Premier Revamps Operations

Premier Cruise Lines has unveiled details of a major cost and organizational restructuring, at the same time its fleet has been beset with a number of incidents. According to Michael Lewitt, attorney for Premier owner Harch Capital Managment, the company will attempt to sell off the Sea wind Crown and the Seabreeze by the end of the summer, and will then seek to sell off the Rembrandt, leaving just the three Big Red Boats. Concurrently, there will be significant cost-cutting both shoreside and onboard, with a more targeted marketing campaign and a sales strategy heavily focused on offering the lowest price in the marketplace.

Meanwhile, the introduction of the Big Red Boat II (ex-Edinburgh Castle) in New York and the Big Red Boat III (ex-Island Breeze) have not gone smoothly. The Big Red Boat II’s first cruise was cancelled following equipment shortcomings.

Noted Lewitt, “In the end that’s our problem, but that situation was entirely (ship owner) Cammell Laird’s liability, and we will be aggressively pursuing that.”

Then, on the Big Red Boat II’s first cruise, while under the control of a local pilot off the coast of Rhode Island, the ship dragged its anchor through the channel between Newport and the island of Jamestown, severely damaging the main and back-up cables bringing power to the island. A state of emergency was officially declared in Jamestown, with the entire island left without power for a day.

Meanwhile, the new Houston-bomeported itinerary of the Big Red Boat ill was halted temporarily by what Lewitt referred to as a “freak accident.” On its way into Houston at the end of its second cruise, there was a collision with a tugboat causing extensive damage to the cruise ship’s propeller (the tugboat sank, although there were no injuries). Two cruises were cancelled as a result of the incident.

Restructuring Plan

Asked about the flurry of rumors surrounding whether or not Premier can continue as a going concern, Lewitt explained, “Rumors come and rumors go. A lot of that bas to do with our MexiCruises problem (referring to Premier’s failed Mexican product), and the problems we’ve bad recently (with the Big Red Boats I and II), none of which were our fault.”

In addition, rumors may be further fueled by the changes currently underway at Premier, which Lewitt argues will make the company stronger and more focused by the fall season.

He explained, “We’re still not happy with the cost structure at Premier. So we’ve brought somebody in from the outside, a consultant, David Hawthorne. Bruce Nierenberg remains in bis current role, and oversees marketing, while the consultant – who is not an officer of the company – oversees the administrative and cost side of things.”

Premier’s costs will be cut substantially, said Lewitt. “The business plan now is for us to go from a fleet of six vessels down to just the three Big Red Boats. So we have to bring the overhead down to match that. The cost structure on our ships and shoreside is being addressed aggressively – without affecting the product,” he said, noting, “the cuts are frankly going to be somewhat disruptive to the shoreside people, but the bottom line is it bas to be done.”

Costs will also be cut on marketing, with the eventual removal of all non-Big Red Boat products from the fleet allowing for a more efficient and less diversified marketing campaign.

Lewitt also said that the recent sale of the Oceanbreeze to Imperial Majesty Cruise Lines has allowed Premier’s owners “to draw down our debt by $7 million and when the next two ships are sold, we can pay down our remaining debt even further.” Premier said it will either sell the Sea wind Crown to Pullman Tours, which currently bas the ship on charter in Spain, or to another party. Talks are also underway with interested parties regarding the Seabreeze, be added, noting that selling the Rembrandt, “which is a big-ticket item,” may take some additional time.

After its summer season in New York, the Rembrandt will begin sailing in the Eastern Caribbean in winter 2000-2001. Plans to convert the ship to the Big Red Boat IV and sail it off the West Coast and to Alaska have officially been dropped.

When the fleet has been reduced to the three Big Red Boats and costs are brought into line, Premier’s owners would then consider selling the remainder of the company. “As a boardmember and a shareholder,” said Lewitt, “I would consider any transaction that makes sense, although I am not assuming that transaction is going to happen.”

Asked how Premier can possibly compete against the newer ships which it goes bead-to-bead with in Florida, New York and Texas, Lewitt explained, “We have very low-cost tonnage. Although it’s a little more expensive lately because of the oil prices, we can compete very, very well on price and that’s what we’ll do. And if our low prices affect the market, and cause problems for competitors like Carnival Cruise Lines, then so be it.” In fact, in the New England/Canada market this summer, both Premier’s and Carnival’s per diems have dipped, on selected sailings, to as low as $50.

Thus, Premier has dedicated itself to competing on the basis of price, according to Lewitt. This assertion appears to indicate a change of direction, as it directly conflicts with an earlier statement by Nierenberg, who said in December 1999, “We are not going to compete on price, but on the value of what passengers get for their money.” Nierenberg also said at that time, “When you start cutting back on the product and the service, that’s it – you’re in a death spiral.”

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