The Star Cruises Group was barely able to report net income for Q1 04, with $1.2 million, or $0.02 per share, on revenues of $390.7 million, compared to a net loss of $2.2 million, or $0.04 per share, on revenues of $412.0 million for the first quarter of 2003.

Star attributed the revenue decline to a 7.2 percent decrease in capacity resulting mainly from the Norway being taken out of service in May 2003.

According to Star, operating expenses per capacity day were due to lower fuel costs, partially offset by start-up costs in Hawaii and lay-up expenses for the Norway.

Since the Pride of America sank during construction, the ship has been raised and is in drydock. While certain repairs and preservation work have been carried out, construction has not yet resumed pending insurance settlement negotiations.

A tentative delivery date has now been set for summer 2005.

Norwegian Cruise Line

The core of Norwegian Cruise Line's (NCL) business had a good first quarter, with increased net revenue yield and reduced ship operating costs, according to Star. Occupancy levels were reported to be 106.1 percent, up from 103.6 percent for the same period last year.

The NCL America operation has been incurring what Star called significant start-up costs, including the cost of American crew that have been training onboard NCL's Bahamas-flagged ships, and the cost of the new Honolulu office. In addition has been a large television advertising campaign focused on West Coast U.S. markets to promote the Hawaii cruises. Revenue for these cruises will only be recognized after the sailings, which start July 4.

Cruise capacity days fell due to the Norway being out of service.  

NCL has provided net yield guidance to analysts up two to three percent for the year. Q2 04 is said to be fully booked and the second half of the year is 50 percent booked.

NCL has recently been actively promoting most, if not all of its sailings, including Alaska and its cruises out of New York, from June through the end of the year.

While not providing as much information as the other publicly traded cruise companies, NCL has reported that the Caribbean is one of its weaker markets, with pricing trending downwards.

Star Cruises

Star Cruises operated with lower capacity days in Q1 04 compared to Q1 03, mainly as a result of the drydocking of the Superstar Virgo.

Without SARS and Avian flu in 2004, operations returned to normalcy, and operating income was 40 percent ahead of the same period in 2003, according to Star.

Going forward, Star said that cost per capacity day will increase because of reduced capacity following the sale of the Superstar Aries and Superstar Capricorn and the transfer of the Superstar Leo to NCL.

What Star called a "negative scale phenomenon" will remain until the transfer of mid-sized NCL ships to Star, starting in mid-2005.

Another challenge is the opening of new casinos in Macau during the year, according to Star.

Cruise Market

The Star Group, which is the third largest cruise company in the world with NCL and the Star brand, has a combined fleet of 17 ships with 22,000 berths in Q 1 04, compared to 75 ships and 123,000 berths for Carnival Corporation and 28 ships and 57,600 berths for Royal Caribbean Cruises (RCC).

Net profit margins for Q1 were 0.3 percent for Star, 9.0 percent for RCC and 10.3 percent for Carnival.