While the Star Group reported a strong increase in revenue for 2006 over 2005, driven primarily by a 17 .9 percent capacity increase, higher costs and lower occupancy offset the gains, resulting in a loss for the year.
The first six months of 2007 are also expected to be challenging, with what Star in a prepared statement called strong downward pressure on pricing in Hawaii and a weaker Caribbean than last year.
Star attributed the pricing pressure in Hawaii to the large increase in capacity year-over-year by its Norwegian Cruise Line (NCL) brand, but also to what it said is substantially increased competitive capacity on other Hawaiian itineraries.
"It is clear that the addition of capacity - both NCL's and foreign-flag competitors - has outstripped demand in the short term, and NCL is not achieving the pricing needed to support its higher U.S. flag operating costs," according to Star.
While demand for NCL's summer programs remains solid, particularly for its European programs, revenue yield for the first half of the year is expected to be negative compared to the first half of 2006.
Star reported a loss of $156.2 million, or $2.76 per share, on revenues of $2.3 billion for the year ended Dec. 31, 2006, compared to net income of $17 .9 million, or $0.32 per share, on revenues of $1.9 billion for 2005.
The capacity increase was due to the addition of the Pride of Hawaii and the Norwegian Pearl, in addition to the full year operation of the Norwegian Jewel and Pride of America, while the increase in costs was due to the higher payroll and related expenses for the U.S.-flag ships and fuel.
Also in 2006, Star recorded a gain of $16.7 million from the sale of the Norwegian Crown, shipyard compensation income of $7.3 million and a write-down of a non-cruise investment in a low costs carrier of $10.3 million. An impairment loss of $30.6 million in conjunction with a ship and the Orient Lines trade name was recorded in 2006, according to Star, versus an impairment loss of$1.4 million in 2005.
Star also reported a loss of $14 7 million, or $2.58 per share, on revenues of $54 7 .1 million for the fourth quarter ended Dec. 31, 2006, compared to a loss of $25.7 million, or $0.46 per share, on revenues of$515.5 million for the same quarter the year before
For NCL in 2006, net revenue was 17.7 percent higher on a 16.9 percent capacity increase and a 0.7 percent increase in net yield, according to Star. New ship additions were partially offset by the transfer of the Norwegian Sea to Star. The increase in net revenue yield was primarily due to a slight increase in onboard and other revenues while passenger tickets remained relatively unchanged.
While revenue for NCL was up, yield was down due to the downward price pressure in Hawaii, according to Star, and lower onboard revenues, mainly due to the default of NCL's art concessionaire and lower occupancy levels.
Following what Star in a prepared statement called weak bookings in the fourth quarter, NCL is now said to be significantly ahead of last year in terms of volumes booked for 2007 during the Wave period.
Demand for NCL's summer products continues to be solid, according to Star, "particularly its European deployment, and demand in the Caribbean has shown modest improvement from the weak fourth quarter of 2006. As a result, NCL has been selectively increasing pricing on certain sailings and itineraries since the start of the Wave.
According to Cruise Industry News (CIN), NCL has 35.6 percent of its capacity in the Caribbean this year, 27 .2 percent in Hawaii, 10 percent in both Alaska and Bermuda, approximately 5_ percent in the Mediterranean and on the Mexican Riviera and smaller portions elsewhere.
The cruise capacity in Hawaii is estimated by CIN to be up 9 percent over last year, with 447,600 passengers. In 2005, however, the capacity jumped 47 percent, following a 14 percent increase the year before. But the largest increases are by NCL.
The Star Cruises brand saw a 22.2 percent capacity increase in 2006 because of the addition of the Superstar Libra, which sailed for the full year. But yields suffered from lower than average occupancy on the Libra, which launched service from India, but spent the summer in the Mediterranean.