Bruce Nierenberg becomes President and CEO of Costa Cruise Lines, effective June 1, 1992. According to Nicola Costa, Chairman of Costa Crociere, parent company to Miami based Costa Cruise Lines, the Italian company has entered into a joint venture with Nierenberg whereby Nierenberg will operate existing Costa products in North America and explore additional opportunities for expanded product offerings in 1993 and beyond.
"For practical purposes, the 'joint venture' means we will be partners; Nierenberg said, who will have an equity interest in Costa Cruise Lines. Sources reported that Nierenberg has invested $3 million in the joint venture.
Nierenberg will be replacing Lorenzo Pellicioli who has run Costa's operations in the United States for the last two years. Pellicioli is returning to Italy to assume a senior executive position with Costa in Genoa.
Nierenberg confirmed a statement from Costa that no changes were foreseen in current itineraries for the Costa Riviera, Costa Classica and Costa Allegra through 1993. While Nierenberg did not elaborate on Costa's promise to announce plans for additional products that "will expand Costa's presence in the North American seven-day cruise market, he said that he would consider additional ships if he is convinced that there is market support to warrant it.
Nierenberg denied industry speculations that he would put at least one ship into the seven-day market out of Port Canaveral, sailing to Bermuda in the winter and to the Caribbean during the summer.
Nierenberg, a 19 year veteran in the cruise industry, has clearly been brought on board to help position the new Costa to where that company ought to be.
While Costa has embarked on an ambitious billion dollar reorganization and newbuilding program, which will give it a brand new premium level fleet in the American market, things have not gone well.
"Euro-Luxe did not have an ideal start," Nierenberg said. He explained that the new Costa suffered from an "image problem created by an event." "The hardware is excellent," he said, "but they didn't get their homework done. The service level was not there on the initial sailings with press and travel agents on board."
Nierenberg added that since the first few weeks of operations, Costa has corrected most of the problems. "I have seen the passenger comment sheets for April," Nierenberg said, "and the ratings are extremely high."
The ambitious program showed some strains last year, when Costa launched its "Euro-Class" concept intended to help position the new ships in the premium market. The term "Euro-Class" bad been used by Scandinavian Airlines on its transatlantic business class for years, however, and Costa was forced to drop the tagline. Instead, Costa returned with "Euro-Luxe" and had to rework its advertising and collateral.
While the Costa Classica should have made a major impact upon her arrival, she made a modest appearance compared to some of her competitors. In addition, the ship received initially mixed reactions from travel agents and the travel trade press. Even some of Costa's own executives expressed reservations at the time saying that the new ship was "too European" to appeal to Americans.
Costa had promised a premium product, even upscale. In presentations in New York last fall, Costa executives had presented a scale of cruise lines where they positioned the new Euro-Luxe Costa just below Crystal Cruises but above Holland America Line, Princess Cruises and Celebrity Cruises. However, the first few sailings showed that Costa still had a ways to go to achieve the promised level of service.
At the same time, Costa was committed to a high per diem, which in light of the competitive Caribbean market and the initial difficulties in delivering on its promises, was unlikely to be achieved.
Costa subsequently took the Costa Riviera out of the Caribbean market for the summer season, delploying her in Alaska, while the Costa Classica, which had originally been committed to the Caribbean on a year-round basis, will be sailing in Europe from July through October, before returning to the Caribbean for the winter season.
With two more new ships coming into service in late 1992 and 1993, Costa clearly had to take action.
Nierenberg is one of the founders and former head of Premier Cruise Lines. When Carnival Cruise Lines' bid to acquire Premier fell through last spring, Nierenberg left the company and sold his shares back to the parent company, Dial Corporation, for a reported $20 million.
While Premier Cruise Lines has enjoyed success, Nierenberg was previously President of Scandinavian World Cruises which faltered. It was supposed to benefit from the traffic between the Northeast and Florida, by transporting passengers and cars from New York to the Bahamas and back to Florida and visa versa. After reportedly suffering heavy losses, Scandinavian World Cruises' parent company, Danish DFDS, withdrew.
Nierenberg told this newsletter that initial research had showed him that the concept would not work, but that DFDS decided to go ahead anyway and persuaded him to come aboard. "But one positive thing did come out of Scandinavian World Cruises; Nierenberg said, pointing to SeaEscape, which had been set up to provide the link from the Bahamas and Miami.
Prior to Scandinavian World Cruises, Nierenberg was Executive Vice President of Norwegian Caribbean Lines and was believed to be groomed for the position of President. When that did not materialize, Nierenberg left after seven years with NCL. Nierenberg had been credited with launching the out-island experience and for starting Western Caribbean itineraries. He has also been credited with the acquisition of the transatlantic France which was rebuilt to become the Norway.
When Nierenberg takes the helm at Costa, he becomes the fourth chief executive officer in the last ten years, following Pellicioli, Bernal Quiros, and Howard Fine. The latter launched the "Cruising Italian Style" concept which Costa now has discarded.
A recent research report showed that Costa 's shares have declined some 40 percent on the Milan stock exchange since January 1991. The company made a partial public offering in 1989. The report attributed the decline to a general liquidity crisis in the Italian financial market as well as the market's lack of familiarity with the cruise industry and the complex accounting procedures used by Costa for the newbuilding grants.
According to the report, Costa recently traded for $1.80 while Carnival Cruise Lines traded for $28.00 and Vard/Kloster Cruise for $11.82. The report also pointed out that market capitalization plus net debt divided by the number of berths gave Costa a market value of $56,000 per berth compared to $96,000 for Kloster and $271,000 for Carnival.
The report sald that 1991 was a bad year for Costa with load factors declining to 90 percent from 97 percent in 1990, and per diems falling to $148 in 1991 from $176 in 1990. Earnings were additionally impacted by start-up costs for U.S. marketing.
This particular report painted a bright outlook for Costa. It stated that the progressive introduction of newbuildings peaking in 1994 will see a sharp increase in Costa cruise revenues. By benefitting from its market strength in the Mediterranean, Costa hopes to avoid the price wars in the Caribbean, and revenues are expected to double by 1996 compared to 1990. This should mean increased profitability, providing Costa can fill the new vessels with passengers, according to the report. It also stated that the upmarket move will enable Costa to increase its per diems. Operational costs should also be lowered proportionately.