NCL: Isle losses don't mean shutdown

The cruise line operator's parent had said "all options" are on the table

NCL America says it is still firmly anchored in Hawaii, despite a report from its parent company blaming its U.S.-flagged operation for a threefold widening of losses in the fourth quarter and indicating it would consider "all options" to stem the financial bleeding.

Robert Kritzman, executive vice president and managing director for NCL America, said yesterday that despite its challenges in Hawaii NCL is still committed to its Hawaii operation.

"We aren't discussing shutting it down," Kritzman said. "We've really grown the business tremendously in the course of two years. We've put in three ships and we've been committed to growing our business here. We think Hawaii has great potential for the cruise industry."

Still, the Miami-based cruise company reported yesterday that it lost $116 million on revenue of $449.5 million. For the same period the year before, NCL said it lost $32.8 million on revenue of $402.8 million. For the year, NCL said it lost $130.9 million on revenue of $2 billion. The year before, the company said it gained $16.2 million on revenue of $1.6 billion.

"The fourth quarter results continue to reflect the challenges we are experiencing from our expansion in interisland Hawaii cruises on our NCL America brand U.S.-flagged, U.S.-crewed ships," said Colin Veitch, president and chief executive officer of NCL Corporation Ltd.

NCL itself is a subsidiary of Star Cruises Ltd. of Hong Kong, which operates under its own brand as well as Norwegian Cruise Line, NCL America, Orient Lines and Cruise Ferries. Star Cruises, controlled by Malaysia's Genting Bhd., last week posted a loss of its own for the fourth quarter and for the year.

The company would not release a breakdown of NCL America's performance, but said that its growth in payroll and related expenses were primarily attributable to increased costs associated with the U.S. crew used in interisland cruises.

"The challenges in Hawaii, coupled with the default of a concessionaire in Q4, and the further weakening of the U.S. dollar, produced very disappointing results for both the quarter and the year," Veitch said.

The increase in payroll and related expenses was principally attributed to the high costs associated with U.S. crews in NCL's interisland Hawaii cruises, which represented 26.6 percent of the company's fleet capacity during the fourth quarter of 2006, compared to 19.6 percent in the fourth quarter of 2005.

Increased competition from foreign-flagged cruise ships that have chosen to add more Hawaii stops to their itineraries as well as increased cabin inventory from the addition of a third Hawaii ship in April of 2006 has softened pricing for NCL America, Kritzman said.

NCL America also continues to struggle with costs and retention of its all U.S. crew; however, turnover rates and expenses have come down, he said.

"We're still not where we want to be, but we are moving in the right direction," Kritzman said.

The company's customer-satisfaction scores have also risen, he said.

"About 95 percent of our passengers rate the cruise as good, very good or excellent," Kritzman said.

Since NCL America began operating in Hawaii in 2004, the state has become a top-10 cruising destination, said State Tourism Liaison Marsha Wienert.

"Without NCL America, Hawaii would be a port of call, not a cruise destination," Wienert said. "It's very important to our state to have a home-ported cruise line for the market mix of visitors and because it lends itself to diversification of our product."

The company's three U.S.-flagged ships in Hawaii -- the Pride of Aloha, Pride of America and Pride of Hawaii -- contributed to a 29.1 percent rise in cruise visitors in 2006, according to data from the state Department of Business, Econo- mic Development & Tourism. Last year, 408,535 cruisers visited Hawaii aboard 56 cruise ships, including NCL's three homeported vessels, DBEDT said.

While many cruise lines have offered stops in Hawaii, NCL America has been the first modern cruise line to offer passengers boarding and disem- barking in Hawaii. Under the requirements of the Passenger Services Act, foreign vessels are prohibited from moving passengers between American ports.

The state was hard hit when American Classic Voyages, an earlier Hawaii home ported cruise line, went bankrupt in 2001, she said.

"We would be concerned if NCL America was considering pulling out of Hawaii and we would work with them to see what their challenges are," Wienert said, adding that the company has not given the state any indication that it is in trouble.