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Giga Yacht vs Mini-Cruise Ship

Discussion in 'General Yachting Discussion' started by newbee, Dec 6, 2004.

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  1. newbee

    newbee New Member

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    Read the bit in the Yacht Report about the trend to SOLAS 36 pax vs traditional 12 pax charter/fractional/mini-cruise boats. I'd be interested to hear peoples views on this apparently "new" category.
    eg Analiessie (sp?)
    Is the segment destined to a fad or have staying power? Why? Econmically viable? If so does the bid market for used 12 Pax luxury megas hit a wall?

    From a pax perspective, at what point do the lines blurr between the the new 36 pax category and the mini-cruise segment like SeaDream Yacht Club at 75-100 Pax?

    :confused:
  2. Crewagency

    Crewagency Guest

  3. newbee

    newbee New Member

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    Thanks for that link. :)

    what do you think about the "cruise-yacht" business model?
  4. Crewagency

    Crewagency Guest

    Mega Yacht Charter

    Mega Yacht Charter is a multi million dollar business.
    In main season is it hard to find a free Charter Yacht.
    Seadream and others fill this market with small Cruise Ships over 40 cabins etc.
    They are booked for BWM or Mercedes Benz Management for Events like the Formular 1 in Monaco etc.
    The feeling to be on a Cruise Ship or a Yacht i think depends on the yacht experience of the complete Crew. Steward/ess who have long time worked on a cruise ship are not always able to fullfil the wishes of Private yacht owners or guests.
    Also on Cruise Ships you will not find a special Owners Cabin or an owners deck.
    Charter a Yachts means often 1 person pays for all. On a yacht it is not possible to book only one cabin you always have to book the yacht.
    There are some concepts coming up like time sharing ( Benetti Whale Club, )

    Here i also copy a statemant from an other site where this item is still discussed:
    Author = joelemarco , Monaco

    I am unfortunately adding a bit late this comment on this topic that has been discussed a little while ago but I think I will also entertain the discussion about mega charter yacht and mini cruise ships. I have made a comment of the same kind on another forum but what has been discussed here gives me the opportunity to try to bring new elements to it.
    We have seen indeed over the years as yachts were getting bigger a new tendency of mega charter yachts and mini cruise ships. I am making this difference on purpose because I think it does exist even though it not necessarily obvious.

    Before yachts were always smaller than cruise ships and it was quite simple to make difference between them; and it is true that size was the first point to make the difference. For the past 5 years, it is not the case anymore. Some yachts are bigger than cruise ships and are much more complex though still have this blend of luxury but in a scale multiplied threefold.

    Nevertheless, one point would seem at first glance to make a clear difference between mini cruise ships and mega charter yachts, which is the layout. Cruise ships even the smallest ones are very much comparable to one another on their layout which is very simple with no such research founded on mega charter yacht as for instance on Annaliesse and her great sub spa deck which is the experience of Liveras large charter yacht (Princess Tanya f.e.).

    Linked with the layout is the charter formula. Vessels like Constellation, Tia and Tu Moanu, Le Levant are mini cruise ships because you rent them by the cabin and not the boat itself. Which is not the case as far as I know for Annaliesse, Omega or Turama, even if the latest is really a in-between-the-two-categories vessel as you can charter the whole boat so its seems private charter on one hand, but on the other hand she looks like a cruise ship. However, we must not forget that when she was relaunched Christina O was available on for charter either by the cabin by TauckWorld or privately. And Christina still looks a yacht though now Solas compliant and Turama doesn’t look like one.

    Look is indeed one of the arguments that could make the difference between the two categories. Annaliesse and Alysia look more like yachts than cruise ships which is not really the case of the two Moanus and not at all of Constellation.

    Then, these two categories have a tendency to mix each other because both actors from the cruise ships and yachting worlds have understood the interest of the famous charter yacht issue of 12 passengers’ limit which has been a great opportunity for both domains.
    In yachting, this new kind of yachts like Annaliesse has been created to overpass it. And for mini cruise ships, vessels like the two Moanus show that there is a greater and greater interest in small group cruises at a reasonable cost compared to 500 or 1 000 passengers’ vessels with much more privacy and also at a much reduced costs that big yachts.

    Furthermore on charter issue, we are quite confused to make a great difference between them because we used to separate clearly commercial vessels and yachts. But today many yachts are registered are commercial vessels. It is true that this is often for economical reasons and some are not even available for charter. Nevertheless, some vessels are almost entirely purchased or built for charter purposes - which was not the case some 15 or 20 years ago - and this makes them real commercial vessels. This is the result of the great development of charter business and it is quite normal that for this commercial act, yachting has been influenced by commercial and work boats.

    Finally, as we have been speaking here about prices, the cost would make the difference as one would have a yacht finish and would not have cabins already pre assembled like in a cruise ship, which is surely the case of vessels like Constellation, which we have seen at last Monaco Yacht Show. The other would in general have a greater finish and care on details.
    But further in this cost issue, I think originally built cruise ships represent a great interest today for owners who are interested in these mega charter yachts.
    Firstly because the global cost to convert them as yacht is much less than to build a yacht of the same from scratch. This is same reason why some owners have decided to take commercial vessels like tugs to convert them as expedition’s vessels.
    And secondly, these cruise ships provide, like commercial vessels for expedition projects, standards of safety higher than yachts. As a matter of fact, we can see that over the past 5 or 10 years the yachting industry has been inspired in terms of rules, safety and management by the professional universe of cruise ships and other commercial vessels. The fact that yachts over 12 passengers have to comply to Solas rules shows that these two worlds are closer than ever. And it is no coincidence that Azimut Benetti has teamed up with V Ships to buy Fraser Yachts.

    So, for all these reasons we are more and more puzzled like Barh100 have clearly expressed, about the common fields of these two worlds, who are sharing now sharing more than ever before. To my mind, even if these vessels seems to be equal in genre and if it may be a stupid and weird difference to make between this 2 categories, I think it exists although it is true that over the last few years mini cruises ships and mega charter yacht have had a tendency to mix each other. Just take Panorama the 54 mt Greek sailing vessel: a yacht size but a cruise ship finish and layout. So is she a mini sailing cruise ship or mega charter yacht?
    For my opinion, it was necessary for yachting to professionalize and organize itself and it is great to have used the input of commercial boats, even though there has to remain a limit. Even for yachts purposely built for charter (and especially those for over 12 passengers), the temptation to make them simple commercial vessel is great and they would then loose all the yacht appeals: style, balance, expression and personality, that make yacht unique pieces of art well apart of other floating creations.
  5. newbee

    newbee New Member

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    I appreciate reading your thoughts CrewAgency. I note that Cassens Werft has built some 100M cruise-yacht vessels fairly recent . Are you familiar with any other yards with a cruise-yacht focus?

    If you have a lkink for the Moanus I'd appreciate it.

    Cheers,
  6. newbee

    newbee New Member

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    I forgot one thing. Sea Dream I & II look very similar in design to the former Sun Bay I & II (now Orion & Celebrity Expedition if I'mnot mistaken). I know the Sun Bays were manufactured at Cassens Werft but I'm curious who manufactured the Sea Dream vessels. Orginally built for Cunnard (approx 1984) and named Sea Godess I & II. The only info I can find indicates Wartsilla is that right or is that just the engines?
  7. Crewagency

    Crewagency Guest

  8. newbee

    newbee New Member

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    Anyone have any knowledge of what sort of retrun on investment benchmark (%) charter yacht operators strive for?

    ie Does the segment have "standard" valuation metrics such as the CAP rates used in real estate valuations?

    The reason I ask is as follows. Because the cruise/yacht market straddles the commercial and private worlds, the different motivations (usage vs ROI) of these two distinct buyers appears to cause pricing inefficiencies in the re-sale market. My observation is that the influence of the private owner buyers keeps prices too high to allow the commercial market to realize attractive ROIs. Fair comment?
  9. AMG

    AMG YF Moderator

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    As often said, there is only a handful yacht owners running profitable charters. Most yachts are on charter to keep them running and to get a certain contribution to the annual running costs. The few who makes money are either working onboard their own yachts or have purpose-built charter yachts of a quality/finish that can not really compare to yachts built for private use.

    On pricing at shipyards, I think very few are making big profits since there clients are very demanding, have tight contracts and the yachts are getting more and more complex which is very hard too calculate in advance. Just think of all the hatches with tenders inside and helipads and garages and what have you?

    So, I think there will be even more accentuated differences between dedicated charter yachts and private yachts made available for charter. Both in construction costs and charter rates.

    If this is what you wanted to get ideas on? :)
  10. newbee

    newbee New Member

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    so if I understand you correctly, you'd agree that vessel pricing in the secondary market is generally too high to enable profitable charter operations....only subsizing.

    Do you have a historical perspective on this point. ie Has the vessel market always been priced so high as to prohibit profitable charter operations?
  11. AMG

    AMG YF Moderator

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    In theory, you can buy a yacht, maybe five years old when the owner want to escape some major maintenance costs like new paint and such things that starts to occur. If that yacht already has a charter record, or if you have been running a successful charter yourself so you will have a flying start, then you need the skill and luck to get her chartered 10-12 weeks each season to get her into profit.

    But to talk of return on investment is another question, especially if you like to use the yacht yourself. Also the wear from continous charter will cost you more.

    From what I have heard, there have only existed a few such "lucky" yacht owners except from some with lowcost yachts running low charter rates in another sector. Mainly small corporate charters and day charters.
  12. Stephen

    Stephen New Member

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    The Charter Yacht Market

    The trend for these larger yachts, particularly those built to the SOLAS 36 rules and those designed specifically for charter market is an interesting one.

    I apologise in advance for the long essay.

    Before we can comment on the future of this market and its effect on the existing market we should first take a look at how the market has developed to this point. In affect look at the historical perspective as you say Newbee.

    The large yacht market had developed over the last 30 years or so. In the twenty years that I have been involved in the industry yachts have grown from an average of 30m to 50m with many of the new launchings being in the 75m range.

    These yachts were primarily built by wealthy people for their own private use. Being private vessels they were not constrained by the stringent safety rules of their commercial counterparts. As time progressed many more of these yachts joined the charter market to offset the high running costs of these vessels. This development has born a whole new industry for yacht supplies and services.

    This last 30 years has been the second golden age of yachting, the first being in the early part of large century, and one which has seen yacht building push through the fad stage.

    One can probably put this down to a number of things including the development of communications, which has allowed the wealthy business leaders spend more time at sea whilst maintaining contact with their offices, and the foresight of many people in the industry to recognised that a charter market exist for these vessels. This has sporn a whole new industry supporting thousands of people and businesses solely dependant on this industry.

    Before commenting further on development of the charter market and the cost of yachts I think it’s important to discuss yacht definitions. Often in forums many terms are used to describe yachts i.e. luxury yachts, superyachts, mega and gigayachts. Many of these terms are created by media and industry commentators but only serve to muddy the waters. It’s my opinion that there should only be two descriptions, those being luxury yachts and superyachts. The industry generally has adopted the name superyachts as being the term to describe the finest yachts built in the world. The international organisation which awards these yachts and which endeavours to give the industry a voice is the Superyacht Society.
    So what is a superyacht and were does it sit in the current charter market and the developing new charter market.

    In my opinion a superyacht is one which meets the highest standard in design and construction. At its time of launching she will be peerless, be the most advanced in terms of technology and display best industry practice.
    Superyachts are not built merely by tradesmen but by craftsman and artisans. These are people that have incredible pride in their work, can be critical of there own work, in private, but will defend the name of the yacht to the last. They are usually the first on the job in the morning and the last to leave.

    Many of the owners look upon building a superyacht as creating a piece of art. They enjoy the process of creating a one off piece that reflects their own personality - their statement to the world.
    Who can create such a thing of beauty, fulfil an owners dream?
    An artist of course!
    We call them yacht designers. But the owner looks at the yacht designer as an artist and commissions the yacht designer to create his piece of art, the world’s largest sculpture, just as he would commission an artist to produce a fine painting.

    That’s a bit extreme I hear you say!
    The motivation to build a superyacht may vary from the cut and dry to the extreme but put yourself in the shoes of someone who has billions of dollars. Ask yourself what motivates them to build something which has the finest marbles, linens, timbers and veneers - where the designer scours the world for the unique and unusual. Then ask yourself is this the type of yacht you would put into the charter market and expect to get a return on your money.

    Nowhere in the world will you find the quality and finish of a superyacht. Not in the best hotels, nor the finest homes or the best of cruise ship’s. Perhaps some palaces?

    It’s difficult to compare yachts which have been built in the past to the new generation of yachts being built for this new emerging charter market because the motivation to build them is different.

    The motivation for you to buy a work van is different than that of a sports car.
    The work van you buy using your head. It’s purely a business transaction.
    The sport car you buy from the heart. Buying a yacht is the same.

    As mentioned before by myself and Crewagency the yacht charter market has emerged from owners trying to offset the high running costs of their yachts. These yachts, due to the nature of their complexity, do not lend themselves to the rigorous day to day running of a commercial operation.
    However some entrepreneurs have now recognised that this market has potential for short charters, day charters and conventions in the corporate sense as mentioned by Crewagency in his comments.

    To realise this potential we must now think like business managers and consider return for money. To achieve this, these new bread of yachts must be more economical to build, have simpler onboard systems and must achieve more charter days per year.

    I have recently been involved in the design of one of these new bread of SOLAS yachts. Whilst I can’t divulge to many details of this vessel I can say that the design brief was to design a vessel which has minimal down time and onboard systems which are more akin to a commercial vessel than a yacht. This is described as KISS - Keep It Stupidly Simple – or some might say Keep It Simple Stupid.
    Of course I should also mention that with these large yachts being built to full SOLAS comes a new bagful of hurdles with regards to the rules. Rules not often encountered in the yachting industry. The most obvious is the requirement for SOLAS lifeboats. I’m sure that as this new category develops we may see new inventive ways to achieve certification and the odd rule change. Some vessels may achieve certification through restriction to certain operational areas.

    In conclusion I think this new category will develop without too much impact on the existing market. We must however keep in mind when we are discussing the various areas of the market that we don’t bundle all yachts into the same pot. Keep in mind that some of these new yachts will not be superyachts in the true sense of the word and may fall at the lower end of the yacht charter market in terms of style, finish and price.
    It is inevitable that entrepreneurs will endeavour to capitalise on the dream that we all have, but very few of us can experience, of chartering a luxury yacht or superyacht.
    I think it’s also important that any yacht built specifically for charter doesn’t lower its standards in terms of ‘yacht quality’ to the extent that it will detract from the ethos of yacht building. Where yachts were built first for private use and then utilised as a commercial venture will now be built as a commercial yacht purely for making money.
    When is a yacht not a yacht?

    In terms of your comparisons of this industry to the mini cruise-ship (or boutique cruise-ship) industry I think it’s important that we remember that they are very different animals. As Crewagency explained you pay for a cabin on a cruise ship whereas with charter yachts you pay for the whole vessel.

    I think this discussion can create more questions than it does answers.

    I’ve just finished reading marketing book that discusses how icons are made. The conclusion, by the author, is that icons can only exist if they are built around a myth and that we buy a particular product to live the myth.
    This is not unlike the yacht charter industry where we dream to one day charter a superyacht.

    Let’s hope that the quality of these commercial charter yachts can be maintained as to not diminish the myth.


    Stephen.
  13. newbee

    newbee New Member

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    Thanks for sharing your thoughts on the subject. I'm a slow learner so forgive me if I re-load.

    To use your "floating piece of art" anaolgy, I think the yacht descriptions/terminology is in the eye of the beholder so lacks universal meaning. I think the existence of two very different types of buyers, that you point out, is the heart of the issue

    Money's-no-object-buyer - As you say this buyer (or I should say builder) is primarily concerned with creating a very personal one of a kind vision or experience. The economics of the vessel are not the primary concern and may, in some cases, be completely irrelevant. I expect that this "one of a kind super yacht crowd" are not the big drivers of used market pricing. I presume this to be the new-build crowd.

    Economics-do-matter-buyer - If economics matter than presumably the majority in this segment behave rationally and perfrom the mental gymnastics of a simple build, buy or rent analysis. After all, if economics matter to the buyer of an apple tree then the value of that tree is a function of the apples it produces, why would those who care about the economics of yachts behave any differently when valuing a yacht? The fact that the owner consumes some apples/or uses the yacht personally should only alter the valuation at the margins. (I'd be happy to share my valuation examples/methodlogies. if your interested just PM me)

    That is great as far as theory goes but what I observe in the real world, is that the price for used yachts is way beyond what any build, buy, rent analysis rationally dictates. Why? Is there some funky valuation argument I'm missing?

    This apparent failure of pricing to behave as one would expect in a typical supply and demand market has me scratching my head. As my handle (Newbee) suggests though, I lack a historical perspective on this specific market so I'm wondering if this is normal or are we at a rich point? Or maybe I'm just too much of a finance geek and need to get keel hauled. ;)

    Any thoughts are appreciated.
  14. AMG

    AMG YF Moderator

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    So, what is your thought on diamonds, or for that matter real estate? Why do you expect a unique yacht to depreciate if it is well maintained? I can not really follow your thoughts on this? Or do you have a specific example to share?
    I am romantic enough to believe we are buying yachts for pleasure (and sometimes for our ego) but not to make money... ;)
  15. newbee

    newbee New Member

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    Of course you are right that there is no price too high for the true lover of something. A fine cigar, bottle of wine, art, yacht, no extravagance requires an economic justification, only the ability to pay.

    I'm just surprised that the economically sensitive money-is-an-object segment seems to have such little dampening effect on the re-sale market pricing.

    Re depreciation. I think its fair to say that obsolesence and ultimately a final voyage to the Alang breakers via the s**** market is a reality for larger vessels. Are yachts with moving parts technology etc not ultimately subject to similar obsolesence? Clearly, diamonds and land with no moving parts are not. (Buildings yes, land no.)
  16. AMG

    AMG YF Moderator

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    Like in most markets, also the price of used superyachts is self regulating, you can call it supply and demand because this is the bottom line.

    The second hand value of a well maintained superyacht normally stay close to its construction cost, while the replacement cost is raising. With a 10 percent annual running cost you need to have this back before making break even. This is hard to reach on charter and is one reason people charter instead of buying.

    The charter option is always offered by the selling broker as a way to finance the running costs or sometimes to be able to buy a more expensive yacht. This is a win-win situation since the broker not only sell, but often get the yachts management and charter agency. A good source of income and for the buyer a guarantee that the yacht gets a professional crew and an efficient charter marketing.

    I am sure this is one of the reasons why the second hand value remains high, because if you look back, before charter became an industry, there was a bunch of big yachts that were neglected since their new owners simply couldn´t afford the costs of a full time crew and refits and updating. But today, you will find the same yachts in good health, chartering or kept by yacht lovers who have chosen to invest in a classic instead of a new construction.

    At the same time, there is said that the number of superyachts built in the last decade is the same number as was built over the past century. So there is a situation where demand is at least on par with supply and this is probably going to continue when the rock-n-roll generation now is retiring.

    But what is not mentioned is that what makes a successful charter yacht, is basically the crew. Both experienced charterers and agents know that a professional and happy crew is much more important than the latest and most fancy yacht. So if you are thinking of making a profit out of charter, make sure the yacht has the best crew you can get!

    There are two major charter shows, one in Antigua in the late autumn and one in Genua in the spring when the yachts have returned to the Med. This is when all charter agents meet with the yachts and crew and I can assure you that there is like a world championship between the crews in showing what they can provide in terms of service, food and good feeling onboard. Sometimes you don´t even remember which kind of yacht you have visited, but you know they had a fantastic crew that will make the charter guests happy.

    The same goes actually for cruise ships as well. In the mid 90:s I remember the two Cunard mini cruisers Sea Godess I and II were nominated the best cruise ships in the world, and it all came down to the service the crew provided. So there is not all about having the biggest or most expensive yacht. :)
  17. newbee

    newbee New Member

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    I agree with your thoughts about the importance of quality service. There's lots of research arguing that its the only real source of sustainable competitive advantage in just about any industry.

    I get the impression that, despite some logical appeal, fractional ownership is not a roaring success. Do you think that's an accurate statement? Why/why not?
  18. Stephen

    Stephen New Member

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    Newbee if understanding the price of yachts and determining the new build price was easy I’d be a rich man and lots of yacht builders wouldn’t go broke.

    I’m not sure I completely understand your theory about build, buy, rent. Are you saying why build or buy when the charter returns don’t put you in the black?
    Or are you having trouble understanding why vessel prices vary so much between similar sizes of yachts.

    With your reference to the buyer of the apple tree I think the assumption you are making is that they are buying the apple tree for commercial purposes. I think most will purchase a yacht for private use and then charter to offset some of the expenses.
    I think it’s interesting to note as well that some yachts, especially those in the superyacht end of the market, given the right design and designer can over time appreciate in value.

    So at the end of the day maybe the owners just want to offset their maintainance cost, hopefully in time their yacht may appreciate in value and in the meantime they enjoy yachting.

    The owners who are building the SOLAS 36 vessels are maybe building for purely commercial return. Therefore the only way to get a commercial return is to build a cheap vessel.
    Cheap may mean lower quality finish and maybe not even luxury yacht quality.
    Is this what the charterers want?
    Do the charter guests expect a certain level of quality and service?
    Will the industry will need to introduce a quality rating system similar to hotel star rating?
    It would be interesting to hear from some of the charter managers to get their views.
  19. newbee

    newbee New Member

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    Yes, but only for the money-does-matter segment. I've already acknowledged that there is most definietly a segment for whom economic rationalization is not a relevant consideration.

    Also, the inverse of "...charter revenue does not turn a profit", is that charter rates are too cheap. So why build or buy, why not just charter?
  20. Stephen

    Stephen New Member

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    Luxury Yacht Charter

    I'd like to know the answer to that as well.
    I think these are questions best answered by an owner and/or a charter manager.