Oceana Market Entry Strategy

“The usually steep barriers to entry have been eatly reduced,” asserted Oceana Cruises CEO and President Frank Del Rio, explaining how the deal to create the new cruise venture was structured with shipowner Cruiseinvest.

Cruiseinvest had originally pursued separate negotiations with both Del Rio and a rival group led by former Crystal Cruises President Joe Watters. The two parties were then brought together to make a unified bid, combining Del Rio’s knowledge of the vessels as former head of Renaissance Cruises with Watters’ luxury background.

The charter arrangement Cruiseinvest offered to the Del Rio-Watters team has built-in flexibility to accommodate the operation’s start-up. There is a finn commitment for two vessels with an option for a third. Each charter agreement is for five years plus an optional five-year extension, with a purchase option beginning in the fourth year. “Cruiseinvest does have an equity stake in Oceana,” explained Del Rio, “but it does not involve them putting up any cash equity – their equity is based on our performance, and is in exchange for a flexible (charter payment) schedule.” Oceana’ s financing is fully in place, he said; all that remains to be finalized is the documentation process, the closing, and Cruiseinvest’s board approval.

The first ship, the 684-passenger Regatta (ex-R1) is scheduled to enter service in July 2003; the second as-yet-unnamed sister ship (ex-R2) will enter service in October 2003. An additional option exists for the potential delivery of a third ship in summer 2004, with Oceana’s preference being the R5.

According to Del Rio, Oceana will begin selling its 2003 cruises on the first of the year. The Regatta will sail in Europe for the summer season and redeploy to South America and the “deep” Caribbean for the winter. Oceana’s second ship will sail in the Western Mediterranean, before repositioning to the Far East, where it will sail between Australia, New Zealand and Hong Kong. Both will reposition back to Europe for summer 2004.

Oceana has signed a fixed-cost contract for deck and engine work with Martinoli, and is currently assessing its options on the hotel operations front.

Del Rio said that Oceana will deliver an “upper premium” product straddling both the premium and luxury segments. “We think we will be the only cruise line in the upper-premium market, given the size of our vessels, the fact that 70 percent of our staterooms will have verandas, that each ship will have four open­ seating restaurants, plus their overall high-end decor. If you look at the other companies in the premium category – Celebrity Cruises and Holland America Line – each of them is moving to new ships in the 1,800- to 2,000-passenger range. I do not believe you can offer the same level of service aboard ships of that size.

“Our low operating costs will put us in a unique position to offer many luxury accoutrements,” Del Rio continued. “In particular, we are coming out right now and saying we will be offering the best cuisine at sea. We will be spending more of our budget on food than any other cruise line, including the luxury lines like Crystal Cruises and Silversea Cruises.”

The company will employ 80 people in its South Florida offices, which will serve as Oceana’s headquarters, with an outside sales group of 12 DSMs, said Del Rio.

A potential concern regarding Oceana’s plans is how the travel-agent community will respond – i.e., whether agents still associate Del Rio with the unpopular direct-sales strategy that Renaissance Cruises initially pursued. “I think that is history,” said Del Rio. “The travel agents we’ve spoken to harbor no grudges they want this product back in the marketplace.

“We urge all consumers who book with us to go through their travel agents,” he said. Asked whether past passengers will be targeted with a direct-mail campaign now that Oceana has purchased Renaissance’s 300,000-household list, he explained, “Yes, we will target them – the big difference this time around is that the call to action will be through travel agents.”

Among the other questions raised about Oceana: How can it succeed in attaining premium per diems where Renaissance failed? And how can Oceana differentiate itself from the other R-class ships that have been deployed by various worldwide operators?

Del Rio explained, “The main reason Renaissance failed was because it grew too quickly.” The new venture features a more moderate growth pace, and Del Rio said Oceana will specifically mirror its itineraries on those routes Renaissance found most successful.

Oceana will offer cruises with per diems averaging $200, he said, explaining. “Renaissance was making per diems of $200 or higher on these itineraries.” The problem with Renaissance was never the ships themselves, be noted, citing their strong popularity among consumers and the “pent-up demand” for their return.

Regarding competition with other R-class ships which will sail for Swan Hellenic Cruises, Princess Cruises, and Pullmantur in 2003 – Del Rio commented, “I think there are two issues here. First: hardware gets you only so far. And second, Cruiseinvest has done a very good job of keeping these ships geographically segmented, so that they do not compete with each other.”

Asked about the company’s European-laden schedules with a potential war in Iraq looming, De Rio conceded, “That’s absolutely a concern – there are systematic risks.”

But he appeared less concerned about the economic climate, claiming that now was indeed an opportune time to enter the cruise market. “Look at the financial disclosures being put out by the larger cruise lines,” he said. “Look at CLIA ‘s numbers, which show that more passengers will cruise in 2002 than ever before. Consider that the cruise lines are sailing full despite the increase in capacity.”

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