With sufficient (critical) mass and deployment to market nationally, the Ambassadors Cruise Group, a subsidiary of Ambassadors International, plans to succeed where many others have pulled out or failed, that is, in the domestic coastal and river boat market.
Ambassadors acquired American West Steamboat Company this past January and Delta Queen Steamboat Company in April, in addition to another river boat and a coastal vessel, and is combining them under one brand name, Majestic America Cruises, later this year.
Ambassadors is a publicly traded company (AMIE), which until recently focused on insurance, marine (marinas and a shipyard) travel and event management. Now, for 2006, 70 percent of the company’s revenues are expected to come from its cruise business, according to its Chairman and CEO Joe Ueberroth.
Ambassadors acquired Seattle-based American West and its two river boats from Oregon Rail Holdings, a company owned by THE Hillman Company, in January for $4.3 million in cash and the assumption of $41.5 million in debt at a fixed interest rate of 4.63 percent over 23 years.
New Orleans-based Delta Queen and its three river boats were acquired from Delaware North Companies in April for $3 million in cash and the assumption of $35 million in debt at a fixed interest rate of 6.5 percent until 2020. In both acquisitions, the debt (financing for the previous owners) is guaranteed by the U.S. Maritime Administration.
In addition. Ambassadors has acquired an interest in another river boat in the Northwest, the Columbia Queen, by paying $5 million for its $9 million mortgage at a fixed 6 percent interest rate, payable through 2015. I f the owners, Great American River Journeys, default on their mortgage payments. Ambassadors could take over the vessel. Great American River Journeys filed for bankruptcy protection in January and the vessel has been laid up.
More recently. Ambassadors also acquired the 49- passenger Executive Explorer for $2.5 million. The vessel was previously operated by now defunct Glacier Bay Cruises on the West Coast, in Alaska and in Hawaii.
With seven vessels. Majestic will have three sailing in the Midwest, on the Mississippi, Ohio, Tennessee, Cumberland and Arkansas rivers; and four in the Northwest, on the Columbia, Snake and Willamette rivers, and in Alaska’s Inside Passage.
In 2007, Majestic America will offer some 215 departures and call at more than 70 port cities and communities in 19 states, while being able to carry a total of 50,000 passengers, according to Ueberroth.
“The goal is to create a national company with local products,” Ueberroth said. “With one brand and seven vessels we are better able to address a national market. With Majestic we have enough (critical) mass to tell our story.”
While there will be a new brand name, the vessels’ names will remain, however, helping to preserve the products the way past passengers know them, according President and Coo David Giersdorf. He was previously with Holland America Line.
While the parent company. Ambassadors International, is headquartered in Newport Beach, California, the Ambassadors Cruise Group and Majestic will be based in Seattle.
Marketing, sales and administration will be in Seattle with regional operating offices, Giersdoif explained.
Majestic reservation systems will be from Delta Queen, while the field sales force for Delta Queen will now cover all the vessels, and the inside sales staff will be from American West, Giersdorf said, who explained that “the pieces fit nicely together.”
“We have been able to retain key management positions from both companies,” he added.
Other back-office functions are provided by Ambassadors.
“We have the option to grow into new markets, whether we move our existing vessels or acquire more vessels,” Ueberroth said.
Meanwhile, Ambassadors has extended the season for Delta Queen in 2007 when the American Queen will also return to service once the Mississippi River is back to normal.
Coastal and river cruise passengers tend to be mature, according to Giersdorf, who said the average age of the passengers is around 65 and that they are experienced travelers, many of whom have taken several cruises before.
With little or no opportunity to generate onboard earnings from casinos, spas or retail shopping. Majestic must generate most of its revenue from ticket fares, which Giersdorf said must be “right and realistic” – reflecting the brand’s uniqueness and value proposition instead of being a commodity.
Sailing in domestic waters under American flag, the crew is American nationals, whom Giersdorf described as “fantastic,” adding that the passengers “love the crew because of their energy and because of the interaction with the officers and the staff.” The fact that there is no language barrier is also a positive, he added.
Officers, crew and staff work for Majestic and none of the services are outsourced, according to Giersdorf.
Majestic cruises average seven days in length.
Commented Ueberroth: “Delta Queen always performed well, but they overspent on their hardware, and American West has been a steady earner since 1995. Nobody is building (vessels) in our area (market segment), so we are in a very attractive position. We are not competing with any segment of the cruise industry and we are going after the high end of the market.”
Majestic is already the largest American-flag small-ship operator with seven vessels and 1,602 berths.
Ambassadors has spent an estimated total of $14.8 million in cash and assumed debt of $76.5 million and customer deposits of $9 million, allowing for an approximate per berth price of $51,373.
For 2005, Ambassadors reported net income of approximately $3 million on revenues of $26.9 million, with total debt of $40 million and total cash of $89 million. At press time. Ambassadors’ shares traded for $24.47 compared to a 52-week low/high of $12.62- $25.34 and a 12-month price target of $18.
$300-P!us Per Night?
Majestic will need to generate revenues of approximately $300 per passenger cruise day in ticket fares, excursions and bars to turn a profit, according to Cruise Industry News (CIN). That is based on estimated debt service of approximately $7 million per year and operating costs of less than $300 per day, for annual total costs and expenses of approximately $105 million. A spokesperson said that as a public company. Ambassadors cannot comment on financial projections.
In 2007, rates for seven-night Alaska cruises start at $2,969 per person and $4,769 for 12-night sailings. Seven-night Northwest river cruises start at $999 per person, and $1,049 for the Midwest rivers.
Goal Is To Be Market Leader
“Our strategy is to grow the cruise side of our business,” Ueberroth continued. “But we have also growth strategies for the other sides of our business.”
Looking forward, Ueberroth said: “We are creating (critical) mass and value by combining the two lines under one brand. We see us (Majestic) at the beginning. We want to be a leader in the small-ship, upscale market, providing guest experiences beyond just a cruise. We do not see ourselves in the mass-market with large ships.”
It is natural that further expansion will come in North America, Ueberroth said, adding, however, that the company is not limiting its growth visions to North America.