Star/NCL Prospectus

Documents filed by Star Cruises in connection with its recent $737.5 million share placement reveal new details about the development plans for the growing Asian cruise line, as well as those for Norwegian Cruise Line (NCL).

The share placement brought in net proceeds of $487 million, to be used for debt repayment, acquisitions, shipbuilding and general working capital. According to the prospectus, the Star Cruises group incurred approximately $974 million in indebtedness associated with the acquisition of NCL. It has been reported that Star originally intended the private placement to be a public offering, and had expected significantly more net proceeds.

NCL Outlook

Fleet Deployment. NCL will pursue a fleet­ deployrnent strategy that “reduces the (Star) Group’s exposure to the traditional mass market-oriented Caribbean cruises. As a result, NCL has increased scheduled passenger cruise days in markets outside the Caribbean from approximately 30 percent in 1995 to an anticipated 47 percent in 2000. The Group expects to further increase its non-Caribbean scheduled passenger cruise days to approximately 61 percent by 2002.”

Freestyle Cruising. According to the filing, “The Directors believe that growth in the cruise industry will come from vacationers accustomed to land-based resort vacations switching to cruise vacations” – thus, Freestyle Cruising is specifically geared towards these potential passengers. One wrinkle in the plan has occurred in England, where Thomson Holidays has filed trademark infringement papers seeking an mJunction and unspecified damages from NCL. Thomson claims it has exclusive use of the mark “Freestyle” in the U.K.

Revenue Management. According to the filing, “The group intends to enhance gaming facilities onboard the NCL fleet, which is expected to increase revenue from this source.” In addition, more passenger cabin categories will be added aboard NCL ships “to provide more flexibility in pricing. NCL currently offers between 10 and 20 stateroom categories, but intends to expand this to between 22 and 26 by April 2001.”

Sales. NCL’s North American sales account for 88 percent of the total, while Orient sells 75 percent of its capacity in North America. Future plans call for increased sourcing for NCL/Orient Lines in the Asia/Pacific. “The Directors believe that the Group will be able to market NCL’s Alaskan, Australian and Asian itineraries to Star Cruises’ customer base.”

Capital Expenditures. NCL anticipates that its capital expenditures will total approximately $177 million for 2000, approximately $231 million for 2001, and approximately $19 million for 2002.

Star Plans

New Markets. Star intends to continue to open new markets using pathfinder vessels such as the Superstar Taurus and Superstar Aries. Recently added markets include Japan, South Korea, Thailand and Dubai (the latter was quickly terminated). “While the management of Star had expected that these new markets in Thailand, Japan and the Middle East would not be immediately profitable,” said the prospectus, “turnover derived from these markets during the six­ month period (ended June 30, 2000) was even less than expected.” Future plans call for Star to “continue to develop its existing markets and further develop its operations in North Asian markets.”

Newbuilding Program. The prospectus confirmed that firm orders are in place for the $393 million, 2,300-passenger Superstar Libra for delivery in late 2001, and its sister ship in late 2002 (to be transferred to NCL) – but that no orders were in place for the two proposed $469 million, 3,000-passenger Sagittarius-class ships. “Discussions are still underway as to when the vessels would be delivered and when a formal agreement will be executed,” the documents said.

Revenue Management. “Gaming revenues have constituted a smaller proportion of total revenues for the fiscal years ended Dec. 31, 1997, 1998 and 1999, and are expected to constitute even smaller proportions of total revenues for 2000.” The reasons for the decrease include: the introduction of the larger vessels which are not as geared to gaming as earlier ships; the expansion to North Asian markets, where gaming is less popular; and the inclusion of NCL’s operating results. Concession income (not including casino and bar income) accounted for 10 percent of onboard revenues in 1997, eight percent in 1998 and 10 percent in 1999.

Meanwhile, Star will seek to encourage earlier passenger bookings and better manage revenue by implementing an advanced NCL-style pricing system with a greater number of price points “varying in accordance with the size and location of the cabins as well as with a variety of distribution channels being utilized.”

Sales. In contrast to NCL, which books over 90 percent of passengers through travel agents, Star only booked 43 percent of passengers through travel agents in 1999, and the company has just launched an Internet booking facility for cruises aboard the Superstar Virgo and Superstar Gemini.

Crewing. To cut costs during the recent Asian currency crisis, Star “restructured crew payroll by paying wages in the currency of crew member’s country of origin, instead of U.S. dollars” and “restructured the mix of nationalities, introducing crew from countries with relatively lower average wages.”

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