Carnival Corporation line Costa Cruises has sold its Costa Victoria (IMO 9109031) for scrap, according to the mayor of Piombino, Francesco Ferrari. He said that the ship had arrived at the Tuscan port to be dismantled. Previous reports had said that the vessel was to be turned into an accommodation ship.
The 1996-built cruise ship had been an active part of the Costa fleet up until the Covid-19 pandemic caused the cessation of the cruise industry in mid-March.
The announcement that a relatively modern cruise ship was going to be scrapped was seen as the first physical sign of a significant change in the structure of the industry. Previously one would expect the major cruise liners to sell on their older vessels to second- or third-tier cruise liner operations, sometimes providing some funding to the companies for the purchase.
Carnival Corporation had been selling about four ships a year, basing its decisions on a ship’s overall revenue performance (which demanded a double-digit return on invested capital) and guest satisfaction from the ship’s cruises.
The strategy had been to replace the older and underperforming ships with newer ships that inherently have the opportunity for greater revenue with additional cabin and balcony designs. None of Carnival’s ship sales in recent years had gone for scrap.
Now, however, most of the second-tier cruise lines that acquired older tonnage were suffering from a lack of financial resources. Cruise and Maritime Voyages, which had been actively acquiring cruise ships from Carnival Corporation, is seeking to refinance. Earlier this year CMV contracted to buy two cruise ships from Carnival’s P&O Cruises in Australia. They were due for delivery in 2021.
With many of the smaller cruise lines no longer existing because of consolidations over the past decade, and those that survive unlikely to be in the position to invest in the vessels which the major players want to sell, the only realistic option could be the breaker’s yard.
While “selling on” the older ships appeared more financially attractive because it was fast and the income could be written straight to book, in cash terms the deal was often slower, with the buyers often being part-financed by the sellers. That resulted in counterparty risk. Scrapping is time-consuming, but the cash income from it is relatively fast.
However, if Costa Victoria turns out to be the first of many, and if there is a severe global economic downturn suppressing the demand for the raw materials generated from scrapping , this could be one more problem for an already beleaguered industry.
On Tuesday S&P downgraded Carnival Corp’s secured bonds to BB+ from BBB-, and its unsecured bonds from BBB- to BB-. Both bonds are now regarded as non-investment grade bonds.
1996-built, Italy-flagged, 75,166 gt Costa Victoria is owned and managed by Costa Crociere SpA of Genoa, Italy. ISM manager is Carnival Maritime GmbH of Hamburg, Germany. It is entered with Steamship Mutual and with UK Club.