBP under $55 dollars per day the normal pre-cruise price that I've seen over the past few month has been around $71 dollars per day plus taxes and gratuities. 

I think the best way to deal with the increased cost of food is for Royal to continue doing what they are doing right now especially in Windjammers and that is continuing to have the staff serve guest.  I've noticed on the cruises that I've been on that there is considerable less food waste when guest are served than when they serve themselves and guest don't go back up to the buffet as much/often as they did when it was self service. Bump up the price at speciality dinning and maybe increase their room service fee tack on an additional $1 -3 dollars to the room service fee.

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I think it's a thing where Royal wants to keep people going on the ships and are willing to take a little bit of a hit in the profit area now vs having a ton of people pissed off and refusing to sail, at least for the time being.

 

I have seen multiple occasions where captains have taken the ships up to full speed to get into port early and transfer someone off.  I am guessing they already have some funding in place to deal with things like that on an average basis.  Honestly I wouldn't be surprised if they figure their fuel costs way over the actual costs to begin with and then they don't have to worry about it when things get a little wonky and costs are increased.  I mean I am not a genius financial person but that is what I would do in a situation where life happens and you never know what you will need on a trip if something goofs.

 

In the long run however I expect all prices will increase and there will be less sales or reduced amounts for a while as well but overall this should be a non-event.

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