Luxury Market Upswing?

“2005 and 2006 will be the best of times for the luxury lines,” said Larry Pimentel, chairman and CEO of Seadream Yacht Club, who predicted an upswing in market demand and yields, because no new capacity will be added in the luxury segment.

But at the same time, Pimentel expects more consolidation among the luxury lines and more cooperation in back-office functions, IT, etc. He also foresees the big companies shedding their small ships, and sees no reason why Carnival Corporation should be holding on to Seabourn Cruise Line, or why Holland America Line needs to own Windstar Cruises.

“These (small) ships were built by entrepreneurs,” Pim entel said. “They don’t make sense on a profit and loss statement.” Instead, he thinks the small ships can best be run by entrepreneurs – people who have the time and personal commitment and passion for the product.

“We are getting higher passenger satisfaction ratings now (at Seadream) than we ever used to get (Pimentel was formerly president of Seabourn),” Pimentel added.

While claiming that his small-ship operation is successful, Pimentel said he is committed to staying small and being what he called “highly focused with aggressive cost and expense control.” Meanwhile, Pimentel said that 70 percent of the 2004 capacity of his two 110-passenger vessels, the Seadream I and Seadream II, was already booked. With the Olympic Games next summer, Seadream will have more cruises in the Eastern Mediterranean. “Our itineraries are driven by the charter market,” Pimentel said. Both ships spend winters in the British Virgin Islands.

The small ships are more in the yachting arena than in cruising, according to Pimentel, who said that it is the distribution (travel agents) which puts the line in with the other luxury providers.

He described the two ships as being outdoor- and activity-oriented, while traditional cruising is more about being indoors. The average age of the passengers are in the mid-40s.

Pimentel’s formula from the beginning has been to operate lean. The company’s Miami office has 11 employees, and there are seven in its Oslo office, which handles marine and hotel operations. All services except the casino and partially the spa are operated in­ house. “We have eliminated a lot of cost structures,” Pimentel pointed out.

The company’s brochure, for instance, does not have prices. Instead, prices are provided in a separate insert. Sales -calls are conducted on the phone and via phone conferences. The company does about three telephone conferences a week, inviting travel agents to join in.

But even small operators have been forced to control costs, and Pimentel said Seadream has been able to reduce is operating costs by $9,000 per day in 2003. Contrary to conventional economies of scale, Pimentel claimed his company can operate more efficiently with smaller ships. ‘We do not offer pre- and post-land stays, and we do not have an air/sea department,” he explained. “Nor do we have expensive offices.

“We are going against the trend,” Pimentel continued. “We are smaller, while everybody else is getting bigger. We have taken the ships out of the ‘ocean of cruising’ and into the ‘pond of yachts.’ We are now the biggest player in a small pond.”

Seadream’s market has so far consisted of 56 of 57 percent full ship charters, according to Pimentel and the balance, individual passengers. The charters account for 70 percent of revenues, however.

Charter clients include people who already own yachts and Fortune 500 corporations.

Weekly charter rates range from $325,000 to $525,000 depending on where the ships are and whether special events are involved such as the Cannes film festival or the Monaco Grand Prix.

Pimentel explained that when he and Norwegian entrepreneur Atle Brynestad, former founder and owner of Seabourn, bought the two ships, that is all they bought. They did not buy the name nor the operating company. Thus, they had to create a new brand, a new product, and build a new organization. The key was to have a small group of highly skilled people who were passionate about their jobs and about the company and had fun working, according to Pimentel.

“Luxury ships deliver more value than most people realize,” Pimentel said. “Passengers may spend a few hundered dollars more, but look at what they get when tips, shore excursions, liquor, and transfers are included. The value may even be better than on the mass market ships.”

Pimentel also claims to have started the trend towards casual cruising. While he in the past has always been suited up impeccably for interviews, he now wore a sweater and sport coat, still impeccably casual.

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