The Star Cruises Group has reported net income of $73.1 million, or $1.70 per share, on revenues of $1.6 billion for the year ended Dec. 31, 2002, compared to a net loss of $8.4 million, or $0.20 per share, on revenues of $1.4 billion for the previous year.

For the group, net yield for the year was down 1.7 percent, and capacity increased 13 .5 percent, from 7,523,849 to 8,542,019 capacity days. Occupancy increased from 95 to 98 percent.

According to Star, net income was negatively impacted by $9.5 million in charges related to a five­ year syndicated debt refinancing and litigation settlements. On the positive side, the group has lowered its cost structure significantly, mainly through a combination of cost-control measures, rationalization of its cruise operations, economies of scale through increased capacity, and merging of shoreside operations. SG&A expenses per capacity day decreased 11.6 percent, and operating expenses (excluding fuel costs) per capacity day dropped 5.4 percent. Cost reductions were achieved "despite increased security costs since 9/11 and the Bali bombing," said Star.

The Star Group reported a net loss of $19 .0 million, or $0.40 per share, on revenues of $368.4 million for the fourth quarter ended Dec. 31, 2002, compared to a net loss of $57.3 million, or $1.30 per share, on revenues of $339.1 million for the same period the previous year. Occupancy in Q4 2002 was 96 percent, versus 87 percent in Q4 2001.

NCL Group

For the full year 2002, the NCL Group - comprised of Norwegian Cruise Line (NCL) and Orient Lines - increased capacity days by 29.0 percent. The NCL Group reported a combined increase in net yield of 0.3 percent - with net yield at NCL up 3.4 percent, and net yield at Orient "down significantly." Revenue for the two North American lines increased from $765.6 million in 2001 to $1.0 billion in FY 2002.

On a per capacity day basis (excluding fuel costs), the NCL Group reduced ship operating expenses by 4.3 percent and SG&A expenses by 16.5 percent for the year.

During the fourth quarter, the NCL Group increased capacity days by 18.5 percent compared to the same period the previous year, as a result of the introduction of the Norwegian Dawn and the Norwegian Star (which sailed only a partial quarter in 2001). Net yield at the NCL Group increased 5.7 percent versus Q4 2001, with net yield at NCL up 8.1 percent, and Orient substantially down. Q4 revenue for the North American group rose from $182.7 million in 2001 to $229.9 million in 2002.

For the NCL Group, ship operating expenses dropped 2.2 percent in Q4 2002, and SG&A expenses dropped 7.4 percent, as a result of increased economies of scale and the merging of shoreside operations of NCL and Orient Lines.

According to NCL, consumers are responding positively to the brand's Homeland Cruising strategy, while the Hawaii operation "continues to contribute strongly to the overall result."

Star Cruises

Star Cruises has once again decreased its capacity, dropping capacity days by another 11 percent in FY 2002. Its revenue for the year dropped from $511.7 million in 2001 to $466.7 million in 2002, while net yield decreased 0.7 percent year over year.

On a per capacity day basis (excluding fuel costs), Star reduced ship operating expenses 6.1 percent for the year, SG&A expenses 8.3 percent.

For Q4 2002, Star's revenues decreased from $139.0 million to $114.5 million, with 7.3 percent less capacity days compared to the same quarter the previous year. Q4 2002 net yield dropped 7.4 percent compared to Q4 01.

Star continues to show a growing interest in the Chinese market, with a dual arrival in Shanghai by the Superstar Leo and Superstar Aries in November. Both ships will be offering special cruises to Shanghai in 2003. And according to published reports, Star expects to get the go-ahead for a $200 million cruise tenninal development in Shanghai during the first half of this year, with the first phase to be completed by 2006. The proposed facility would reportedly be capable of handling four 2,800-passenger ships simultaneously and would feature a 430,000-square-foot tenninal complex. Star has previously announced plans to order newbuildings dedicated to the Chinese market.

NCL Closes Order

In related news, Star signed a contract with Lloyd Werft on Feb. 5 for the completion of the Project America hull for NCL - just the third newbuilding order signed since Sept. 11, 2001. According to Star's financial filing, the estimated cost of the 81,000-ton, 2,100-passenger ship is $350 million.

The design of the vessel has been modified to accommodate Freestyle Cruising, said NCL, as well as to upgrade its original safety and environmental specifications. It will feature nine restaurants and over 700 private balcony suites. "After a series of cruises and introductory activities on her way from the shipyard to her homeport in Honolulu, the new ship will begin offering regular service in Hawaii by early summer 2004," said the company.

The Project America newbuild - together with an existing ship that can potentially be reflagged. - will form the core ofNCL's new U.S.-flagged, U.S.-crewed operation in Hawaii. According to Star, "It is the NCL Group's intention to develop a U.S.-flag cruise fleet concentrated in Hawaii in parallel to its existing Bahamas-flag fleet."

President Bush signed the Omnibus Appropriations Act of 2003 on Feb. 21, which included language that essentially grants NCL exclusive rights to form an inter-island Hawaiian cruise operation.

Asked how NCL will run a U.S.-flag operation profitably - given the added operating costs, taxes, and regulatory issues -NCL CEO Colin Veitch explained, "There's no doubt that the labor costs will be significantly higher." But Veitch is not comparing the U.S.-flag business plan in Hawaii to a foreign-flag Caribbean operation, he is comparing it to NCL's current business with the Norwegian Star. "That operation has a very large fuel bill because it has to sail to Fanning Island, and an inter-island product will also have higher shore excursion revenue (because it will not require two days at sea)." Veitch said the higher revenue and lower fuel expenses appear to offset the higher operating costs related to U.S. labor plus any impact of U.S. taxation.

He added that there will be no conflict with Norwegian officers who will be excluded from NCL's U.S.-flag venture, because "we will be growing the Bahamas-flag fleet in parallel, so there will be more opportunities there too."

NCL will set up a U.S. subsidiary in Hawaii, and although an official name has yet to be set, Veitch explained, "One of our greatest strengths is our brand name. We don't intend to start afresh."

He said NCL will also reflag an existing ship, which will be placed in inter-island Hawaii service "as soon as the market allows" following the introduction of the Project America newbuild, "hopefully within a year after that ship is introduced."

NCL will continue to make calls to Fanning Island with a 10- and 11-day product. And although it will not do so with its first U.S.-flag ship, Veitch confirmed NCL will ultimately introduce a three- and four-day Hawaii cruise product combinable with a land package (assumedly when it introduces the reflagged second vessel).