The Star Cruises Group has reported net income of $6.3 million, or $0.15 per share, on revenues of $368.0 million for the first quarter ended March 31, 2002, compared to net income of $4.4 million, or $0.11 per share, on revenues of $335.4 million for the first quarter last year.
Net income was negatively impacted by $5.9 million in expenses related to the refinancing of a five year syndicated loan. Net yield decreased 8.3 percent due to lower prices for bookings taken in the first few months following Sept. 11, as well as lower occupancies aboard ships sailing longer itineraries.
On a per-capacity-day basis, ship operating expenses were down 8.6 percent, as the result of cost control initiatives implemented in 2001, the cessation of Star's cruise operations in North Asia, and lower operating expenses at Norwegian Cruise Line (NCL).
The group also benefited from economies of scale due to increased capacity following the introduction of the 2,000-passenger Norwegian Sun and 2,200passenger Norwegian Star during the second half of 2001.
NCL and Orient Lines reported a 28.8 percent increase in revenues, to $230.6 million from $179.0 million in 2001. Operating profit increased to $12.5 million from $106,000 the previous year. The NCL Group had a 40.6 percent increase in capacity days during Q1 2002, while yield decreased 6.0 percent.
Ship operating expenses were lower due to the higher costs last year related to the implementation of Freestyle Cruising and upgrades in fleetwide safety levels. Hotel staffing was increased and food quality was significantly improved when Freestyle Cruising was launched, but as the ships became more comfortable with the new operating concept, Star was able to scale back hotel manning costs. Consequently, virtually every major cost line of ship operating expenses has been reduced in the first quarter of 2002 compared to the previous year.
SG&A expenses for NCL and Orient declined 27.8 percent on a per-capacity-day basis; according to Star, as the NCL Group has expanded, it has benefited from economies of scale. In addition, the merging of the shoreside operations of NCL and Orient Lines created further savings, while measures implemented post-Sept. 11 have ensured tight control of expenses.
Star Cruises' Asian fleet reported a 16.2 percent decrease in revenues compared to the first quarter of 2001, from $131.9 million to $110.5 million. Operating profit decreased 30.2 percent, from $28.1 million to $19.6 million. Star operated with 19.3 percent fewer capacity days in Q1 2002, and yield dropped 2.7 percent as the result of Asian economic conditions.
The decrease in capacity days was primarily due to the cessation of cruise operations in Taiwan and Japan, partially offset by the introduction of the 1,100-passenger Wasa Queen.
Star Cruises' ship operating expenses decreased 2.8 percent on a per-capacity-day basis, with a 6.7 percent reduction in SG&A expenses despite the loss of economies due to lower capacity days. The decrease in SG&A was attributed to a further tightening of the cost management program begun in 1997 following the Asian currency crisis.
Depreciation and amortization expenses increased to $42.7 million from $36.1 million in Q1 2001, primarily due to depreciation associated with the addition of ships and ship refurbishment expenditures during the quarter.
Star also announced that an arbitration ruling on April 25 arising from the premature return of the 960- passenger Leeward (ex-Superstar Taurus) has awar ded $10.2 million to the ship's owner, Effjohn. Effjohn had claimed damages related to the condition of the ship at the time of re-delivery and the loss of revenue for the period the ship was out of service for repairs. The Star Group previously recorded a liability of approximately $6 million, and is reviewing its prospects for appeal.
Looking forward, Star has unveiled a new itinerary for the fledgling Chinese market, with the 700-passenger Superstar Gemini beginning Yellow Sea cruises to Northeast China and South Korea on May 30. According to COO Chong Chee Tu, "Star Cruises is well-poised to expand into the progressively open Chinese market, as we believe that Superstar Gemini will be a fitting pathfinder vessel and precursor to plans which we have in store for both China and the North Asia markets."
"The earlier-than-anticipated deployment of Superstar Gemini will coincide with the month-long FIFA World Cup 2002," he said. To be homeported in Pyongtaek, South Korea, the Superstar Gemini offers two- and three-night cruises to Dailan and Quingao, China.
On the Chinese market in general - which Star also now targets with the Wasa Queen cruise-ferry service between Xiaman and Hong Kong - the company stated, "The Group is cautiously optimistic on the contribution from this new market, but it should be noted that it will take time to develop."