UBS trims cruise supply forecast on pandemic changes

In a note, UBS cited how cruise capacity growth was a frequent investor concern pre-pandemic, despite net yield increases even in years with above-average supply growth.

Deliveries pushed back six to nine months on average

Though newbuild deliveries were pushed back six to nine months on average during the pandemic, new, more fuel-efficient ships have been delivered since 2019, UBS analyst Robin Farley noted.

For 2023, the brokerage now estimates 713,683 berths globally on a weighted average basis, down from its pre-COVID estimate of 777,859 berths. This is 8% lower absolute supply than UBS's previous estimates, however year-over-year growth of 5.9% is up from Farley's pre-COVID 4.9% estimate.

This is because ship removals during the pandemic reduced the existing base, accounting for larger year-over-year increases in 2023 and 2024, 'but capacity has been reduced by every measure,' Farley said.

She added: 'The bottom line is that capacity is below what was originally expected for every year since the pandemic and and likely in the next few years, in our view.'

For its calculations, UBS took into account ships that were scrapped and ships of companies that failed which have been sold on or are likely to resume service under other operators.

2024 forecast

The UBS forecast for 2024 is 762,738 berths, 5% lower than its pre-COVID estimate of 806,656 berths. That's 6.9% growth year over year, up from the brokerage's 3.7% increase — again, because the base is now lower than previously.

For the 2023 North American market, UBS estimates 398,630 berths on a weighted average basis, down from its pre-COVID estimate of 425,032 berths. This results in a 7.1% increase for 2023, up from the brokerage's pre-COVID 5.4% projection but actually 6% lower supply than its previous estimates.

For the 2024 North American market, UBS now projects 430,582 berths, down from its pre-COVID estimate of 439,199 berths. This is 2% lower than before, but an 8% year-over-year increase from the pre-COVID 3.3% estimate.

Lower capacity growth by company

Carnival Corp. & plc announced 23 ship disposals since 2019, or about 15%-16% of the fleet that CCL had at the start of 2020. Combined with delays in ship deliveries, UBS now expects 2.2% compound annual growth rate in capacity from 2019 to 2023, compared to 5.7% pre-COVID.

Royal Caribbean Group sold about 5% of its capacity and, with new ships factored in, UBS estimates RCL's capacity CAGR at 3.4% from 2019 to 2023, below the brokerage's pre-pandemic estimate of 4.9%.

And UBS now forecasts Norwegian Cruise Line Holdings' capacity CAGR as 3.6% from 2019 to 2023, down from 4.6%. This is due to later deliveries since NCLH did not sell any ships during the pandemic.

CCL, RCL, NCLH have same average fleet age

Farley said NCLH has the youngest fleet of these three groups, but all three now have the same average fleet age.

UBS has a 'buy' rating for CCL and RCL and a 'neutral' rating for NCLH.

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