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P&O Princess Listed on NYSE

The new P&O Princess Cruises (POC) started trading on the New York Stock Exchange through American Depository Receipts (ADRs) on October 23, with one ADR (representing four shares on the London stock exchange) opening at $18.00, but dropping to $15.63 at press time.

With approximately 700 million shares outstanding, the ADR price of $15.63 corresponds to approximately $3.90 per share for an overall share evaluation of POC in the $2.7 billion range.

POC also announced a new multiyear marketing alliance with America Online (AOL) whereby POC will be made available across several AOL brands, making it easier for web users to research cruise and tour information, according to POC, and giving travel agents tools to book its cruises.

In addition, the cruise company said it will work with AOL to build what it called a Princess online community center, where Princess passengers can share information with other passengers.

Peter Ratcliffe, president of POC, denied that the alliance is the beginning of an effort to promote more direct bookings and said that only two percent of the company’s bookings are direct.

In related news, Princess Cruises said that it had launched an onboard sales program on a test basis on the Grand Princess this summer, which will be expanded to the Crown Princess and the Sun Princess. The company said that – its shipboard consultants had generated nearly $1.6 million in revenue by booking passengers on future cruises.

According to Princess, all commissions from any bookings made during a cruise will be credited to the passenger’s existing travel agent.

Princess also announced that it will base the Star Princess, the third in the Grand Princess series, in Los Angeles for Mexico sailings when she is delivered in 2002.

In more deployment news, Princess said it will position two ships on New England/Canada itineraries in the fall 2001 season. The Royal Princess will sail between New York and Montreal, while the Crown Princess will sail out of Boston.


Against the downturn in the evaluation of cruise stocks, Ratcliffe said that the timing of the demerger was not important. “This is not an IPO,” he said. “We are not raising capital.”

He said he was very positive on the industry’s outlook in North America. Six million people cruised in the U.S. last year, according to Ratcliffe, who said the industry will grow that market. “The question is at what speed we do it and at what price. But we will see double-digits,” he said, meaning 10 million passengers or more per year.

Ratcliffe also sees a worldwide market potential, especially in the strongest markets, which he said were the U.S., the U.K., and Germany, where POC has strong market positions.

Ratcliffe described the German-speaking market as the largest outside of the United States, with more than 100 million people, of which only 250,000 cruised in 1999.

Last year, POC derived 25 percent of its profits from overseas markets and Ratcliffe said he expected to grow that percentage share.

Ratcliffe said Princess is the preferred cruise line in the United States outside of the Caribbean and the second best-known cruise line. In addition, he said: “P&O is best known in the U.K., AIDA is number one in Germany, and P&O is number one in Australia.”

But Ratcliffe said that be does not believe in an international product. “We believe that Germans, French, and British are very different people,” he said. Thus, the company will have different products for the different markets. In North America, Princess carries 96 percent Americans and the product is totally American, Ratcliffe explained.

“We are going to continue to invest in the product and differentiate ourselves,” he emphasized. Among the product features that Ratcliffe said distinguishes Princess are the concept of “choice” – including personal-choice dining – and balconies on standard cabins. In addition, Ratcliffe pointed out that he never wants the passengers to forget they are on a ship and on a cruise. He wants to maintain the awareness of the ship and visibility of the ocean while passengers are aboard.

Princess also plans to continue to expand in Alaska and cited its fleet of eight rail cars, 200 busses and four hotels. In addition, a fifth hotel – or lodge – is under construction at Copper River, Ratcliffe explained.

The company has also taken steps to meet the demands of environmentalists in Alaska, who are mainly focused on Juneau, according to Dean Brown, executive vice president of sales, marketing and customer service, and president of Princess Tours. He said that the geography of Juneau causes the smoke from the ships (and land-side sources, we assume) to sit in the valley and become visible. To help alleviate this situation, Princess is investing $3 million in a transformer, which will feed hydroelectric power to its ships while they are docked in Juneau.

Princess will also operate smaller buses in Juneau and has relocated its bus parking and tours to avoid the downtown area as much as possible.

Regarding blackwater and graywater, Brown said that Princess will meet the standards that the shoreside authorities lay down.

Meanwhile, other Alaska ports such as Skagway and Sitka are very positive to cruising, according to Brown.

The next Princess ship will be the Golden Princess, which enters service in 2001, and will be sailing year-round in the Caribbean. “We will not be bigger in the Caribbean than Carnival Cruise Lines or Royal Caribbean International,” said Ratcliffe, “but year-round deployment gives us greater awareness among travel agents.”

Princess said previously that the third ship, the Star Princess, would also be based in the Caribbean. Instead she is now going to the West Coast where Ratcliffe said he “believed the Los Angeles market to be huge.”

Market Evaluations

Based on current share prices, outstanding shares, and long-term debt, at press time Wall Street valued P&O Princess at approximately $3.5 billion or $143,000 per berth.

By comparison, Carnival Corporation was valued at $15.0 billion or $262,000 per berth, and Royal Caribbean International at $7.2 billion or $190,000 per berth.

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