Some interesting stuff here – mostly misinformation.
Titanic is late on delivery and over spent on budget too? Titanic only 53% full of passengers. Ismay as a business man knows the crossing will be a lost making just adding to his problems!
A simple glance at the average passenger lists for express liners of the period such as Lusitania, Mauretania and Olympic (and the seasonal variation) shows that Titanic’s passenger list was entirely in line with the time of year. People seem to assume these ships should always have been full, which is nonsense. Mauretania was in service for three years before she ever carried a passenger list of over 2,000.
There’s no evidence she would have made a loss if she had not collided with the iceberg. Instead, with ticket revenues of almost £18,000 then the revenues she had generated already for the westbound crossing alone covered almost 80 percent of her estimated running costs for the entire round voyage.
The Olympic is a financial disaster in her first year…cost of repairs over £125,000 and the lose three returning crossing revenue.
There’s no evidence she was a financial disaster. Undoubtedly the Hawke collision hurt her financial performance, but a ship such as Olympic was fully capable of generating over £300,000 gross profit a year based on the best estimates I have seen and knowledge that Mauretania made almost that much profit in 1910 despite having higher running costs and lower known revenues.
I see with the Titanic late on delivery and over budget has turn into a pressure pot without a safety valve. Pressure is mounting not just for Smith but also for B Ismay too. Morgan is not a man to listen to excuses. To achieve his ambitious like a true banker he was, it’s all about profits and margins..
There’s no evidence Titanic ran over budget. In fact, she wasn’t built to a budget but rather whatever the construction costs were plus a fixed percentage commission.
IMM’s financial performance was sub-par in 1911-12, but White Star’s wasn’t. In fact, even with the impact of the Titanic disaster profits in 1912 were ahead of Cunard’s and they exceeded the 1911 record in 1913.
Mr JP MORGAN.
He is the one who arranged the finical arrangement to build the two new ships Olympic and Titanic.
Nope.
Morgan did not do this, nor was American money even the key driver.
White Star raised the funds without difficulty, via their bankers Glyn, Mills & Co. They issued debenture bonds in October 1908, which were largely subscribed by United Kingdom investors. The market prices and recorded yields in June 1914 indicate the financial community felt it was a good investment.
Morgan’s interest was in taking money out of White Star, not putting it in. The sad tale of how White Star – a company FAR stronger than Cunard in 1901-02 – suffered a reversal in fortunes due to financial mismanagement while part of IMM and then the Royal Mail Group over about three decades is touched upon in an earlier post I wrote. The first reference is to a financial historian, Professor Hyde:
Elsewhere in Hyde’s book, he asserted that without the government support used to build Lusitania and Mauretania: ‘it is arguable whether the [Cunard] company would have survived the difficult years of 1903-08. The strength of the competition which they had to meet…would probably not only have reduced receipts below the level of costs, but would, because of the high cost of ships, have wiped out the company’s reserves bringing Cunard to the verge of bankruptcy.’
It seems to me that the issue of government support and the construction of Lusitania and Mauretania are inseparable. If, indeed, government support secured Cunard’s future then it was achieved through these ships and the profits they generated. In 1910, for example, their net profits amounted to about 30 per cent of Cunard’s entire fleet earnings. Hyde’s argument amounts to the government supporting Cunard, but that had the twin effect of securing the company’s future during these years and retaining the company’s independence.
An exceptional year for Cunard generated £538,080 of net profit in 1900; £195,849 in 1901; and £247,150 in 1902. Over these three years as a whole, White Star’s profits were seventy percent greater; and in 1901, the last full year before it [White Star] came under the control of American interests, they were more than double Cunard’s.
The government loan enabled Cunard to borrow, essentially, thirteen times their profits for 1901 at an interest rate substantially less than a commercial one: 2.75%. By contrast, White Star borrowed about 1.5 times their profits for 1907 in order to finance Olympic and Titanic, but they had to pay 4.5% to the debt holders. When Cunard sought to borrow money commercially to finance Aquitania, they paid a similar or identical rate of interest. (In the 1930s, White Star’s final chairman argued that Cunard had reaped the benefits from this funding for many years.)
Ironically, IMM’s takeover of White Star in 1902 started a period of about three decades during which White Star was part of a larger combine: IMM and then the Royal Mail Group. Both these combines shared a propensity to milk White Star’s profits by taking out generous dividends, rather than reinvesting in the company’s fleet to secure future revenue and allow for the necessary depreciation. Shipping is a capital-intensive industry and, in the long term, such practices were fatal as the company became over-indebted and its fleet aged and lost competitive strength. As an independent company, Cunard continued with a conservative financial policy and benefited from it.
From 1922 to 1932, Cunard and White Star earned similar revenues, but through a mix of factors Cunard earned a profit of £4,489,000 and paid dividends of £3,806,000, leaving a surplus of £683,000; White Star made a profit of £1,461,000, paid dividends of £3,000,000, and left a deficit of (£1,539,000).
The end result was that, by the time Cunard and White Star merged, the relatively strong position White Star enjoyed in the early 1900s had reversed. I’ve previously written that in the early 1930s: ‘Cunard’s position was “one of financial soundness, due in the main to conservative finance, ample past earnings, wise and consistent depreciation allowances and moderate dividend payments. On the other hand, the Oceanic company’s [White Star’s] position is financially weak, due to defective financial policy, insufficient depreciation, unjustified dividends, all causing a position today in which the company is entirely dependent on its bankers”.
Best wishes
Mark.