P&O has ordered five new ships - four ships for Princess Cruises, plus two options, and one ship plus an option for P&O Cruises. The total contract value for the five ships is approximately $2 billion.

Princess will receive two 110,000-ton, 2,600-passenger Grand Princess-class ships to be built by Mitsubishi Heavy Industries slated for deliveries in July of 2003 and May of 2004.

Princess will also receive two 88,000-ton, 1,950-passenger Sun Princess-class ships to be built by Chantiers De L'Atlantique slated for deliveries in October 2002 and August 2003, with options for two more.

In addition, Princess will take delivery of the 1,950-passenger Ocean Princess from Fincantieri in the winter of 2000, and two more 2,600-passenger ships from the Italian yard to be launched in April of 2001 and January of 2002.

The fifth order was with Fincantieri for a 110,000-ton, 2,600-passenger ship for delivery in spring of 2004 for P&O Cruises' UK and European markets, plus an option for one more.

Three Yards

It is "sound business" to diversify among three yards when your total order is as large as $3.5 billion, counting previous orders, according to Princess President Peter Ratcliffe. But it seems clear that Mitsubishi and Chantiers de l'Atlantique also entered the picture because Fincantieri could not possibly meet the concentrated delivery requirements.

Ratcliffe commented that P&O has a long­ standing relationship with Mitsubishi, having built container vessels at the Japanese yard. And earlier this year, Mitsubishi was also awarded an order by P&O for a 20,000-ton ferry.

While Mitsubishi has built passenger vessels for Japanese operators, it has only built one vessel for Western cruise service, the Crystal Harmony in 1991, and lost an order for a sister ship.

But Ratcliffe is confident that Mitsubishi is up to the job. He explained that the Japanese company is one of the highest-quality builders in the world, with superior technical and design support services.

Mitsubishi has set up a Jomt venture with the Japanese hotel group Okura that may be involved in the outfitting of the ships, suggested Ratcliffe.

The two 110,000-ton ships will be sister ships to the Grand Princess.

Diesel + Turbine

Chantiers de l'Atlantique will literally pioneer new technological ground for Princess: the two ships ordered will have diesel-electric propulsion with the main engines consisting of two diesel engines and one gas turbine, which will be mounted in the funnel. In contrast, the Sun Princess has four main diesel engines.

Ratcliffe said that the combination of the diesel engines and the gas turbine frees up interior space that will be used for dining and entertainment. "Space-wise these ships become mini-Grand Princesses," Ratcliffe said, emphasizing that the number of lower berths remains the same at 1,950.

The power plant configuration is also more environmentally advantageous, according to Princess, which, for Princess, is increasingly important, especially in Alaska.

Deployment

Ratcliffe said that the new 110,000-ton ships would be deployed in the Caribbean despite rumors which have Princess operating the ships seasonally in Alaska.

Another reason for building in Japan may be the easier sailing to the West Coast than around-the-world or around Cape Hom to reach the Caribbean.

And, of course, two mega-ships on the West Coast would make Princess the dominant cruise line in the market. In addition, there is port development underway on the West Coast that would support the deployment.

Lending further credence to such speculation is Princess' deployment of the Grand Princess in the Mediterranean, which also was "unthinkable" until it happened. That turned into a tremendous success, according to Ratcliffe, who said that the "Grand Princess has attracted a lot more first-timers and younger passengers to the Mediterranean than we expected."

Ratcliffe also conceded that as Princess grows, the company will look at different deployment options that could include new homeports in the U.S., shorter cruise options, and more global operations.

Also with the strong recognition of the P&O name within the British Commonwealth and in former British colonies, could there be future P&O cruise subsidiaries in the Far East, the Middle East or Africa? Ratcliffe would not comment.

So far, P&O Holidays in Australia is upgrading by replacing the aging 1959-built Fair Princess with the 1984-built Sky Princess.

In Europe, P&O Cruises launched the Oriana in 1995 and will introduce the Aurora in 2000 plus the new 110,000-ton, 2,600-passenger yet-to-be-named newbuilding in 2004. That ship will put P&O on top of the British market if not on top of Europe!

Commenting on the announcement, P&O Chairman Lord Sterling said in a prepared statement, "We see great opportunity for cruising in the years ahead, with new markets such as Continental Europe opening up and continuing strong demand in the Caribbean and the destination trades such as Alaska."

As P&O is building its cruise divisions up, the company is shedding other business. According to Lord Sterling, the newbuildings will significantly accelerate the process of making cruising the main focus of P&O's business.

Future

While the cruise industry is expanding, the growth curve can sometimes be staggering. It has taken Princess 30 years to grow to its present fleet of approximately 16,000 berths and now the company will double that to some 30,000 berths in the next five years!

"We believe Princess enjoys strong brand awareness and has a disproportionate share of market demand," Ratcliffe explained. "We have an excellent relationship with travel agents and believe we also can get a disproportionate share of future industry growth.

"Our intent is to build better ships. We are different, and we are able to ask a slightly higher price for our cruises," Ratcliffe added.

P&O announced a total contract price for the five ships of $2 billion. That matches exactly the current prices that the company is paying for the Ocean Princess and the sister ships to the Grand Princess.

New Headquarters

In related news, Princess has announced that it is moving its corporate headquarters from Century City in Los Angeles to Valencia in the Santa Clarita Valley about 30 miles north of L.A.

The move, which is scheduled for spring of 2001, follows the fall 1998 relocation of 750 employees to a new customer service center in Valencia.

When the move is completed, Princess expects to have 1,500 employees in Valencia. This includes the current Century City staff of 500 plus new employees hired to accommodate the company's expansion.