Tom McAlpin says no 3rd Ship yet

[bicker]

Yes other cruise lines are launching new ships .. but most of those ships were ordered pre-09/11 ..

Endeavor of the Seas was ordered within the last six months. Freedom of the Seas was ordered a little more than a year before that.

 

[MousseauMob]

I don’t believe the announcement will be a 3rd ship! Although I wish it was, and they may surprise me! I have hope though that they will announce the 2007 itineraries and it will include repositioning to accommodate some CA cruises again. They could do this from time to time until a 3rd ship is built, at which point they could offer it more often. With as popular as the repositioning cruises and west coast cruises have been, this would seem like a low risk – high yield good business decision, allowing them to make both coasts happy!

 

[Viking]

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.

Disney is a business, what makes you think they should behave differently
You'd better grow up, it's a harsh world out there

 

[ennisb]

Let's think of this as a business would. The goal is to make the share holders happy by raising the stock price and dividends. DCL is a drop in the bucket when it comes to the overall business with holdings such as ABC, ESPN, multiple movie companies, and of course the Disney franchise. With these holdings DCL is not under the same pressure that other public cruise companies are under to grow the market and share value. Disney can sit back and wait for the best time to invest in additional ships and that time will be when they can maximize the investment by building the ships for the lowest possible price while getting the quality that they require.

Once again they (DCL) is in a great position with popular ships that are almost always full and under no direct pressure to incure huge debt to grow as they are only a part of a much larger corporation

 

[erikthewise]

Disney is a business, what makes you think they should behave differently
You'd better grow up, it's a harsh world out there

LOL I'm as grown up as I will ever be.
My point was that Disney is leaving money on the table by not building a third ship, due to unwarranted risk-aversion. Whether I am right or wrong about this, it seems a business-like enough point of view.

Does the amount they can hope to gain by waiting out exchange rates really exceed the lost profit they will experience by not having a third ship? If they have calculated that it does, then I don't blame them for holding back. But if they are simply unwilling to cough up the investment in spite of a forecast net profit, then my criticism is valid.

 

[bicker]

My point was that Disney is leaving money on the table by not building a third ship, due to unwarranted risk-aversion.

Or due to having better opportunities for investing their limited capital.

Does the amount they can hope to gain by waiting out exchange rates really exceed the lost profit they will experience by not having a third ship?

Or does the amount they can hope to gain by investing their capital in a different project really exceed the lost profit they will experience by not having a third ship? That, at least, seems very possible.

 

[ivanova]

Endeavor of the Seas was ordered within the last six months. Freedom of the Seas was ordered a little more than a year before that.

Because they are starting to order ships again ... but we won't be seeing a new ship a month (quoting the HAL rep) launches because from late 2001 through 2003 the ship orders were fewer than in years past ... in 2004 the cruise industry was bouncing back and orders started going in again.

 

[erikthewise]

Or due to having better opportunities for investing their limited capital.

Or does the amount they can hope to gain by investing their capital in a different project really exceed the lost profit they will experience by not having a third ship? That, at least, seems very possible.

Good points as usual. I'm curious what you see as possible superior investment opportunities. TV and movies are notoriously fickle, though making good movies should be a priority for Disney. The last I heard DCL and DVC were the divisions of Disney making good profits. If they want to postpone the third ship in order to build Villas at the Contemporary Resort, I guess I could live with that.

 

[Euphscott]

OK Bicker, for the sake of argument (and your screen name's irony is not lost on me!), what would you suggest DCL is choosing to invest in besides the new ships?

Certainly the dry dock changes will cost them a bit, but some of that is just the cost of doing business. I think the video screen is large investment and qualifies, but what else would you be suggesting?

And while I say it is for the sake of argument, I do not mean a mean spirited argument - I am just trying to move the discussion along. I don't disagree with you, I just wonder where you think DCL would believe they are making a better investment.

 

[Lisa F]

And while I say it is for the sake of argument, I do not mean a mean spirited argument - I am just trying to move the discussion along. I don't disagree with you, I just wonder where you think DCL would believe they are making a better investment.

I'm not Bicker but I believe his argument is not that DCL could be putting the money to better use but that since DISNEY is such a diverse company, DISNEY has other investment opportunities for their capital. Unlike companies like carnival and rcc, which only cruise (and therefore their choices for reinvestment of capital is somewhat limited), Disney could be investing it in any number of things from tv to radio to movies to the parks etcetcetc.

 

[Horace Horsecollar]

OK Bicker, for the sake of argument (and your screen name's irony is not lost on me!), what would you suggest DCL is choosing to invest in besides the new ships?

I think that Bicker's point is that it's The Walt Disney Company, not the Disney Cruise Line operation, that decides if and when to make major capital investments, either by taking on debt or by investing retained earnings (from any division).

In other words, "what would you suggest DCL is choosing to invest in besides the new ships?" really isn't a valid discussion point because it's not Disney Cruise Line's choice. DCL's profits flow to Disney's corporate headquarters in Burbank. The profits can be invested in broadcasting or even in aircraft leases.

In mid-2001, Disney took on substantial new debt to purchase the Fox Family Network (now ABC Family) for $5.3 billion. Maybe that was a better investment than a DCL fleet expansion; maybe not. It was a business decision driven by CEO Michael Eisner's belief that for Disney to be positioned for future success in content production, it was also necessary for Disney to own additional paths of content distribution. (I can speculate on other reasons why Eisner wanted to own Fox Family, but I don't want to go there now.)

By the way, we all think that Disney Cruise Line is highly profitable, but The Walt Disney Company doesn't publish specific results for DCL. Instead, DCL's numbers are lumped in with Disney's Theme Parks and Resorts. So none of us on the outside really know.


Let's summarize where things stand with a DCL fleet expansion:

• DCL started a planning project in early 2001 to expand their fleet.
• The DCL fleet expansion project calendar was put on hold by the events of 9/11, according to ships' officers on the Disney Magic in Spring 2002.
• Since 9/11, other cruise lines have taken delivery of new ships and even resumed ordering additional ships.
• The exchange rate between the US Dollar and the Euro has made European goods (including cruise ships) more expensive.
• Other cruise lines are ordering new ships despite the high Euro, but the top execs at Disney are unwilling to do so.
• Several times over the past year or two, there have been news articles in which Disney officials have made statements suggesting that the Euro exchange rate is the reason that Disney has not ordered a new ship
• The Euro continues to be be much strnger than it was a few years ago, but lately the Dollar has partially recovered from it lowest point.
• Although the Euro exchange rate is the official story, another plausible explanation is that Disney is still paying off a substantial debt load.
• Disney hasn't contracted with a shipyard, and DCL's fleet expansion plans are gathering dust.
• DCL may remain a 2-ship cruise line for many years to come, or Bob Iger may see a DCL fleet expansion as good way to revive real growth at Disney. Only time will tell.

 

[bicker]

I'm curious what you see as possible superior investment opportunities.

I haven't been privvy to insider information at Disney for a while. You can't predict good movie scripts based on industry trends -- so they may or may not have some of those. Disney clearly has an issue to resolve with their animation division. It looks like they've got a new partner -- it's not clear how much investment that'll need. I remember reading something last week about new investments in the parks themselves, not with regard to new attractions or resorts, but other investments. I'd guess that some of that might qualify. However, none of that matters one bit. What matters is that if we don't have definitive information proving that a third DCL ship is the best possible use of that capital -- and we don't -- then it may not be.

The last I heard DCL and DVC were the divisions of Disney making good profits. If they want to postpone the third ship in order to build Villas at the Contemporary Resort, I guess I could live with that.

The best investment opportunities are those that will bring you the most long-term shareholder value sometime in the future, not those that have brought you the most profit in the past.

what would you suggest DCL is choosing to invest in besides the new ships?

Lisa hit the nail on the head: DCL doesn't invest capital. Disney does.

I just wonder where you think DCL would believe they are making a better investment.<!-- / message --><!-- sig -->

I look at it the other way: What makes you think that there aren't better investment opportunities? I'd be mortified to learn that a few people exchanging messages on an online web site have more inside knowledge and industry expertise than professional managers doing the job of managing the business every day.

 

[tstobb]

Sorry west coasters but as a shareholder, moving one of the ships, during their busiest time of the year, when they are virtually guaranteed of being filled to capacity, was a bad business decision. I can't see that they actually made more money, considering the increased costs and the loss of use of paid items (terminal in the Cape & Castaway Cay) even with the higher ticket prices. If the experiment had not filled the ship, how much would have been lost? Out of curiousity, what was the passenger count on the 14 day crossing - was it what the 2 missed Carribean cruises would have boarded?

 

[erikthewise]

Good summary Horace. Thanks for the contribution!

Sorry west coasters but as a shareholder, moving one of the ships, during their busiest time of the year, when they are virtually guaranteed of being filled to capacity, was a bad business decision. I can't see that they actually made more money, considering the increased costs and the loss of use of paid items (terminal in the Cape & Castaway Cay) even with the higher ticket prices. If the experiment had not filled the ship, how much would have been lost? Out of curiousity, what was the passenger count on the 14 day crossing - was it what the 2 missed Carribean cruises would have boarded?

I originally felt this way. But did you look at the prices for the west coast sailings? If you did, you may not feel so certain they lost money! Ditto for the 14-day cruises. The first one was full, the second one will be, and they easily cost twice as much as a 7-day cruise, likely more. I think we have to admit that DCL was right in that there was plenty of demand for the west coast cruises, enough to charge a premium for them.

 

[tstobb]

I originally felt this way. But did you look at the prices for the west coast sailings? If you did, you may not feel so certain they lost money! Ditto for the 14-day cruises. The first one was full, the second one will be, and they easily cost twice as much as a 7-day cruise, likely more. I think we have to admit that DCL was right in that there was plenty of demand for the west coast cruises, enough to charge a premium for them.

Yes, I did but do the increased prices cover the additional costs? What is the "home port" in CA running them? Costs to run through the canal twice? Extra entertainment? I think that, all things considered, they may have made the same profit as if they had stayed on the east coast but, again as a stockholder and in light of the way this conversation has been going, it was not the wisest business decision, riskwise.
As far as the 14 day crossings, 2 summer cruises at published rates for a family of 5 in a category 4 are only $108 less than the August 20th return cruise.

 

[ivanova]

If the Euro is their excuse, they might have to change excuses pretty soon:

The euro dropped 1.4 percent to $1.2301 at 2:29 p.m. in New York from
$1.2475 yesterday, and earlier touched $1.2297, the lowest since Oct. 13, according to currency-dealing system EBS. It's the biggest one-day decline since Aug. 23.

The euro may fall to $1.22 in two days, said Austin. It's down about 4.2 percent in May as reports also showed European growth is trailing the U.S. expansion for a fourth year.

= = = = = = = = = =

A DCL rep had told me that 1.24 was the magic number ... wonder if they're going to change that now

 

[txaggie94gigem]

I agree...i think the time has come for a third ship...2 in florida and one in CA...the demand in CA is obviously there...the one downside to cruising in CA is no Castaway Cay....i wonder if Disney can do anything about that??? I have friends cruising for the first time this summer that are very disappointed they will not see disney's premier island....makes me wonder if they could buy some shore space in mexico and convert it!!!

 

[bicker]

I suspect islands off the cost of Florida are a lot less expensive than islands off the coast of California or Baja California!!!

 

[Euphscott]

I am intrigued by this discussion. I appreciate the well thought out points that have been made. Once you get past the passionate DCL loving crowd that believes that DCL is printing money, there are some real business factors at play here.

I too believe that the Disney company as a whole is gun shy from the Euro Disney mess, the DCA debacle and of course the high priced purchase of Fox Family channe. Throw in and that no longer will the goose that lays the golden egg in the form of a Pixar deal be around. Many critics of the Disney company will point to the philosophy of siphoning from the money makers to sustain the losers as a maddening concept. Especially when you consider that the fans of Disney are a much different crowd than fans of other big business. There is an emotional attachment to certain arms of the business - in this discussion it is the cruise line. "How dare they take the profits from the cruise line to buy the Power Rangers?" Yet that is what the Walt Disney company has become.

I do follow the lowering Euro with interest to see what the next excuse may be for not spending any capital on a new ship. And as many others point out, a California ship full time is not likely a wise business decision (rental paid on a cruise terminal, no private island, fewer port choices...), or at worst a high risk move. As much as I'd love to see more ships, I suspect we may be waiting quite a while.

Although if or when Bob Iger becomes his own man, perhaps an about face will occur? Only time will tell...

Nice discussion gang!

 

[chunkster20uk]

A quick question, if the exchange rate is so bad, why don't they build one in the US? I take it there are shipyards, or does it work out more expensive?