An investigation by Cruise Passenger into the effects of the shock announcement of P&O Australia’s merger with Carnival Cruises shows the country’s cruise ship capacity could be slashed by as much as 30% by 2026.

Thousands of suites and cabins will be cut from the market in the next 24 months, probably leading to job losses at ports and among tourism operators. As well, price rises of up to 30% on homeported cruises are almost inevitable.

Ports like Melbourne, part Chinese owned and which tried to raise its berthing charges by a 15% last year, as well as Adelaide will be big losers as cruise lines pull out of Australia, a move that will hit regional tourism. New Zealand too will find its economy hit.

Table shows cruise ship cuts in Australis

Jobs lost by cruise capacity cuts

Jobs among producers and contractors who provide food, wine and staff will be lost, and the $5 billion in economic benefit will be seriously hit.

Carnival’s CEO Christine Duffy, who flew in from Miami to make the momentous announcement that P&O Australia would be “sunsetted” after 92 years, had no doubt over-regulation and the fact that Australia is now one of the most expensive places to operate a cruise ship is to blame.

She also cited New Zealand’s biofuel regulations, imposed with so much zeal that cruise ships and thousands of passengers on board had their holidays ruined for the sake of a few molluscs on the hull. There are no operators who could guarantee hull cleaning, and this lack of certainty was a main driver in pushing operators away from our region.

The result: while cruise interest is booming, cruise lines are going elsewhere to find governments that welcome them and allow them to ensure their revenues.

Carnival Splendor arrives in Sydney Harbour

Peter Little is the Carnival Corporation Country Manager and this week he also became chair of Cruise Lines International Association.

He, too, was keen to point out that Carnival has been trying to persuade governments to help with port and regulation.

“It’s been, It’s been a big week for our corporation and a big week for the P&O Cruises brand. I think we’ve had a extraordinary response to the news.

“I suppose we’ve been a bit overwhelmed by the outpouring of affection for the brand, which we which we knew was there. We’re just making sure that our guests understand that it’s it’s business as usual.

“We’ve got three ships operating normally until February and cruises on the website, and even voyages after that on Adventure and Encounter. Sailings are on sale and remain on sale through the website. That’s the message that we want to get out there.”

“Demand is strong. It’s a much loved brand with 92 years of heritage. So we’re seeing people booking on those final voyages under the P&O brand, so we haven’t seen cancellations coming through.

He also blamed high port charges and other costs for challenging the viability of cruise in the area.

“In this region you have ports who are putting their prices up in double digits or even in triple digits, and that that’s not sustainable, to continue to be lifting the prices and the price of doing business in the region. So naturally we have to look at the economics of operating here so that companies are looking at the economics now.

“Many of the operators in this region are just saying there’s headwinds that need to be addressed if we’re to continue to see growth in this region. But it’s not sustainable at the moment.”

He added: “We’ve been talking to governments in Victoria and governments in New Zealand as well.”

He said he could not talk about what would happen to prices. But his message to cruisers was:

“We’re maintaining a 3.5 ship fleet. We have three ships year round cruising out of Sydney and Brisbane. So there are so many opportunities to take a year round voyage, no matter where you want to go. South Pacific, Queensland, and even around New Zealand from from Sydney is still available.

“In the portfolio of brands that we have there are many summer opportunities still to take a great cruise on a Carnival brand ship. So my message is: Don’t don’t worry about your cruise holiday because we we’re not coming out of the market.

“We’re not leaving the market, and we want to continue to offer great voyages to Australians who want to take them.”

Cruise Lines International Association Australasia MD Joel Katz recently predicted massive growth in the Australian market based on demand from cruise passengers.

But he told Cruise Passenger: “I think I think from a demand perspective, we don’t see the demand slowing. We know that demand is increasing.

“We’re still expecting that the demand will increase and we’re predicting that the source market numbers will remain as they are.

“But as we see local capacity tighten and the supply tighten, a lot of that may need to convert into fly cruise.

“We’re expecting the numbers to be probably flat this coming season, and we’re going to see a contraction in the supply in the market.

Government warned by the industry

“It’s something that we’ve been monitoring and we’ve been warning the government about because, as you know, the pressures on the cruise lines to deliver their yields and to be competitive in the international environment means they need consistency and competitiveness in costs, But they also need a regulatory environment that gives them the comfort that they can operate in Australia or in our region without ongoing uncertainty.”

Katz said the coastal trading exemption regulations are a case in point. Cruise ships are allowed to operate without the swinging regime of rules that govern local martime which would make them uneconomic.

“The exemptions expire on the 31st of December this year, and we’re none the wiser as to what the government’s intention is about extending it.”

Ports costs and New Zealand’s regulations added to the uncertainty around the business case for cruising in Australia when it was easier, closer and more lucrative to sail in the Caribbean and Europe.

“At the end of the day, we’re a very, very high cost environment, and we’re struggling to be competitive with other ports and destinations around the world. How do we deal with that?

“Our exchange rate is not great. We aren’t a cheap source of local produce either. But it is primarily the port cost, and the berthing costs that really have become very, very expensive.”

And he added: “The sad part about this whole situation is that we’re working so hard with the regional ports and the destinations to develop those partnerships, develop the collaboration so that they can grow their their cruise visitation, and there are ports around Australia that actually rely on that.

“Thrive 2030, the government’s plan to grow tourism specifically talks about growing cruise in in regional ports and growing visitation. At the same time, you know, government policy doesn’t support that.”

Katz’s message to cruisers was book early to avoid price rises.

“As always, book early and to secure the best deals and the best cabins and do your homework because cruise still represents really good value.

“People are looking for value and cruise still delivers that value.”