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16 December 2013. Before I climb into today's writeup, which I'm happy to report isn't about me harping on about shares for once, I'd like to share (enjoy the pun) a few thoughts about the next couple of weeks, the "silly season". With most people going on holiday, the last couple of weeks of December are characterised by:
thin trading,
price discovery isn't reflective of wider demand and supply,
reaction to newsflow isn't as sharp as at other times of year (it simply isn't as easy to process matters on cellphone internet after a bottle of champagne),
some companies sneak in SENS announcements (where they want to minimise the number of people viewing).
If mispricings result, then there may be an opportunity to profit, particularly for small investors who do not need a lot of liquidity to create a significant position.
I wrote about commodity shipping and (Grindrod in particular, which Alec Hogg was kind enough to publish on his excellent BizNews site) the other day, and since it's holiday time and I haven't seen anybody mention this yet in the popular press, here's a heads up on a different type of shipping. Cruise tourism in South Africa faces a severe reduction in supply in the summer of 2014/2015. So dust off your economics 101 textbook, and have a look at what happens when there's a short-term supply shock (if you don't have the economics textbook, just remind yourself what happened to flight prices when Velvet Sky and 1time Airline went under).
Cruise Tourism faces Severe Slowdown |
16 December 2013. If you build it they will come? Plans are advancing for the building of a new passenger cruise terminal in Cape Town's V&A Waterfront...but will the passengers come? Cruise tourism in South Africa is reaching its peak this summer, and as things stand there will be a severe reduction in the supply of cruises in the 2014/2015 season.
In a blow to the South African tourism industry, MSC Cruises has decided to send only one ship to our shores in the summer of 2014/2015. This compares to the 2 cruise ships plying our shores this season (2013/2014) and last season (2012/2013). Even in the 2011/2012 and 2010/2011 cruise seasons there were 2 ships - the MSC Sinfonia and the MSC Melody (although the Melody is slightly smaller than the MSC Sinfonia and MSC Opera. The ships sailing South Africa's shores this season (the same for last season) are the MSC Opera and the similarly sized MSC Sinfonia cruise ship. The Sinfonia has 777 cabins. Apparently the MSC Opera is going to the dry dock to be lengthened by 24m and some 200 cabins added on (yeah, apparently they can do this kind of thing!), but this only happens on the 2nd May 2015, so not in time for the new season.
The Opera will do 38 cruises in the 2014/2015 season. Assuming 2 spending adults per cabin, 90% full on average, and that the Sinfonia would do only 30 cruises, this means that there's some 53,000 fewer passengers cruising in 2014/2015 off South Africa's shores. It's mostly local South Africans that go on these cruises. Sectors which are going to lose out are :
Airlines : Although there are a fair number of Durbanites and Capetonians cruising, there are more Gauteng passengers than from Durban and Cape Town, and they would have to book return flights (typically to Cape Town or Durban). Even the Durban and Cape Town passengers would need to make flight bookings for the Cape Town to Durban/Durban to Cape Town and repositioning cruises to Europe.
Hotels : Often cruise passengers will spend a night or more in a hotel in Cape Town or Durban before or after their cruise.
Other passenger spending : Whilst in Cape Town and Durban the passengers spend money at tourist attractions and restaurants in the cities. Some of the cruises have stops in Mossel Bay, Port Elizabeth, Namibia, Mozambique, Mauritius, Reunion and Madagascar; and the spots they visit during these stops will suffer a small decline.
Harbour industry : I'm not sure how the fees to the harbours work, but it will no doubt result in a decrease in the fees to the ports and related industries (e.g. food/drinks/fuel being delivered to ships)
Some of the people who don't cruise will probably spend their money on other tourist-related activities (so there'll be some tiny winners), and it's not a complete loss. On the other hand, cruise prices are likely to be higher than they would otherwise be if there were 2 ships.
Whichever way it goes a new passenger cruise terminal at the V&A Waterfront will be much welcomed. Cape Town took a huge step backwards when overzealous authorities stopped allowing cruise ships to berth outside the Table Bay Hotel, and moved to tents at the windswept Eastern Mole portion of the Table Bay Harbour. The move to the sheds at E-Berth in 2012 represents a vast improvement over the Eastern Mole, but a shift to the Waterfront again is first prize.
Cruise tourism is only a small slice of the South African travel pie, but if MSC Cruises is seeing a declining market for cruises from South Africa, one has to wonder whether the issues are specific to the cruise market, or just to MSC Cruises.
Airline Industry : Looking at the last 3 months available stats for OR Tambo International Airport, from August to October 2013, there were 2.5m passenger arrivals, compared to 2.4m in the same months in 2012 and 2.5m in 2011. It's pretty flat, which is not bad considering that capacity was removed by both 1time and Velvet Sky going under.
Hotel Industry : Tsogo Sun reported that the 6 months to 30 September 2013 saw overall industry occupancies at 59%, compared to 58% a year earlier (note that this is a different metric, to the total supply figures for cruises).
What may have happened in the cruise sector is that more supply was added in 2012/2013 and 2013/2014 than the South African market could absorb, and now it is being scaled back to a more sustainable level. Of course it is far easier for a cruise liner to change its supply of ships by moving them to the Mediterranean; than for a hotel group (its hotels are stuck where they are!) or even an airline (it has to abide by regulatory restrictions on where it can fly).
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