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Hawaii costs drag on Norwegian
By Dave Segal
March 1, 2006

Norwegian Cruise Line's parent narrowed its fourth-quarter loss from a year ago but said operating expenses were higher due to its expansion in Hawaii.

NCL Corp. said yesterday it had a net loss of $28.8 million compared with $37.7 million a year earlier. Revenue, though, increased 22.7 percent to $398.3 million from $324.5 million.

"We continue to be pleased with the improvement in our operating income per capacity day," said Colin Veitch, president and chief executive officer of NCL. "This metric continues to show improvement despite the effect of higher fuel costs and significant startup costs associated with the expansion of our Hawaii trade."

Capacity days represent double occupancy per cabin multiplied by cruise days for the period.

NCL, based in Miami, operates two U.S.-flagged ships -- the Pride of Aloha and the Pride of America -- for interisland cruises in Hawaii. Another vessel, the Pride of Hawaii, is scheduled to be delivered in April.

The cruise line operator said its net cruise costs per capacity day during the quarter rose 6.1 percent from a year earlier, with higher payroll and related expenses primarily attributable to the U.S. crew used in the interisland cruises. The Pride of Aloha began sailing in June 2004 and the Pride of America started at the end of the second quarter of 2005.

Average fuel costs during the quarter increased 50 percent to $327 per metric ton from $218 per metric ton. NCL said it began managing its fuel costs last quarter through a fuel-swap agreement, and as of Dec. 31 had hedged 25 percent of its estimated fuel consumption for the first quarter of this year and 5 percent for the second quarter.

Operating expenses in the quarter rose 21.3 percent to $409.3 million from $337.5 million.

For the year, NCL's earnings swung to a net gain of $19.2 million from a net loss of $8.7 million in 2004. Revenue for the year increased 20.8 percent to $1.6 billion from $1.3 billion.

Honolulu Star-Bulletin

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Originally posted by Noordam:
I tried to book a cruise to hawaii this summer, and most sailings are gone... And those that aren't are extremely expensive... I think this venture will pay off handsomely for NCL!

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Originally posted by Joe1690:
[QB]Colin Veitch stated that the American Crew cost 150% of the international crew at this time...QB]

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Interesting info Joe, thanks.

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Originally posted by Joe1690:
Malcolm,

Colin Veitch stated that the American Crew cost 150% of the international crew at this time but as time goes on he hopes to lower these costs by reducing the turnover. In addition it was stated that currently NCL needs to hire 300 people a week just to crew the Pride of Hawaii as well as compensate for all of the turnover on Pride of American and Pride of Aloha. That is a heck of a lot of people and I can imagine that it must be extremely difficult to find this many people every week. Also, while the American crew is paid more than the international crew I agree with you that there pay is still not comparable to other industries in the US.

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NCL is running recruitment ads in major US newspapers all the time, mainly looking for cooks, wait staff, and cabin attendants. These are the same types of jobs that are hard to fill in the land hotel industry, yet so many Americans complain that "foreigners" are coming here and stealing their jobs! How many people will scrub someone else's toilet for minimum wage or less?

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Originally posted by Linerrich:

Americans complain that "foreigners" are coming here and stealing their jobs! How many people will scrub someone else's toilet for minimum wage or less?

Rich

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Most Americans won't even do it for $10.00-$15.00 or more per hour which is what the average (legal and illegal) housekeeper makes in L.A.. When you can make that kind of money w/out paying any taxes on it, why work on a cruise ship?

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Originally posted by mike sa:

3 ships in Hawaii will "eat" the available "audience" quite quickly given it is a lot more expensive than the Caribbean, thus it is only a matter of time before fares have to drop to sell tickets.

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It does seem like overkill to have so much tonnage and capacity in one small market. I would have thought that NCLA would take advantage of their US flag status to operate some coastal itineraries around the US--West Coast, Gulf Coast/Florida, Eastern Seaboard, New England. Perhaps there is not enough demand for these domestic itineraries to fill such large ships?

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Originally posted by Jamaica Jeff:
It does seem like overkill with three ships all doing just about the same cruise. Can NCL run a ship from L.A. to Hawaii similar to the Island Princess?

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Originally posted by mike sa:
I would bet that it is only a matter of time before NCL apply for excemption to employ international staff at lesser rates becuase of the difficulty they have recruiting and retaining US staff, give them a year or so and they will then apply for an excemption to register the ships in Panama because it costs to much !

3 ships in Hawaii will "eat" the available "audience" quite quickly given it is a lot more expensive than the Caribbean, thus it is only a matter of time before fares have to drop to sell tickets and margins get squeezed, unless they really start to give a premium experience which they seem incapable of doing 2 years down the road , chances of SSUS ever seeing the ocean again in an active way - zero.

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If they reflag the ships would they have to return to making the long cruise south to Fanning Island? Is there costs savings by not having to do this and is there more revenue possibilities being closer to the ports in Hawaii? Just curious.

[ 03-15-2006: Message edited by: jff1 ]