American Classic Voyages cuts prices, staff
By Michele Kayal
Advertiser Staff Writer
American Classic Voyages is cutting prices and about 15 percent of its land-based staff, the company said yesterday, as pressure mounts on its bottom line.
Advertiser library photo • Sept. 1, 2000
The parent company of Hawai'i's two locally based cruise ships, the Independence and the Patriot, said yesterday that it will eliminate 70 full-time positions from its shore-based staff of 470 full-timers over the next three months as part of a comprehensive cost-reduction program.
American Classic Voyages bought the Nieuw Amsterdam from Holland America Line and renamed it the Patriot, placing it in Hawai'i service with the Independence. See story.
The Hawai'i office employs 40 full-time workers based on land, according to its human resources department. In Hawai'i, fewer than 15 percent will be affected, chief executive officer Phil Calian said, but he could not offer precise numbers.
"Our business is down in Hawai'i and on the Mainland also," Calian said. "The economy is not very strong right now, and we're taking the necessary steps to make sure we have a successful business. We're turning over lots of different rocks in terms of how we spend our money today to make sure we spend it wisely today and tomorrow."
He stressed that management is looking for efficiencies that do not affect quality of the product and the company's ability to provide "premier vacations."
The company also announced 2-for-1 deals for the rest of the year on both ships, and free airfare for cruises in the first half of 2002 designed to drive bookings.
A weak economy and excess capacity in the cruise market, including Hawai'i, have taken their toll on American Classic Voyages in recent months. The company posted first-quarter losses of $13 million, nearly double the losses of the first quarter of 2000.
And yields on its ships — which are expected to come in between $100 and $115 for full-year 2001 on the Independence and about 25 percent higher on the Patriot — have raised eyebrows among analysts.
"The discounting has been a problem for some time now," said Assia Georgieva, an analyst with Ryan Beck in Florida. "In the past, especially in January when we first saw the (fourth-quarter) results, we became very concerned that in Hawai'i discounting had been as much as 24 percent. In (the first quarter), pricing deteriorated even further."
Georgieva attributed the aggressive pricing to the tough economic environment, increased capacity, and problems when the Patriot was introduced that drew poor reviews from some passengers and publications. In addition, the interruption of one cruise required refunds and travel credits to customers.
"This is a temporary situation, but it could take a year to resolve," she said about the low prices.
American Classic's stock closed down $0.25 yesterday at $3.85, just above its 52-week low of $3.65.
The discounts announced yesterday are intended to fill berths that might otherwise sail empty in an environment that has seen a 140 percent capacity increase since American Classic introduced the Patriot last December.
"We're pleased to fill the ships," Calian said. "We obviously want to start working on the yield."
In December of this year, Norwegian Cruise Line will add its own 2,200-passenger ship to the market when the Star makes Honolulu its home port.
American Classic will add two more ships — 1,900 passenger vessels being constructed at Ingalls Shipbuilding in Mississippi — in 2003 and 2004.
Aggressive pricing drove bookings to 2,800 a week for the past eight weeks, the company said in a statement, a 70 percent increase over the 1,650 achieved from January to mid-April.
American Classic is expecting 110 percent occupancy on the Independence for June, July and August, the company said, and 96 percent on the Patriot.
Cruise ship occupancy is figured on two people per berth, so occupancy can exceed 100 percent when a third or fourth person is booked into a berth.
Analysts said they still believe the Hawai'i cruise market has great potential and more room to maneuver than the Caribbean, which is considered overcrowded. Calian said that American Classic is also confident in its Hawai'i plans, but that the market's pricing is an open question.
"What remains in question, and it's probably not fair to judge based on one year during a downturn, is the necessary price point ...," Calian said. "The price point this year is not indicative of our expectation."
