Economic void left in cruise line's demise

Advertiser photo illustration

By Michele Kayal
Advertiser Staff Writer

Kevin Murray went a bit deaf when he heard the news about the company he'd been with for 19 years.

"I can't even really tell you after the initial announcement what was said because I wasn't paying attention," the former destination services manager for American Classic Voyages said about the Friday morning he and his colleagues were told their company would be no more. "It hit everyone the same way. You go through the normal anxiety of what's going to happen. Everyone knew we had to perform, we had to provide our clients with the services. Saturday night (when the final cruise ended) was when the anger came, when you felt betrayed and upset."

American Classic Voyages declared bankruptcy on Oct. 19 and became Hawai'i's single largest corporate victim of the terrorist attacks on New York and Washington that plunged the worldwide tourism industry into a tailspin. The anger and betrayal have subsided a bit, but the devastating ripple of the company's demise is only starting to show in the economy.

When Murray lost his job, so did 1,100 other employees. But economist Lawrence Boyd estimates the trickle-down effect will actually cost the state nearly 3,000 jobs, and $12 million a year. From the subcontractors who delivered passenger luggage to the tour guides who led visitors on mountain hikes, the losses are quickly adding up.

"It's very significant. It's going to really hurt," said Boyd, an economist at the Center for Labor Education and Research at University of Hawai'i-West O'ahu. "You've got to make a distinction between lost jobs and temporarily unemployed. In terms of lost jobs, it's very significant."

By comparison, Aloha Airlines and Hawaiian Airlines together laid off 680 people after Sept. 11.

Murray and others didn't need an economist to tell them that losing American Classic was a big blow.

"They were a constant customer every week," said M.J. Harden, co-owner of Hike Maui, which saw more than 10 percent of its business evaporate overnight. "We probably have three to six fewer trips a week because of that."

Hard hit by the aftermath of Sept. 11, Harden and her co-owner husband, Ken Schmitt, had made all the layoffs they thought possible — the first in the company's 18-year history — before American Classic's bankruptcy. Their four-member office staff was down to one employee, and many of their 12 guides were already getting less work.

"I'm being really creative," Harden said. "Suddenly, every idea I had on the back burner, it's imperative that I do it."

Checks bounced

Lynn Cook, an artist and writer, had arranged classes and Hawaiian entertainment on American Classic's "Heritage" cruises. When the cruise line went belly up, she found its checks were worthless. The unexpected losses are hurting her plans for Christmas-season merchandising. Jeff Widener • The Honolulu Advertiser

"The checks were very slow to come, and when they did come I deposited them, but mine didn't clear," said Cook, adding that she had $5,300 in checks bounce and another $3,000 in unreimbursed costs. "I had earmarked a lot of that money to invest (in art supplies) and put out a lot of product (for Christmas)."

Bigger companies have been hit even harder. Roberts Hawaii had a multimillion-dollar contract with American Classic to do all baggage-handling, transportation and tendering at ports for the Patriot and the Independence on all islands, meaning the company could sometimes handle almost 4,000 people a week from just that one account. Roberts had laid off about 150 of its 2,000 employees after Sept. 11 and before American Classic went bankrupt, said vice president of sales Deems Narimatsu. Roberts hopes to avoid further layoffs, but the failure of American Classic doesn't make that any easier.

"Anytime you lose an opportunity to move 500, 600 people, to 1000, in a day, it's a major impact," Narimatsu said. "The impact it had on the community is sad because it's a domino effect from Aloha Tower to a lei vendor. ... As far as Roberts is concerned, it was a major loss. It was an opportunity lost for employment for our drivers, everywhere — accounting — everybody's affected."

Still others have seen the demise of American Classic Voyages as an opportunity. Some vendors said it freed them up to do more profitable business with more efficient operators.

Big Island tour operator Arnott's Lodge and Hiking Adventures had a contract to take passengers from the Independence and the Patriot up Mauna Kea. But they never got much business from the ships, owner Doug Arnott said, and when the company failed, he was "left holding the bag" for $15,000. Sometimes two, sometimes four, sometimes 10 people at most would show up, he said, forcing him to send his vans on the grueling drive almost empty.

"They never managed to come up with really good numbers," Arnott said, attributing the problem to "a lack of professional expertise" that he says ran through the company. "We went to Norwegian (Cruise Line) and told them we could handle 60 passengers every time they came in, and they immediately gave us 58."

Hope in the Star

Many people are putting their hopes on Norwegian Cruise Line, which will move its 2,200-passenger Star to a home port of Honolulu in December, and on other international ships.

Cruise industry executives said they expect international lines to fill in a lot of blanks left behind by American Classic. The bankrupt cruise line's American Hawaii Cruises accounted for more than half of all port calls in the state, which meant it also used more than half the available berth space. With those slots now open, some executives said, more international lines will be encouraged to call.

"A silver lining of American Hawai'i's demise is it opened a lot of pukas," said Bill Thayer, president of Waldron Steamship Co. Ltd. "This opened a lot of parking spaces."

More ships have already begun to come. Since Sept. 11, the number of port calls expected in 2002 rose 13 percent, from 478 to 538, according to Thayer. Some of the increase came from lines that redeployed some ships from places such as Europe and the Mediterranean, he said, but some also came because of the newly available berths left behind by American Classic Voyages.

In 2004, the number of calls by international lines is expected to hit 746, Thayer estimates, up more than 40 percent from the 531 anticipated before Sept. 11.

But international cruise lines cannot completely fill the void left by American Classic, veterans like Narimatsu say, because of U.S. maritime laws that require them to touch a foreign port at some point in their itinerary. That means the ships must take several days away from Hawai'i.

"American Hawaii was on an island every day," Narimatsu said. "But if the other ships were to start doing regular sailings through the islands, that would be fabulous. We would love them to all come back here."

No real effort to change the laws appears to be on the horizon, though some lawmakers have discussed the possibility.

For now, the waters left by American Classic will continue to be rough. And the holiday season is likely to show it.

Cook and others say Christmas time will be lean.

"I will not spend any money," Cook said. "I will hand-make gifts for people, which I normally do. But I will not buy any of the things I would have. About the only thing is 24 boxes of chocolate macadamia nuts for every relative."

Dennis Chung had worked as a bellman on the Patriot for only two months, he said, and was waiting to be called back on when the company declared bankruptcy. He's collecting unemployment now, and while it might not be a lavish Christmas, he said he won't disappoint his family.

"I'm planning to get some presents," he said. "I've got to save my unemployment checks."

And Murray, who says he has had tough luck finding even entry-level positions in hospitality, is scaling back as well.

"The talk is that instead of giving Christmas gifts to all our friends, we'll all go out to dinner and everyone pay for their own dinner," Murray said. "And that's Christmas."