Tom McAlpin says no 3rd Ship yet

[tstobb]

http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh02326_2005-05-27_22-15-49_n27305298_newsml


"Disney celebrates inaugural cruise from California
Fri May 27, 2005 06:15 PM ET

LOS ANGELES, May 27 (Reuters) - Despite burgeoning demand and a rising dollar, Disney Cruise Lines President Tom McAlpin said on Friday that the Walt Disney Co. (DIS.N: Quote, Profile, Research) has no immediate plans to build a third ship.

The company's flagship, Disney Magic, has left its Florida home port for the summer to sail to California, where it will spend the season carrying tourists on Disney's first-ever West Coast cruises.

Disney Magic's inaugural West Coast voyage begins on Saturday with a lavish send-off at the Port of Los Angeles.

The 12 cruises from the Port of Los Angeles to Mexico's Puerto Vallarta, Mazatlan and Cabo San Lucas were arranged to mark Disneyland's 50th anniversary, and have proved popular.

"We haven't had to do a lot of marketing. We relied on past guests and the response has been fantastic," McAlpin said. "We are listening to our guests. They want to go to California -- we know there is demand out there."

Although the dollar's position against the euro has improved this year, McAlpin said exchange rates were still not favorable enough for the company to order a new ship from European builders.

"We will move the ship around before we expand," he said.

He also said Disney did not plan to add California cruises to its 2006 itineraries, but added: "We haven't yet announced our itinerary for 2007."

He said the cruise sales for Disney's two-ship fleet had proved resilient through the U.S. tourism downturn spurred by the Sept. 11 hijack attacks in 2001, and had returned to pre-attack levels.

 

[Lisa F]

This is not really new news. The ridiculous amount of debt that our country has accrued the last few years has made the dollar very weak in the world. You can hardly blame Disney for wanting to wait to build a ship until it costs less than it would now. They've been saying that they are not going to build a ship until the dollar strengthens for quite some time now.

 

[erikthewise]

I can see now why Matt Ouimet left DCL for Disneyland. Nothing is happening at DCL. Other cruise lines are building ships -- and I assume they are paying for them! Disney is no different, except they have no commitment to cruising, or to expanding or improving their product. It is just a convenient source of income for them.

And of course they DO have plans for a third ship. They just don't plan to pay for it until they can get a sweet deal.

 

[bicker]

I suspect it is partially because those other cruise lines are building new ships that DCL doesn't. Capacity is increasing in the industry at such a rate that DCL may have a hard time exacting the kind of premium for their offering that they're used to, especially if there is another down-turn in the economy. The larger cruise lines fully recognize what they're getting into, what kind of risk they're incurring, but they're cruise lines -- that's their business and they cannot afford to sit by and let the other vendors duke it out while they stay on the sideline, out of harm's way, eschewing any growth. DCL can afford to do that, since the cruise line is just part of a much larger business.

 

[BobandLee]

Tom gave a presentation while on the repo cruise. He covered the history and the future of the cruiseline. In typical Disney fashion, he was careful not to say much about a new ship other than Disney would like to build one. He seem to indicated that the exchange rate was the reason for the delay.

 

[wide awake]

I may end up eating my words, but I think the article was part of an overall plan. I think they are planning a surprise announcement in July, on the day the Magic will be taken over by Disney execs.

 

[erikthewise]

I suspect it is partially because those other cruise lines are building new ships that DCL doesn't. Capacity is increasing in the industry at such a rate that DCL may have a hard time exacting the kind of premium for their offering that they're used to, especially if there is another down-turn in the economy. The larger cruise lines fully recognize what they're getting into, what kind of risk they're incurring, but they're cruise lines -- that's their business and they cannot afford to sit by and let the other vendors duke it out while they stay on the sideline, out of harm's way, eschewing any growth. DCL can afford to do that, since the cruise line is just part of a much larger business.

All true, but the fact is still that the other cruise lines are the ones taking the risks, while DCL sits on its heinie, in spite of having ample proof of long-term demand for their product. . It guarantees they won't lose but also guarantees they won't gain from the overall growth of the cruise industry. If the cruise lines overbuild (which seems inevitable), it is the cruise lines without a well-defined image or loyal followers who will lose out, and that ain't Disney. We're only taking about ONE ship here!

 

[DrCavin]

I may end up eating my words, but I think the article was part of an overall plan. I think they are planning a surprise announcement in July, on the day the Magic will be taken over by Disney execs.

IMO they will announce that the Magic will return to California in 2007...

 

[4formickey]

dcl sails full most of the time. Why would you take a chance as a ceo on adding more space when you know that what you have will sell out. Their product sell and we will buy it. If I was in control I would not add a new boat, but just upgrade what I have and add new ports of call. Why send the Magic to CA and not the Wonder? It is all about the money. People will spend more on the New west coast trip and they will still get a nice buck for the Wonder that makes 2 trips a week.People travel from all over the world to cruise on dcl. A dream trip for many and we are repeat cruiser.The price we pay ,we always say that it is worth it. Dcl and Wdw does not discount that much. They know that their product will sell !!!

 

[bicker]

All true, but the fact is still that the other cruise lines are the ones taking the risks, while DCL sits on its heinie, in spite of having ample proof of long-term demand for their product.

Long-term demand is a necessary but not sufficient condition for a business decision of this nature. A large company has many opportunities to invest its capital. A really good company will have an embarassing number of good opportunities, and will therefore, given the fact that every company has limited capital to go around, will have to choose the best of the available options. Sometimes, that means passing up good opportunities in order to take advantage of the better opportunities. It's not clear that the opportunities available in the cruising market are the best ones Disney has available.

It guarantees they won't lose but also guarantees they won't gain from the overall growth of the cruise industry.

Let's keep in mind what has been the major source of growth in the cruise industry over the last five years: for lack of a better word, underselling. Cruise lines have been forced to run on slim or no margins for years in order to keep their fleets on the seas, and they're now returning to pre-9/11 levels. That's why many of us who found cruising affordable for the first time in our lives in the past five years are finding that cruising is again out-of-reach.

 

[erikthewise]

dcl sails full most of the time. Why would you take a chance as a ceo on adding more space when you know that what you have will sell out. Their product sell and we will buy it. If I was in control I would not add a new boat, but just upgrade what I have and add new ports of call. Why send the Magic to CA and not the Wonder? It is all about the money. People will spend more on the New west coast trip and they will still get a nice buck for the Wonder that makes 2 trips a week.People travel from all over the world to cruise on dcl. A dream trip for many and we are repeat cruiser.The price we pay ,we always say that it is worth it. Dcl and Wdw does not discount that much. They know that their product will sell !!!

Yes this will work, but the idea is that they would make MORE money if they had a third ship! Conceivably this would not work out, but it seems likely. In order to sell cruises on the west coast this year, they had to give up near-certain sell-outs in the Caribbean. Quite likely they could have filled both.

By your argument, one ship would be even better, since they would be ultra-assured of sellout and could raise their prices even higher!

Bicker, you have good points. I think a third ship would be a reliable money-maker, but I could well be wrong.

 

[bicker]

I think a third ship would be a reliable money-maker, but I could well be wrong.

I don't think you're wrong. You're probably correct in saying that they could make more money with three ships than they would with two ships, but the question is "more money than what?" Please understand that my point is not that I believe a third ship would be unprofitable, but rather only that it is possible that there are other, more profitable investments available.

 

[staceymerrill]

While disappointed that there will be no 3rd ship, we were so impressed with the condition of the Magic on our recent May 7 Western, that it really doesnt matter much to us.......we just didnt get any feeling that the Magic was becoming "long in the tooth"

Yes, the newer ships may be eclipsing the Magic/Wonder in terms of amenities et al, but the DCL ships really offer a unique experience....

 

[WDWLVR]

Disney took a long time to get into the cruise industry. I think because they wanted to get it right and IMHO they did. I have trust that they will expand when it makes the most sense.

We heard as far back as May of '03 that the plans were made and they were waiting for the Euro. So I'm confident that when they are ready they could move quickly. Now remember that quickly for the cruise industry is a couple of years from signed contract to finished ship.

In the meantime I think they are doing some great things by trying out new ports etc.

I think Tom is doing a great job and the cruise line is in great shape.

 

[pjpoohbear]

With EU Consitution votes coming up, and the NON vote in France the Euro is falling. If more countries vote NO then the possiblity of the exchange rate hitting the "magic' number for DCL to sign maybe closer than we think.

Penny

 

[Lisa F]

Sure, other cruiselines are building ships, but I have to wonder if they are the same build quality as DCL. These ships are now what? 7 years old? Whenever you hear people compare other cruiselines favorably to DCL they are always comparing to the NEW ships that are coming off the line. I've never heard anyone compare DCL to older RCCL or Carnival ships and say that they are just as nice. It makes me wonder how much DCL ships cost compared to comparably sized Carnival ships and whether in another 7 years people will still be commenting about how beautiful the "old" Disney ships are but no one will want to be cruising on 7 year old Carnival ships.

It might be nice to be a fly on the wall of all of these meetings but I have to wonder if these new ships coming off the line are cutting corners in order to make their budgets. Do you think that Carnival is just swallowing a higher cost due to the exchange rate or do you think that they are figuring out a way to make the project come in on budget? I don't know the answer to that but the extra cost has to come from somewhere eventually... they could either 1) raise rates to cover it 2) cut corners to cover the difference or 3) wait until the exchange rate is more favorable. Of those three options I'd rather DCL take the third.

 

[MarkRG]

EXACTLY. On our last cruise we attended the Captain's Table(Q&A with the command staff) and they ran a video of how much they did during the Magic's last drydock. The level of detail built into the Magic and the effort to maintain it is of a complete order higher than most other ships I have seen.

 

[bicker]

Sure, other cruiselines are building ships, but I have to wonder if they are the same build quality as DCL. These ships are now what? 7 years old? Whenever you hear people compare other cruiselines favorably to DCL they are always comparing to the NEW ships that are coming off the line. I've never heard anyone compare DCL to older RCCL or Carnival ships and say that they are just as nice.

I don't think there is much doubt that DCL is a step above, but that extra step carries a heavy premium. However, it doesn't make sense to compare, RCI's 15 year old ships to DCL's 6 and 7 year old ships, for example. RCI's Voyager of the Seas is coming up on 6 years old, so that's a fair comparison, IMHO, and it compares pretty well, AFAIC. Again: I have no doubt that DCL is better, but I don't believe there is a quantum difference, or even a difference that isn't anything but commensurate with DCL's higher fares.

It might be nice to be a fly on the wall of all of these meetings but I have to wonder if these new ships coming off the line are cutting corners in order to make their budgets.

From what I've read, no more or less so than the kind of trade-offs that every company, Disney included, in a competitive marketplace. From what I've read of RCI's Freedom of the Seas, it is nothing but a step up from its predecessors, in terms of operational quality, customer service support, variety of ammenities, technology, etc.

Do you think that Carnival is just swallowing a higher cost due to the exchange rate or do you think that they are figuring out a way to make the project come in on budget?

Just guessing, but I bet Carnival and RCI probably benefit from the volume of business the give these shipyards -- DCL is a drop-in-the-bucket by comparison, so of course pays top dollar. Regardless, they also benefit from a variety of other economies of scale (I think RCI makes port with about a half dozen ships in Miami each week), and also clearly have the option of increasing fares. They've surely done so recently. Fares on Freedom of the Seas are markedly higher than anything RCI has ever charged.

 

[4formickey]

most people opt-out of dcl when they see the fares. Dcl prices are comparable to some of the 6 star rated ship. Rccl and carnival are rated below DCL so it will not be a fair comparion. We have been on Carnival before, one of their new ship and one of their older ones. Disney is better and we don't mind paying the higher price. When you talk about the Raddison cruise and others in that class you are a step ahead of DCL. The bottom line is Disney has a great product for kids and adults and we enjoy what the do for us and the one of a kind treatment that they give. What other ship has when you wish upon a star .

 

[ivanova]

I can see now why Matt Ouimet left DCL for Disneyland. Nothing is happening at DCL. Other cruise lines are building ships -- and I assume they are paying for them!

Yes other cruise lines are launching new ships .. but most of those ships were ordered pre-09/11 .. I was recently told by someone at a different cruise line that the number of new launches is dropping dramatically as we reach the point where the pre-09/11 orders have basically been built and are launching, and the post-09/11 orders dropped significantly so now we'll see a significant drop in new launches over the next couple of years.

Remember DCL basically started sailing their ships in 1998/1999. They would not have been ready to order a 3rd ship by 2001. Then 09/11 happened and ALL cruise lines suffered, and many are just getting back to their pre-09/11 highs. It would have been irresponsible for DCL to order a ship in 2001/2002. Then the Euro exchange became an issue.

I doubt they'll "announce" a 3rd ship in July, but they might go ahead and announce the 2007 itineraries then....