With softer demand for the balance of the year, with the sale of the Norwegian Crown to Fred. Olsen Cruises Lines, and after posting a loss in Q1 06, is the Star Group changing course?

The Norwegian Crown was originally slated to be transferred to Star Cruises to support that brand's continued expansion in the Asia/Pacific region. The sale may instead signal a lagging Asian market and/or a need for cash.

Norwegian Cruises Line (NCL) has previously announced that six of its older ships would be transferred to Star as new ships were introduced for NCL.

The Norwegian Pearl enters service late this year, followed by the Norwegian Gem in 2007, but after that there are no more newbuildings on order for NCL, which has also promised a new building every year.

In addition, NCL has been expected to announce a public offering of shares (IPO) in North America.

The issue for NCL is its big gamble in Hawaii. If and when it pays off, NCL may have a unique tramp card. Meanwhile, the line struggles with higher costs, while it must also convince passengers to pay more to cruise in Hawaii.

Star Group
The Star Cruises Group posted a loss of $35 million, or $0.66 per share, on revenues of $509.6 million for the first quarter ended March 31, 2006, compared to net income of S4.4 million, or $0.08 per share, on revenues of $415.5 million a year ago.

Star attributed the increase in revenue to a 18.9 percent increase in capacity due to the addition of the Pride of America and the Norwegian Jewel. Occupancy levels, however, decreased to 99.3 percent in 06 from 102 percent in 05.

Operating expenses went up, mainly due to higher fuel costs as well as increased payroll and expenses related to the U.S. crew in Hawaii, and start-up costs associated with the new ships.

Star Cruises
Revenues were up at Star Cruises, driven by more capacity, but net revenue yield was down in Asia as was occupancy, according to Star.

The Superstar Libra, which started service out of India last fall, was the reason for the capacity increase, but her net revenue yield and occupancy was lower than the average net yield and occupancy for the rest of the fleet.

Operating cost savings were offset by increased fuel costs.

According to Cruise Industry News estimates, revenue per passenger, per day, was up $12.28 to $213.77 for Q1 06, but total costs and expenses were up $20.49 to $207.44.

Operating income per passenger, per day for Q1 06 was $6.33, compared to $14.54 last

Norwegian Cruise Line
Net revenue was up 17.4 percent at NCL in according to Star, driven by a 15.3 percent increase in capacity and a 1.8 percent increase in net revenue yield.

The additional capacity of the Pride of America and Norwegian Jewel was partially offset by the transfer of the Norwegian Sea to Star Cruises.

The increase in net revenue yield was attributed to higher onboard spending by passengers and higher passenger ticket revenues.

Operating expenses jumped, however, driven by U.S. crew and start-up costs in Hawaii as well higher fuel prices.

Ship Sale and Transfer
The Norwegian Crown has been sold to Fred. Olsen effective August 2006. Star will charter the ship back and NCL will continue to operate the Crown until November 2007.

NCL has also announced the Norwegian Wind will be transferred to Star in late April 2007 to become the SuperStar Aquarius, based in Hong Kong.

In a prepared statement, NCL CEO Colin Veitch described the Crown as a beautiful and well maintained vessel, but said that her smaller size is less suitable for Star's ambitions in Asia.

The Crown is 34,000 tons and accommodates about 1,000 passengers. She was originally built in 1988 as the Royal Odyssey for Royal Cruises Line.

The combined capacity of the Crown and the Wind, 2,750, will be offset by the combined capacity of 4,800 for the two new ships, the Pearl and Gem.