Industry Changes Coming?

In the past few days and weeks, several developments have taken place that could change the face of the industry and moderate its pace of growth.

Most recently is Comcast's $50 billion bid for the Walt Disney Company. Already the rumor mill is spinning about where the ships of Disney Cruise Line will end up. In the short term, there are three scenarios: 1) that the takeover does not succeed (Disney has rejected the offer), although there are now rumors of pending offers from others as well, including Microsoft; 2) that if a takeover succeeds that Disney Cruise Line stays in the fold; or 3) that following a takeover, the line and the ships will be put  up for sale. If so, there is only one buyer with deep enough pockets - Carnival Corporation. This scenario becomes even more interesting . if the ships and the parks were to be spun off together.

The Star Group has started to shed ships having most recently sold the Superstar Aries to Pullmantur Cruises. The ship is the 1982-built former Europa which Star bought from Hapag Lloyd Kreuzfahrten in 1998. Last month, Star sold the Superstar Capricorn to another Spanish tour operator, Iberojet.

Thus, Star is dramatically cutting back on its Asian Pacific capacity - either due to lack of market support and/or in order to raise cash to fimnce newbuildings for Norwegian Cruise Line (NCL).

But NCL is also having its hands full with the recent insolvency filing (bankruptcy protection) by Lloyd Werft, following the partial sinking of the Pride of America last month.

Repairs are estimated to cost upwards of $100 million.

NCL has issued a statement that it is moving forward with its plans to complete the ship notwithstanding the yard's financial restructuring.

A new delivery date cannot be set, however, before the damage can be assessed and repair work commenced.

In the meantime, NCL is losing the marketing momentum it would have gained from the new ship introduction on July 4, 2004 in Hawaii.

Last year, NCL had to withdraw the Norway from service after its tragic boiler explosion. That ship has since been laid up pending repair work.

The recent problems just make life a little more difficult for NCL, which is already fighting in the marketplace as the third largest player with a 10 percent market share, behind Carnival Corporation with a 45 percent share and Royal Caribbean Cruises with 25 percent.

Since he came aboard, NCL CEO Colin Veitch has done what he had to do - create a unique and distinct NCL product - with Freestyle cruising, Homeland crmsmg, and more recently NCL America. His challenge will be to continue to do just that.

Festival Fights On

Meanwhile, Festival Cruises continues to fight for its life. While Festival keeps expressing optimism that its negotiations with creditors will succeed, the talks keep dragging on. So far, Festival has announced that it plans to only operate its three new vessels - as well as the Caribe - with a restructured business model. The three older ships will be phased out. The Flamenco has already been sold, while the other two ships were already on charter to other companies.

If Festival succeeds, it will be a smaller and leaner company that will move forward. But Festival has previously already talked about moving the older ships into a separate brand within the company.

Again, the rumor mill is spinning, ranging from Royal Caribbean Cruises (RCC) taking over Festival as well as Libyan interests. RCC has denied any intentions, but of course, the company was also mum on its Galapagos Island venture before it was announced.

Festival would give RCC a foothold in Europe - if the American management style can mesh with the Greek and Italian influences at Festival, with offices in Piraeus and Genoa as well as in Monaco.

Festival also bas a network of sales offices throughout Europe that has given the company a valuable but expensive market presence.

Sources attributed Festival's problems to taking on too much capacity in too short a time and not being able to get premium pricing for its new ships, compared to its older tonnage.

Its new ships are also said to be too slow to operate seven-day Mediterranean cruises in the winter time and has a large portion of inside cabins, which sell at lower rates than outside staterooms, sources said.

In addition, of course, has been the growing competition from Costa Crociere in Italy and Germany, as well as from Aida Cruises.

Despite its apparently mounting financial problems, however, Festival has remained committed to its concept of offering a European product and has strong market support throughout Europe, the same sources said, who asked not be identified, but were optimistic that Festival will come back.

ROC Sinking

Royal Olympic Cruises (ROC), however, seems to be sinking slowly but surely. Ships were first arrested, then ship-owning companies filed for bankruptcy; one ship was auctioned; and now company employees have been laid off. The road back will be long if not impossible for ROC.

Both Festival and ROC have suspended cruise service.



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