A Year of Changes

The cruise industry has undergone some fundamental but predictable changes in 1995.

As the industry continues to evolve and react to market dynamics, more changes can be expected in 1996.

But the changes are not negative as often and popularly portrayed.

Instead, they signal a healthy industry sailing ahead where the strongest and fittest are setting the course.


The most dramatic event was the bankruptcy of Regency Cruises. An established budget product with a five percent market share and a loyal passenger following was virtually gone overnight.

Industry executives, who asked not to be identified. said they expect more sudden departures in 1996.


As the industry has changed, economies of scale have taken on increased significance. During the year, Epirotiki Cruise Line and Sun Line merged, while Seven Seas joined up with Radisson Diamond.

Meanwhile, Carnival Cruise Lines terminated its European venture with Epirotiki.

As the year was coming to a close, there were also talks between Costa Crociere and Royal Caribbean Cruise Line about a partial takeover by RCCL and/or a strategic partnership.

In this case, there will not be merger or take-over due to economic necessities, but rather for strategic reasons, whereby each company brings unique strengths to the table.


Also during 1995, Costa closed down the Far Eastern operations of its subsidiary Pearl Cruises, citing mounting losses as the reason; and OdessAmerica ceased to market the Russian­ owned Gruziya.

There were also ownership changes with two cruise lines, Commodore Cruise Line and Sea Wind Cruise Lines, which were sold to new owners.


Kloster Cruise continued its often dramatic restructuring efforts which recently led to two of its Royal Cruise Line division ships being sold to an unidentified financial firm and chartered back to the cruise line.

Earlier this month, Kloster Cruise was dropped as the name of the parent company for RCL and Norwegian Cruise Line (NCL). Instead, the cruise company will be now be known as NCL only.

Also, in Norway, the name of the holding company, Yard, was changed to NCL Holding.

The name change is symbolically significant for two reasons. It signals the departure of the Kloster influence of the company which was originally founded and dominated by the Kloster family.

Secondly, it signals the spin-off of RCL which was further emphasized by the sale of the two ships.

Moreover, RCL has been losing money in the past several quarters, according to the financial reports from Kloster Cruise.

There have also been reports of trouble aboard the ships where Scandinavian and Greek officers and staff allegedly have not mixed well. This newsletter has received complaints form both travel agents and passengers about declining shipboard service.

In addition, there has been an exodus of senior executives from RCL’s San Francisco offices, including John Severini, Vice President of Sales, who left after some 15 years with the company, and more recently Diane Moore, Vice President of Operations. who is also the daughter of former RCL President Richard Revnes, and was strongly identified with the company.

In the end, a stronger NCL may emerge, but RCL is expected to be sold or closed down.

Media Pressure

While the industry underwent a series of evolutionary business changes, there was also a lot of bad press that was the result of a record series of incidents from shipboard fires to groundings and sick passengers.

The QE2 fiasco at the end of 1994/beginning of 1995 literally and unfortunately set the tone for the rest of the year.

With all the new ships coming on line during 1996, the cruise lines can be expected to court the media, which can also be expected to lead to even more attention in case something goes wrong.


There were also some significant executive turn-overs.

At American Classic Voyages, Phil Calian was named President and CEO, replacing S. Cody Engle, who resigned.

At Crystal Cruises Senior Vice President of Marketing Art Sbarsky’s contract was terminated by the new President Joseph Watters. Sbarsky joined the company in 1988 as a member of the original management team which launched the cruise line.

Holland America Line’s Senior Vice President of Marketing and Sales, Doug Falk, departed suddenly after the company released a fleet brochure with discounted rates printed.

Premier Cruise Lines appointed Jim Naik President and COO. Naik had previously been President of RCL.

David Gevanthor left Radisson Seven Seas Cruises as Executive Vice President of Marketing and Sales.

Ronald Santangelo resigned suddenly as President of Regency Cruises on a Friday afternoon before the company closed its doors the following Monday.

At Silversea Cruises, President John Bland retired and was replaced by Bob Iversen who later resigned as Bland returned to the helm for a brief stint before William Smith was appointed.

Passenger Base

Also in 1995, fewer North American passengers cruised than in 1994 when fewer Americans cruised than in 1993.

Even though the industry tries to explain this decline by saying that there were fewer berths available this year than last year, that explanation does not hold water, since the passengers that do cruise are enticed by deeper discounts than ever.

If there simply were fewer berths, there should be a line of passengers waiting to cruise. But that has not been the case.

Hence, in 1996 and beyond, the industry faces the task of generating more passengers, especially as it needs to fill more ships.

Bottom Line

The proof that the industry is basically healthy lies in the profits reported by the three biggest cruise companies: Carnival Corporation, Royal Caribbean Cruise Line, and Princess Cruises.

In addition, Costa has also reported profits.

Jointly, the four companies held a nearly 60 percent share of the cruise market in 1995.

Celebrity Cruises, which has a $1 billion newbuilding program underway, has reported modest losses this year and faces an uphill struggle to catch up financially with the market leaders.

Also, at Overseas Shipholding Group (OSG), which holds a 49 percent interest in Celebrity, there has been some indication of unhappiness with the cruise involvement, when Michael Recanati, Senior Vice President at OSG, who was understood to have engineered OSG’s investment in Celebrity departed suddenly earlier thts year.

Meanwhile, John Chandris, Chairman of Celebrity, has said that Celebrity and OSG are in the industry for the long haul and that the company has “batted down the hatches” for the next three years.


The lines that are not making money also bear watching in 1996.

American Classic Voyages has expanded rapidly with the acquisition of American Hawaii Cruises in 1993 and the introduction of a new paddlewheeler this past summer.

But following several years of profits, the last several quarters have been a mixed blessing.

After pouring money into AHC, the company has now decided to lay up one of the ships at least until 1997.

Crystal Cruises grew from one to two ships in 1995, but is not profitable, according to sources.

Cunard Line, meanwhile, is expected to post heavy losses for the year with little hope of improvement in 1996.

Dolphin Cruise Line reduced its fleet this year and an earlier involvement with Carnival and Epirotiki, which rumored that Dolphin ships would eventually be transferred to Europe, came up empty.

After selling one ship and cutting back on staff, Dolphin claims to be making money. The company has also recently stated that its one-ship Majesty Cruises is profitable. The Royal Majesty, however, is owned by Kvaerner Masa-Yards which has previously said it would sell the ship pending an acceptable offer.

Premier Cruise Lines is facing a tough battle in Port Canaveral against new tonnage brought in by Carnival, and soon by RCCL, plus start-up Disney Cruise Line.

Premier cut its fleet from three to two ships last year when it chartered its smallest ship, the Starship Majestic, to CTC Cruise Lines. At that time, Premier said it would look for a new ship to replace the Majestic. In the meantime, industry sources report that Premier’s parent company, Dial Corp., wants to sell the remaining two ships.

In Finland, shareholders of the Radisson Diamond are unhappy with mounting losses, according to reports obtained by this newsletter.

In a September report to shareholders, it is stated that the “biggest miscalculation was the cabin price per diem, which was far too optimistic.”

While the report said that management should not be blamed for the extent that competition had influenced the pricing level, it contributed other “errors” to management. It stated that the best example (of errors) was the sales commission level paid to travel agents and other service companies. According to the report, the commissions paid in 1992, 93 and 94 were “entirely different” than those projected in the share issue prospectus of 1990.

The report also stated that while not “all sales commissions were paid to companies belonging to the Carlson Group, a large part was” and blamed the Carlson Group for not giving a good estimate of the sales commission in the prospectus.

Ships for Sale

Certainly, the Regency fleet must be available for charter or sale. As reported above, it is also believed that the Premier ships are for sale. In addition the Fair Princess is definitely on the market after the sale to Regency collapsed, and RCL ships are also believed to be for sale.

After next year’s Alaska season, Princess will not renew its charter of the Golden Princess which should make the former Royal Viking Line ship available as well.

In addition, Holland America Line keeps postponing its decision on whether or not to upgrade the Rotterdam to new SOLAS standards.

Other ships are for sale if the price is right as evidenced by the Nordic Prince that departed RCCL’s fleet earlier this year, and there are older ships in the fleets of both Carnival and RCCL.


As more new, big ships are being introduced, the industry will continue to evolve.

While more changes can be expected, there is every reason to believe that the big cruise companies will continue to do well and increase their dominance of the industry.

An informal survey of travel agents suggested that Carnival Cruise Lines may have made the biggest product improvement strides in recent months. Carnival is putting more money into its product and passengers are getting more than they expect, the head of a major agency group said.

The questions are how the big companies will continue to grow the industry and what will happen to the smaller operators.

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