A series of interviews with Holland America Line-Westours (HAL) executives reveals a strategy of aggressive growth on both sea and land – with capacity increasing by 21 percent in 2000 – combined with an unusually determined emphasis on cost control, an ongoing effort to attract a younger, more diversified passenger base, and an expanded market presence in the Caribbean and Europe. “We’re changing the deployment of our ships and the type of our ships to broaden our market,” summed up HAL CEO Kirk Lanterman, “which is something you have to do when you have five times as many beds as you did before.”
Itinerary Strategy. According to Cruise Industry News estimates, HAL capacity, including Windstar Cruises, will be deployed as follows in 2000: Caribbean: 39.7 percent; Alaska: 30.2 percent; Mediterranean: 11.1 percent; Panama Canal: 6.7 percent; Northern and Western Europe: 4.2 percent; Other mar kets: 8.1 percent. Overall, the greatest shifts in HAL’s deployment pattern this year can be seen in th e Caribbean, where capacity increases by 56 percent; and in the Med, where it jumps 89 percent in 2000.
According to Senior V.P. of Marketing and Sales David Giersdorf, “The introduction of the Zaandarn allows us to be in the Caribbean year-round, and we’ve gone up to three ships in Europe this year, with the Rotterdam, Noordam and Maasdam.”
HAL has pulled out, temporarily, from the Asia/Pacific market (with the exception of world cruise segments). Explained Lanterman, “We weren’t particularly successful in the South Pacific, but it was more a question of execution than anything else.”
Analyzing HAL capacity by cruise length, Cruise Industry News estimates that (including Windstar), HAL has 67.5 percent of its capacity in the seven-night market; 32 percent in the 10-nights-plus market; and 0.5 percent in the three-night sector. “The new ships allow us to increase our seven-day capacity,” said Giersdorf, “at the same time allowing us not to step back from our traditional long-cruise deployments.”
Fleet Growth. Overall, according to Cruise Industry News estimates, the introduction of the Volendam, Zaandam, and Amsterdam will increase the combined capacity of HAL and Windstar to 556,662 passengers in 2000, an increase of 21 percent over 1999 figures. Beyond 2000, HAL’s growth will continue with the five-ship “Cruise 9000” series signed with Fincantieri (two firm orders plus three options), with the first to be delivered in Sept. 2002, the second in July 2003. At 84,000 tons and 1,800 passengers, the Cruise 9000 ships represent the largest vessels ever ordered by HAL. The new ships will feature 67 percent of all cabins with balconies, exterior-facing glass elevators on both the port and starboard sides, increased Internet access and ITV systems, numerous additional public spaces to increase passenger choice, and on the propulsion front, the possible use of gas-turbine technology.
Director of Newbuildings Pieter Rijkaart confirmed that HAL is currently in talks with both Rolls Royce and GE, and could potentially incorporate one gas turbine in conjunction with four diesel engines, positioned together in one engine room – as opposed to the Princess Cruises concept, which would position the gas turbine in the stack, with the die sels positioned lower in the hull. “It’s not finalized yet, but if we decide on gas turbine, we’d use it when in port in areas like Alaska, to cut down on emissions and visible smoke,” said Rijkaart.
Additional fleet growth is also possible if Windstar acquires the Club Med 2 from Club Med. That ship’s financing scheme does not allow its sale until 2002. Responding to reports that Club Med is not as anxious to part with the ship as it once was, Lanterman said, “We have the right of first refusal, so if they’re going to sell it they’re coming to us first.”
Regarding expansion beyond the Cruise 9000 series, Lanterman commented, “I don’t think 84,000 tons is the limit for us. It’s all relative. An 1,800-passenger ship now is like a 1,200-passsenger ship 10 years ago. And 10 years from now, when (others) may have 250,000-ton ships, who knows what size our ships will be. Our major change from series to series has been increased space per passenger,” he explained.
What does limit ship size, said Senior V.P. of Fleet Operations Stein Kruse, is the need to maintain a premium level of service. “That will never change.”
A growth strategy is being pursued on land as well. Lanterman confirms rumors that HAL is eyeing a major purchase in Alaska, declining to offer details “for competitive reasons.” It is believed HAL is considering an Alaska version of the “out island” concept made so successful in the Caribbean with Half Moon Cay.
And according to Lanterman, HAL may also expand into a more extensive, “Westours”-style, tour presence in Europe. Already, pre- and post-cruise offerings in Europe are being expanded in 2000, and Lanterman predicts joint ventures with European-based companies could be struck to expand further.
Consumer Demographics. HAL unquestionably is still shadowed by an image as an old-folks cruise operation, a legacy of its past, but demographics are skewing downward. “In the Caribbean, passengers are getting younger and younger, and we’re getting less and less experienced cruisers,” said Lanterman.
And Giersdorf, while admitting the “age question” was still an issue “from a perception point of view,” noted that “from a passenger satisfaction point of view, our surveys show we’re satisfying all age groups.”
Outlook. HAL appears very well positioned for profitability as its new ships come on line, and as Lanterman’s “tight ship” cost-control strategy remains in place. CFO Larry Calkins explained “Our margins are equal to those of Carnival Cruise Lines. When you consider the fact that our ships are not as big as theirs, and are thus not as efficient, when you consider that we sail all over the world, which means we at HAL are in a tougher business than Carnival – and when you see that our margins are still the same as theirs, that sure says a lot about how we are managed.” Calkins asserted that HAL has no debt, and pays for all newbuildings prior to delivery. “(As the fleet expands) we are not adding incremental overhead,” he continued, “so we’re seeing very significant efficiencies and a very strong trend in our earnings.”
