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UBS sees continued 'conservatism' on capacity growth for N. America, Europe

UBS sees continued 'conservatism' on capacity growth for N. America, Europe

With investors focused on disciplined capacity spending dictated by a balanced supply-demand equation, UBS Investment Research anticipates continued 'conservatism' in cruise newbuild orders.

For the North American market, the brokerage expects about 4% compound annual growth for 2014 to 2018, below the trailing 2004 to 2014 average of about 5% annually.

This contrasts with the roughly 6% annual North American capacity growth in 2010 and 2011, followed by lower rates of increase in 2012, 2013 and 2014.

2015 is seen as a particularly below average growth year at an estimated 2.7% net increase, UBS said in a note. That figure is based on 3.9% capacity growth and estimated withdrawals of 1.2%.

Since the North American market's capacity withdrawals have averaged about 3% annually since 2000, UBS thinks it possible the net capacity growth for 2015-2016 could be even lower than the 2.7% to 4.9% rate currently projected.

UBS analyst Robin Farley estimates North American capacity growth in the 4% to 5% range from 2016 through 2018, adding that while 2018 could still see new orders, 2017 ordering is effectively completed. Currently six ships are on the books for the North American market in 2018, plus one for Europe.

For 2016, the brokerage estimates the weighted average gross capacity increase at 5.9%, but given known withdrawals, could end up in the 4.9% range or lower.

Concerning European-sourced capacity, UBS estimates the gross weighted average growth for 2015 and 2016 at around 5.7% and 4.5%. Counting known withdrawals, the net increases will likely be 3.6% and 3.9%.

The brokerage noted Europe-sourced capacity growth in 2012 was 5.9%, however the net increase ended up only 3.1% primarily due to the withdrawals of Costa Concordia and Costa Allegra. 2013 capacity growth was 6.7%, with the net increase ending up at 6.4%, while 2014's gross increase was 3.2% and net growth was 2.6%.

For 2015 through 2018, UBS expects Europe's net capacity growth will average 3%, well below the trailing five-year growth average of 5%. As with North America, capacity withdrawals may pull those figures lower.

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