A town is coming to town. A few thousand people are disgorged at the city gates, following chaperons on a ‘fully-escorted scenic tour’, resulting in a stampede for selfies and an appeal for Facebook ‘likes’ from friends and neighbours.
They smile and pose at exactly the same viewpoints as did the previous invasion, reproducing the same meaningless postcard motifs pointed out by their guides. Shops, marketplaces and restaurants are stormed – not so that they can purchase anything, but to take photographs. No-one spends a penny on anything other than a cheap souvenir – a knickknack of little value.
The cruise passengers travel on an all-inclusive package – they eat and drink at one of the countless restaurants on board. At dawn, the masses are sluiced back to their multi-storey abode in the harbour, where the belching behemoth of a cruise ship is ready to sail them to yet another city.
The local community suffering the invasion does not profit from such inconvenience. Harbour fees for the vessel hardly suffice to placate the local economy. Cruise ships are the most effective form of mass tourism, and yet they suggest exclusivity.
The biggest vessels can cater for more than 6,000 paying passengers. Some weigh more than 200,000 gross register tonnes – five times more than the Titanic. It is the tourism equivalent of battery cage chickens pretending to be free-range.
I have to admit to a certain bias here. It is beyond me why anyone would pay up to €200 per day to spend 15 nights at sea on a floating termite hill, caged together with a few thousand other people who one has never met before. Yet it is a growing business.
The skilfully fabricated image of a once-in-a-lifetime experience was augmented over the last 40 years by TV series like The Love Boat in the US and Germany’s Traumschiff (Ship of Dreams), a TV series successfully broadcast for three decades now.
Here, a patriarch captain and his angelic staff not only offer unheard-of luxury for their passengers and a cruise to the most exclusive locations on earth, but manages to steer the fate of all his guests to a happy end, no matter how troubled the situation when they set sail. Illness, divorce and family disputes are healed at sea – the guests meet their deliverance at the captain’s table. The TV soap has been running for so many years on the ZDF channel that the aboard petty officer second class is captain now.
Municipalities used to pay to feature in the TV series. They didn’t know what they were wishing for. Locations like Venice are already suffering the consequences. The bow wash of the cruise liners is corroding the stilts of the medieval water town and out-of-control vessels crash against the pier, smashing small boats as happened on June 2.
Overwhelmed by tens of thousands of non-consuming voyeurs per day, the municipality had enough. Pedestrians are now charged a congestion fee of up to €10 per day. We, in Malta, should introduce something similar. I suggest a €30 voucher for each disembarking passenger, which can be used as payment in shops and restaurants.
Carnival Corporation’s 104 ships are more polluting than all of Europe’s 270 million cars
Residents, office workers and shopkeepers in Valletta who suffer the daily stupefying plague of cruise line tourists would happily agree. As this newspaper has pointed out repeatedly, the health impact of mooring cruise ships is worrisome too. Their exhaust pollution per annum is much more harmful than all our 400,000 cars put together. Sulphur fumes degrading our sea and causing respiratory illnesses are a case in point.
For far too long, maritime transport has escaped scrutiny, even though its engines burn the vilest fuel there is, with each cruise liner burning a couple of hundred tons per day. Maritime fuel is the lowest grade by-product of crude refineries. It is essentially liquid bitumen, with a sulphur content so high that it would corrode a car engine in no time at all.
As most vessels operate tax-efficiently under offshore flags in international waters, regulators have a hard time submitting them to environmentally-acceptable standards.
Putting green politics on shore in an implausible situation. Why should we drive battery-driven cars when maritime pollution can proceed unchecked? Cruise ships are a conspicuous culprit as they sail for the sake of sailing, not to transport goods or people. They puff smoke and leak oil to achieve nothing.
As retail investors, we should examine the profitability of cruise ship organisations, cynically ignoring the harmfulness of its business operations. Carnival Corporation plc, with its head offices in Miami, Florida is the biggest publicly listed operator. It owns fleets like Carnival Cruises, Aida, P&O Cruises, Princess Cruises, Seabourn Cruises and Costa Cruises, the last fleet infamous for its shipwreck on an island off the coast of Tuscany in 2013 where 32 passengers died when the vessel hit a rock and sank only hours later.
Carnival Corporation plc, a company worth €25 billion with a share price of 44.04 GBP at the time of writing is – with a price per earnings multiple (P/E) of 10.2 – not expensive. It has a solid profit margin of 9.32 per cent with revenues of $5 billion. The share price is, alas, on a somewhat downward trajectory – down from 53.60 in 2017.
It is estimated that its 104 ships are more polluting than all of Europe’s 270 million cars.
Royal Caribbean International, smaller than Carnival, with a turnover of only $2.44 billion, has a similar enterprise value of $24 billion. Its share price of $114.84 is up from 70.01 in September 2017 while still off its 52 week-high of 133.60. Because of its higher profit margin of 10.23 per cent, and having incurred less bad press than Carnival, it is more expensive with a P/E of 13.13.
Maritime tours are a growing business, despite my misgivings. It is highly profitable and mostly beyond reproach for infringing regulations. It pays its tireless crews of Oompa-Loompas a miserable salary – hourly rates of less than a dollar for a long time was the standard with shifts of 12 hours and more.
It is difficult to imagine that costs can be reduced much further. To build ever bigger ships for conveyor-belt services will not help. Caribbean’s Symphony of the Seas is already 1,188 feet long and 18 floors high. Only few harbours will be willing to grant mooring, which makes commuting to suggested sights more cumbersome. Aficionados of cruise holidays will not be deterred, though. The King Kong ship has raving reviews.
Investing in these businesses is fraught with risk. Any oil-dumping scandal, another outbreak of a norovirus or an E-coli epidemic on board would bring the share price down, as would another rescue operation of shipwrecked passengers on the high seas.
Profit margins will be under pressure once stricter environmental regulations are internationally agreed or unilaterally imposed by harbours. This implies forced investments with little return. Landing charges can only increase in places of interest with the public being increasingly hostile. Saving costs on catering and services will disappoint patrons who would wish to maintain at least an illusion of high life.
My hunch is that a cruise line offering green journeys tailored for high income individuals would steal a cruise on them. If they wanted us to buy their shares now, like many asset managers do, they should at least pay a higher dividend while they still can afford it. Right now, they do not return much more than US government bonds. The Titanic is a good film to watch, but the voyage ended badly for passengers and investors.
Andreas Weitzer is an independent journalist based in Malta. He reports on the economy, politics and finance. The purpose of his column is to broaden readers’ general financial knowledge and it should not be interpreted as presenting investment advice or advice on the buying and selling of financial products.