Posted on January 2, 2002 - by Ralph Grizzle
Pacific Rim Cruising: NCL’s Star Shines Bright Over Hawaii
The presence of NCL in the Hawaiian market did not occur without extensive planning. It is considered to have lots of potentials, but there are several obstacles in putting a ship here.
A couple of years ago, Captain Gunstein Langset and a tiny crew set out from Christmas Island on a fishing boat. As Norwegian Cruise Line’s senior port captain, Langset’s mission was to visit Fanning Island to determine whether it might make a good port call for NCL’s planned Hawaiian-based ship, then the NORWEGIAN LEO. The good captain was trying to find a way to comply with a century-old U.S. law that prohibits foreign-flagged vessels from picking up and dropping off passengers at a U.S. port, without first having visited a foreign country or cruised to a “distant foreign port.”
Christmas Island was to have been that distant foreign port, but it was too distant. “The distance was a hair beyond what they needed it to be,” says Waldron Steamship Company’s Troy Brown, the Honolulu-based ship’s agent for Norwegian Cruise Line. “Plus, the port really wasn’t adequate.” Brown explains that the water was not deep enough for the ship’s tenders.
Captain Langset knew Fanning Island had sufficient deep water and was closer to Hawaii than was Christmas Island. So he chartered a fishing boat and set out with crew with all the expectations of an early explorer on the high seas.
The trip to Fanning Island was a success, but on the return the boat’s engine failed, leaving Langset and crew adrift in the South Pacific. Fortunately, Langset was able to radio a nearby navy boat for help. His good fortune on the high seas marked an auspicious beginning for what would become one of Norwegian Cruise Line’s most daring and, so far, most successful moves – to base a ship year-round in Hawaii, made possible only by using Fanning Island as distant foreign port.
In For The Long Haul
The U.S. maritime provision that had Langset and crew scouting out Fanning Island is known as the Passenger Vessel Services Act. The provision was designed to protect the U.S. shipbuilding industry by allowing U.S.-flagged vessels to embark and disembark passengers in U.S. ports without having to sail to a distant foreign port, thus giving American-built ships a theoretical advantage over foreign-flagged competitors (in practice, however, U.S. minimum-wage laws, which internationally flagged vessels need not comply to, erase any perceived advantages for American-made ships.)
While NCL was laying plans to enter the Hawaii market, two American Classic Voyages’ units, American Hawaii Cruises and United States Lines, were already operating a couple of U.S.-flagged ships there year-round. Not required to sail to distant foreign ports, American Classic Voyages’ two ships each spent more than 80 hours in Hawaiian ports during typical seven-day cruises. By contrast, the Norwegian Star spends only 24 hours in Hawaiian ports. The trip to Fanning Island, more than 800 miles distant, requires that the NORWEGIAN STAR sail a full day to and a full day from – with six hours in port at Fanning.
Some critics see the required long-haul as a detractor. Former American Classic Voyages President and CEO Rod McLeod says, “My experience was that people went to Hawaii to see Hawaii.”
Meeting the critics head on, Norwegian Cruise Line positioned Hawaii and Fanning Island as “five islands in paradise, one hidden from the world.” The company’s brochure conjures exotic images of a tropical paradise: “The islands of Hawaii are just the beginning. NCL also takes you to the undiscovered Pacific Jewel of Fanning Island. A once-in-a-lifetime experience.”
“Fanning Island is obviously a necessity for purposes of qualifying the voyage,” concedes NCL’s Chief Colin Veitch. “But we get strong positive feedback from passengers once they’ve been there. It’s an exquisite off-the-beaten-track experience.”
Veitch describes Fanning Island as a private island, like those operated by cruise lines in the Caribbean, but differing in that it is a living, working island of 1,300 residents that opens up to NCL once a week. “The passengers are actually getting inside the lifestyles of the people who live there,” Veitch says, “rather than enjoying the beach experience separately from the people who live on the island.”
More Legislative Hurdles
Having satisfied the Passenger Vessel Services Act, NCL had one other regulatory hurdle to contend with. Cruise ship gambling is not permitted in Hawaii. To comply, NCL planned to close the casino aboard the ship originally intended for the Hawaii market, the 1,960-passenger NORWEGIAN LEO, built in 1998 for NCL’s parent company, Malaysia-based Star Cruises. But in December 2000, presumably bowing to pressures from American Classic Voyages, Hawaii passed legislation prohibiting cruise ships with gambling devices aboard, even if not in use, from beginning or ending cruises in Hawaii.
Undeterred, NCL announced that it would replace the NORWEGIAN LEO with the NORWEGIAN STAR, still under construction in Germany. Plans were to alter the ship so that space allotted for a casino would be replaced with a 2,000-square-foot shopping center. After a successful implementation of revised design plans, the Norwegian Star began year-round seven-day cruises in Hawaii on December 16, 2001.
In the interim, American Classic Voyages filed for Chapter 11 bankruptcy and pulled its two Hawaii ships from service. That left the year-round market wide open for NCL alone. But even had American Classic Voyages remained intact, critics contend that the company’s aging ships would have posed scant competition for NCL’s new and shining Star. American Hawaii’s 1,066-passenger INDEPENDENCE was built in 1951; United States Lines’ 1,200-passenger PATRIOT was built in 1983. Both were in ill states of disrepair. “The Los Angeles Times ran an article about them that was just devastating,” says Don Payne of Cruise Holidays of Pasadena (California). “It was the beginning of their demise.”
In that article, which ran in February 2001, travel writer and frequent cruiser Susan Spano wrote that her stateroom on the PATRIOT had a porthole and two single beds, “but it was otherwise hideous, decorated in early ’80s oranges and paisleys. It smelled terribly musty, especially the bedclothes. The carpeting and drapes were stained, and tiles in the bath were missing.”
Readers responded by shunning American Classic Voyages’ two vessels. Prices plummeted; prospective passengers abandoned plans. Then came September 11. A little more than a month after the attacks on America, American Classic Voyages sought protection from creditors through Chapter 11 bankruptcy.
Hawaii, A Gift
While NCL did not dance of the grave of American Classic Voyages, the competitor’s exodus from the Hawaii market was fortuitous. Of equal good fortune was the destination itself. ” Hawaii is a gift,” NCL’s Veitch told travel agents at an annual cruise industry gathering in Fort Lauderdale this past December. “Many other destinations are difficult to sell sometimes, and there’s a great deal of competition when you’re fighting on price. Hawaii sells itself. It’s an easy sell. It’s the biggest resort destination in the tropical United States. We’re finding that it’s a real winner of a product.”
Indeed, when Guide 02 went to press, the NORWEGIAN STAR was sailing full. During the Christmas holidays, 2,600 passengers boarded the Star in Honolulu. “It was the largest number of passengers ever sailing on a ship here in the islands,” says Waldron Steamship Company’s Brown. “Pretty much from the upstart with the Norwegian Star, there were no concerns about keeping the ship full.”
NCL Hawaii product draws from a broad prospective passenger base in North America – appealing to passengers from the East Coast and the West Coast. This was somewhat surprising to NCL’s Veitch, because the resort business in Hawaii is a West Coast business – Californians, Nevadans and Arizonans who are going to Hawaii because it’s closer than the Caribbean. “But we are drawing more people from the East Coast than from the West [Coast] on the Star,” he says.
Lee Welling, director of group marketing for Liberty Travel Group Department in Valhalla, New York, already has several large groups, most from the East Coast, booked on the Star. Moreover, Welling was so impressed with the Star that he chose the ship as the venue for his own annual group leader’s cruise in December 2002.
Clearly, cruising Hawaii provides great appeal for both groups and individual cruisers, something that bodes well for the Star’s future performance. The new ship certainly represents a less costly way to visit Hawaii. While landside accommodations can be reasonably priced, incidentals can deflate the wallet with alarming rapidity.
Cruise Holidays’ Payne says that Hawaii is so pricey that when he visits the islands with family, they pack food in suitcases to avoid paying inflated prices. By contrast, lead-in rates on the Star, with its 10 restaurants, begin at just $999 per person (rates top out at $10,999 for the 5,500-square-foot, three-bedroom garden villas featuring private gardens and roof terraces).
That may go some way to explain why as Guide 02 went to press, the NORWEGIAN STAR was 95 percent booked well into the first quarter of the new year.
While it is folly to predict the long-term forecast for any cruise product, one might look to a similar market for indications of how the Star might perform over time. That market is Tahiti, where Radisson Seven Seas Cruises’ PAUL GAUGUIN has operated year-round cruises since 1998.
Though Radisson Seven Seas Cruises has only 320 berths to fill weekly on the five-star ship, capacity loads have been running between 85 percent and 90 percent, according to Mark Conroy, company president and CEO. Those good loads are despite published per diems of $350 to $700, including air and hotel packages.
Loads tumbled to 70 percent when Renaissance introduced two ships into the market with rates “that were less than $100 a day,” Conroy says. When Renaissance ceased operations last fall, Radisson’s numbers rebounded.
NCL’s early experience in Hawaii nearly parallels Radisson’s experience in Tahiti. In each of those markets, a new ship was faced with two competing ships that ceased operations last fall. While in those respective markets NCL has more berths that Radisson to fill on a weekly basis, the Star was doing well, with regard to advance bookings, even before American Classic Voyages collapse, so the long-term outlook, at least for now, appears rosy.
Moreover, there are few, if any, competitors on the horizon. Given the fact that most ships have gambling facilities and, therefore, could not begin or end cruises in Hawaii, there are few potential threats to NCL’s exclusivity in the marketplace. Casino-equipped cruise lines may, of course, visit Hawaii from the West Coast, but that represents a 2,000-mile haul each way.
Even if American Classic Voyages were to emerge from Chapter 11 bankruptcy or should its two Hawaii-based ships resume operations under new owners, the Bahamian-flagged Star is not faced with having to pay U.S. minimum wages or provide costly benefits for those personnel who rely largely on gratuities for their income.
Those requirements can be burdensome disadvantages for U.S.-flagged vessels. American Classic Voyages’ McLeod says his company began to see increased pricing pressure from international carriers sailing to Hawaii from the West Coast. Because of their lower operating costs, “they were able to sell 12-night cruises for close to what we needed to sell seven-night cruises for,” he says.
McLeod experience in Hawaii leads him to believe that the market is poised for growth. “There has been a tremendous spike in vessels coming from the West Coast as well as the addition of the Star, so you’re looking at more than 250,000 berths in Hawaii at the moment, or around 3 percent of the total visitor count,” McLeod says. “I could easily see the penetration rate going to 10 percent of the total visitor count, or about 700,000 cruisers, within the next several years.”
“Hawaii is destination that all cruises lines are focusing on growing further,” NCL’s Veitch says. Fortunately for cruise lines squaring their aims on Hawaii, there is a bright and shining star to guide the way.
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Sidebar: Star Cruises Committed To NCL
Before Star Cruises’ acquisition of Norwegian Cruise Line in early 2000, who would have believed that NCL would have had the capability of placing into the marketplace $900 million of stunning new hardware, the NORWEGIAN SUN and the NORWEGIAN STAR? On top of this, next December, the company will deliver the 2,200-passenger NORWEGIAN DAWN, sister ship to the NORWEGIAN STAR.
The capitalization of new ships underscores NCL’s Malaysia-based parent commitment to the North American-based cruise operator. Plans for NCL’s future expansion in the Pacific Rim, however, are on hold for the moment. SUPERSTAR ARIES, which was due to transfer in May 2002 from the Star Cruises fleet into its subsidiary Orient Lines as OCEAN VOYAGER, will remain with Star Cruises in Bangkok. Her introduction into Orient Lines will be delayed until Spring 2003. “The willingness of our North American passengers to travel overseas is something we will be watching closely over the coming months,” says NCL’s Colin Veitch.
S/S NORWAY, which was to have been swapped into Star Cruises in exchange for SuperStar Aries, will now remain in the NCL fleet for an additional year. The NORWAY was to take over either the Bangkok run of SUPERSTAR ARIES (OCEAN VOYAGER) or a slot opened by one of the Singapore ships repositioning into the Bangkok slot.
Rather than try to develop a new homeport in Asia, Star Cruises has agreed that NCL should operate the NORWAY for another year in a market where she is known and well accepted. After a drydock in Europe, NORWAY returned to Miami on December 23, 2001, to offer seven-day Eastern Caribbean cruises.
