GAO report cites
Norwegian’s isle
cruise ‘monopoly’But the report also says the
cruise line's federal exemption
won't allow it to capitalize unfairly
Norwegian Cruise Line has a flag up on its competition in Hawaii, but a special exemption that allows it to bypass foreign ports won't allow it to unfairly capitalize on its "monopoly," according to a study by the investigative arm of Congress.
A report by the U.S. General Accounting Office said Norwegian incurs higher capital and operating costs by being a U.S.-flagged ship, removing some of the advantages it might enjoy against competing foreign-flagged cruise vessels that have cheaper labor and must route itineraries through a foreign port.
The report found that Norwegian, which must hire an American crew and pay U.S. taxes under the exemption, will have little power to raise prices on its interisland itineraries because of competition from other vacation options.
It also said potential economic benefits from the exemption include expanded choice of cruise itineraries for consumers, enhanced long-term competition in the industry, employment growth and tax revenues.
Norwegian official Robert Kritzman said he viewed the report overall as positive because it reflected the job and economic benefits to Hawaii. He also questioned the report's use of the word "monopoly."
"If they believe we don't have any real pricing power, we feel it's contradictory to use the term monopoly," said Kritzman, executive vice president and managing director of NCL America. "The way I understand it, the way the word is used by most economists and lawyers, if you have a monopoly in a particular market, you must have some pricing power."
Regardless of the semantics, Kritzman noted that the GAO report didn't find Norwegian's exemption to be anticompetitive.
"From a broader perspective, it's pro-competitive because it helped ensure that we remain a major player in the cruise industry," Kritzman said.
Kritzman said Norwegian, as the third largest of the three major cruise lines, can offer "something unique" to travel agents by having a Hawaii presence. That helps in an industry, he said, in which the top two cruise lines, Carnival and Royal Caribbean, control 86 percent of the North American market.
In addition, Kritzman said Hawaii represents a good business opportunity.
The Pride of Aloha will be Norwegian's first new U.S.-flagged ship to arrive in Hawaii when it docks in July and begins seven-day interisland itineraries. The arrival date of the Pride of America is still uncertain after it partially sank during an ocean mishap and remains in a German shipyard for damage assessment.
The third U.S.-flagged ship is scheduled for delivery in Hawaii in 2006.
"We are absolutely committed to Hawaii," Kritzman said. The company has hired 1,000 employees and spent several million to convert the Pride of Aloha to a Hawaii-themed ship. "By the time all three U.S.-flagged ships are in service, we would have committed $1 billion in assets to the Hawaiian market, meaning the value of those ships," Kritzman said.
"In fairness to NCL, it's a big commitment to balance out the increased labor costs of hiring an American crew, and they need to shave and reshave their numbers in order to do that," said Jennifer Goto Sabas, chief of staff for U.S. Sen. Daniel Inouye. "It was important to the senator that we could get and restart a U.S.-crew cruise line in the islands that hired locally and abided by environmental and labor laws."
The ship that Norwegian currently operates in Hawaii, the Norwegian Star, is foreign-flagged and will leave in April to go to Alaska.
Another foreign-flagged vessel, the Norwegian Wind, will come to Hawaii in May to do 10- and 11-day cruises that include the former Fanning Island.
Norwegian received the exemption because of legislation pushed through by Inouye, who had been instrumental in giving the former American Classic Voyages the exclusive right to operate interisland cruises.
American Classic Voyages, as part of the Project America program, was supposed to build the first cruise ships in the United States in 40 years.
However, the company filed for Chapter 11 bankruptcy shortly after the 2001 terrorist attacks and later went out of business.
Norwegian bought the hull and assets related to those ships and, like American Classic, was able to receive a Hawaii exemption even though it completed the ships' construction in a German shipyard.