While so-called niche players have either been acquired by the big cruise companies or they have sunk, or may be sinking, Commodore Holdings seems to be steaming ahead.

According to Fred Mayer, CEO of Commodore, the company's keys to success have been to find niche markets and partners - successful businesses in the niche markets - and develop alliances or joint ventures.

Having grown to five ships since 1995, Mayer said that over the next five years, plans call for adding a new ship every year.

Mayer also said that he has identified more niche markets in the United States, as well as in Europe and expects to develop new projects.

The present Commodore was formed in 1995 and carried out an Initial Public Offering (IPO) in July of 1996, offering one million shares at $4.60 each. More shares have been issued since so that 9.3 million shares were outstanding at the end of 1999.

Traded on the NASDAQ, Commodore's share prices have ranged from $2 1/8 to $8.00 and closed at $5.00 at press time.

Also, to generate more interest in its stock, Commodore plans a listing on the Oslo stock exchange. In the U.S., however, at the end of 1999, there were 52 record holders of Commodore stock and 1,670 so-called beneficial owners of stock.

Assets were estimated at $168 million and total debt at $116 million. Commodore owns four of its vessels while the fifth is chartered.

Earnings

Commodore reported a net loss of $1.4 million on revenues of $12.3 million for its first fiscal quarter ended Dec. 31, 1999, compared to net income of $263,000 on revenues of $12.3 million for the same quarter in 1998.

The loss for the quarter was attributed to costs associated with the launching of the Crown Cruise Line brand and drydocking of the Enchanted Isle.

On a yearly basis, however, Commodore has posted net earnings for the past three years. For its last fiscal year ended Sept. 30, 1999, Commodore reported net income of $4.9 million on revenues of $61.5 million, compared to net income of $4.2 million on revenues of $63.1 million the previous year; for 1997, net income of $2.3 million on revenues of $58.0 million; and for 1996, net income of $2.0 million on revenues of $47.8 million.

The revenue decrease in 1999 was attributed to one ship being out of service for 60 days for the installation of a sprinkler system. Commodore's net margin for its 1999 fiscal year was 7.9 percent; operating expenses were 66.3 percent of revenues; sales and administration were 20.7 percent of revenues.

Revenue per passenger day was estimated at $126.15, which includes the two-day cruises, and net income per passenger day was $10.00.

Commodore reported 487,483 passenger-cruise days for the 12-month period and a load factor of 100.7 percent.

Niche Markets

"We have five vessels in different niche markets," Mayer said, "and all have some kind of theme attached to them.

"The company's principal operating strategy is to identify underserved markets and develop niche themes to serve those markets with carefully selected partners," Mayer added.

In New Orleans, Commodore operates two ships. While the Enchanted Isle sails seven-day cruises under the Commodore Cruise Line brand, the Enchanted Capri sails two- and five-day cruises under Capri Cruises. The Enchanted Capri is operated in partnership with Isle of Capri, which helps market the ship and generates passengers.

Isle of Capri specializes in riverboat and dockside casinos and has a database of more than two million customers, Mayer said.

In San Diego, Commodore has entered into a partnership with a local Indian tribe, the Viejas Band of Kumeyaay, which will operate the casino aboard the Enchanted Sun, slated to enter service in March. In addition, Commodore has also entered into a partnership with the Rosarito Beach Resort in Baja, Mexico, which gives Commodore exclusive rights to use a pier that Commodore and the Rosarito Beach Resort are building together for 10 years with an option to renew for another 10 years. Mayer pointed out that Rosarito is only 18 miles from San Diego whereas Ensenada - where other ventures have sailed to - is 80 miles down the coast.

Premium Market

Commodore also owns Crown Cruise Line, which launched service with the 800-passenger Crown Dynasty this winter, sailing from Aruba during the winter months and from Philadelphia to Bermuda during the summer months.

Apple Vacations is onboard with a four­ year contract for 100 percent of the cabins aboard the Crown Dynasty during the winter months and 50 percent during the summer months.

In addition is the university-at-sea concept whereby the Universe Explorer is chartered out as a floating university during most of the year while sailing culturally-themed cruises for World Explorer Cruises in Alaska during the summer seasons.

Drawbacks?

So do several partnerships create confusion? Not according to Mayer, who said that while Commodore controls the partnerships, the partners are actively involved on the promotional and/or financial sides. "In tum, we share the profits with our partners," Mayer said, adding that another key to success was not to be too greedy.

"The big four (cruise companies) don't have the time to compete with us," Mayer said. "Developing these niches and building the partnerships require a tremendous amount of work. I do not see anybody corning in and competing with us in these niches."

According to Mayer, niche markets support companies that do not have the economies of scale of the leading cruise operators. "We can charge more," he said, "and we can provide more. We offer a different product and different service."

Looking five years out, Mayer said his plans call for adding one new ship every year. "Hopefully, we will acquire the mass we need (to boost our earnings)," Mayer said.

But he may also have to renew bis fleet. The Enchanted Isle and the Universe Explorer were built in 1958; the Enchanted Sun was built in 1974; and the Enchanted Capri was built in 1975. The risk factor with older ships is that they require more maintenance and are more likely to break down, which would interrupt service and revenue flow.

Commodore owns all of its ships except the Enchanted Capri, which is on charter. The company recently acquired the Crown Dynasty for $86 million.

But new ships will require additional capital, which in turn may dilute the company's stock or add to its debt.

Mayer, however, is careful and does not act frivolously. He also has a team of what be called "top seasoned cruise executives" onboard at both Commodore and Crown, and he has taken various scenarios into account.

"When we see an opportunity, we survey the potential carefully until we get comfortable that the risk is calculable," Mayer said. "Every deal we have done has been carefully planned."