After four-and-a-half years of negotiations, congressional lobbying and a six-month fund-raising effort, Aloha Pacific Cruises Limited Partnership has raised the $16.8 million necessary to launch the S.S. Monterey for luxury cruising in the Hawaiian Islands.
The venture represents the first time a limited partnership was used to finance a U.S. flag cruise ship, and may be a first for the industry in general, according to John Broughan, chief operating officer of Aloha Pacific Cruises Ltd.
Broughan reported that the process took longer and was more difficult than expected because the offering was unique. He added that there are still marketing obstacles ahead, but believes that the advantages of U.S. flag registry, limited competition in the Hawaiian market, a unique agreement with the labor unions, and the popularity of Hawaii will ensure the line’s success.
Broughan said Aloha Pacific chose its unique financing route after efforts to pursue traditional avenues of fundraising failed. “The doors to banks and major financial institutions were closed to us. Because most of the cruise companies are private, we simply did not have enough data to instill confidence in the conservative organizations.”
Selling the partnership took longer than expected because it was the first time brokers were selling a cruise product. “They needed a lot of education to sell Aloha Pacific to their clients,” Broughan said. “We also had to impress upon them that the overcapacity they heard about applied to the general cruise industry rather than U.S. flag ships.
The partnership was fully funded by March, 1987, through 172 investors, representing 70 percent of the ship’s equity. James Kurtz, an attorney, is chief executive. The Masters, mates and Pilots Union, the original owners of the ship, holds 10 percent equity, and Aloha Pacific Cruises, the company that will manage and market the Monterey, holds 20 percent. Captain Robert Lowen is president of the union.
Other Aloha Pacific executives include Director of Operations Arne Baekkelund, formerly of Sea Goddess, RVL and RCCL, and Marketing and Planning Consultant Bill Kyle, formerly of Sitmar.
According to Broughan, the Monterey’s U.S. registry was among the factors that contributed to the successful fundraising efforts. “We have an American vessel protected from foreign flag cruise competition, and we will be operating in the Hawaiian islands, where there are only two ships, compared to the 50 that cruise the Caribbean.”
Unique Labor Agreement
In addition, the company has worked out a labor contract with the Masters, Mates and Pilots Union that promises fixed labor costs over the next 15 years, with no strike, no slowdown and no stoppage clauses. Wage increases are contingent upon the CPI index as well as the line’s ability to raise its published tariff.
“Aloha Pacific Cruises can hand pick its employees, and because the union has a vested interest in the ship’s success, we can operate with its full support.”
The offering was further strengthened by a congressional ruling that allowed investors the Investment Tax Credit and Depreciation Schedule that had been eliminated by the 1986 tax law. Participation of Wartsila and Platou Ship Design of Norway also helped instill confidence among investors, Broughan said.
Marketing Emphasis on Trade
The biggest challenge facing Aloha Pacific now is marketing the Monterey under tight fiscal controls, Broughan said. “The one advantage we have is that, in Hawaii, our gross per diems can be on the high side, about $260 per day.
The company plans to position the Monterey as a deluxe alternative to the Hawaiian cruise product currently available. Broughan expects the average passenger will be about 45, and more affluent than passengers on American Hawaii. To attract the younger clientele, the line is planning an extensive shore program with golf and tennis tours. On board facilities include a sports deck, with basketball and volleyball courts and an aerobics center.
Marketing efforts will be focused almost entirely on the travel community, Broughan said. “We just don’t have the funds to market directly to the consumer.”
Almost 50 percent of the FIT passengers are expected to come from the West Coast, which has traditionally been the strongest patrons of Hawaii. The line also plans to capitalize on the affinity many West Coasters have with the Monterey. “A lot of people on the West Coast cruised on the Monterey when she was part of the old Matson Line, or have parents who did, and they are anxious to see her brought back,” he said.
Business Groups A Major Target
The company expects 40 percent of its business to come from the meetings and incentive market, as meetings aboard the Monterey will be tax deductible, due to the ship’s U.S. registry.
“We will be the first ship in the Hawaiian market to offer businesses facilities built specifically for meetings and conventions. There will be an 1,100-seat theatre and a new conference center with five break-out rooms.”
Delivery Expected in May, 1988
The Monterey is currently undergoing a $32 million refurbishment, in three stages. The first, the restoration of the hull, is expected to be completed by May 31 at Northwest Marine and Iron Works in Portland, Oregon. The structural steelwork will be done at Tacoma Shipyard in Washington and the interior refurbishment at Wartsila.
Upon completion, the ship will have 300 cabins. Maximum passenger capacity will be 638.
Delivery is scheduled for May, 1988, and positioning cruises from Helsinki to major West and East Coast ports are planned to show the Monterey to travel agents before she begins her seven-day Hawaiian cruises.