A cruise line's sail into bankruptcy
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Advertiser Staff
American Classic Voyages' road to bankruptcy was swift, especially given that the company can trace its origin back more that 100 years.
The cruise line began when steamboat captain Gordon Greene acquired the H.K. Bedford in 1890 and started The Greene Line. The company mostly operated steamboats on the Mississippi River until 1993 when it bought American Hawaii Cruises, the operator of the SS Independence.
In 1992 the company went public and in 1994 changed its name to American Classic Voyages from The Delta Queen Steamboat Co.
In 1997 it won 30-year exclusive rights to operate cruise ships in the Hawaiian Islands, provided the company helped restart the U.S. shipbuilding industry. The following is a look at what went wrong after that decision.
March 1999
American Classic Voyages agrees to buy two, 1,900-passenger vessels from Mississippi's Ingalls Shipbuilding for $440 million apiece. They will be the largest U.S. cruise ships ever built, and the first ones constructed in this country in more than 40 years. Ingalls, in fact, built those final American cruise ships and had since become a military contractor.
December 2000
The 1,212-passenger Patriot, which will cruise Hawai'i along with the Independence while the new ships are being built, enters into Hawaiian service. But first, a gala launch party for politicians and influential West Coast travel agents is canceled when the ship fails its initial Coast Guard inspections. Eight weeks later, the Los Angeles Times brands the ship a loser, with "undistinguished cuisine," "hideous" decor and lousy service. In the same month, American Classic Voyages announces it will take advantage of $2.2 million in economic incentives to move its Mainland corporate offices and 725 jobs from Chicago and New Orleans to Sunrise, Fla.
February 2001
The Patriot interrupts a seven-day cruise for unscheduled repairs, resulting in customer refunds of approximately $1.6 million, and travel credits for future cruises expected to cost $500,000.
March 2001
The Independence goes into the shop for a week of repairs that cost $500,000. Fourth-quarter results are announced, showing losses that widened to nearly $6 million, driven by expenses related to the refitting of the Patriot and increased marketing costs. "That's when we started to get the sense that things weren't going right," said Joe Hovorka, financial analyst with Raymond James & Associates. "It became apparent to us in about spring of this year that if things did not turn around quite significantly that they would have severe financial difficulties. ...That was our first red flag."
April 2001
American Classic launches a new Mainland business, the Delta Queen Coastal Voyages line, with the 226-passenger Cape May Light sailing the eastern seaboard.
May 2001
First-quarter financial results are reported. Losses again widened, this time to nearly $13 million, driven by a slowing economy and increasingly competitive pricing. Yields on the Independence are reported at $130 per passenger per night, 39 percent lower than in the first quarter of 2000. The company says it had to price Hawai'i aggressively to absorb a 140 percent increase in capacity caused by introduction of the Patriot. "They underestimated the amount of cannibalization that would occur when you introduced the Patriot to the Independence," said Ian Calame, analyst with A.G. Edwards in St. Louis. "Then your cash flow situation out there starts going pretty quick."
June 2001
American Classic Voyages offers two-for-one fares, including free airfare. On the same day, the company announces a "comprehensive cost control program" that includes 70 layoffs, or about 15 percent of its land-based staff. Together, the two developments suggest the company is spending too much money, and not bringing in enough passengers to generate cash.
July 2001
Financial analysts are speaking publicly about trouble at American Classic. A.G. Edwards analyst Tim Conder in St. Louis tells Crain's Chicago Business that the company is facing a severe cash shortage. American Classic CEO Phil Calian curtly rejects the assessment, and says the company has no plans to seek any cash. Meanwhile, news unfolds that the new ships will be late — very late. Sen. John McCain, R-Ariz., an opponent of the federal maritime loan program guaranteeing the new-builds, charges that Ingalls is 18 months behind schedule.
August 2001
The company postpones announcement of its second-quarter earnings because of a dispute with Ingalls Shipbuilding over delays and cost overruns on the new ships. When the results are finally released almost a week later, they again show a loss, this time of $7.7 million for the quarter. "A lot of management time got diverted to the new builds," said analyst Peter McMullin with Ryan Beck. "There were a lot of moving parts there and the final straw was Sept. 11."
Sept. 11, 2001
Two hijacked aircraft fly into the World Trade Center, destroying the twin towers and killing thousands of people. A third plane flies into the Pentagon, and a fourth, possibly headed for the White House, crashes in a Pennsylvania field. When planes are allowed back in the air days later, tourism worldwide is in a tail spin, and layoffs begin throughout the country. Cruise lines are not exempt from feeling the devastating effects.
Sept. 21, 2001
American Classic announces an agreement with Ingalls Shipbuilding to continue construction of the new ships. But they will now cost $19 million more apiece than originally expected, and will be delivered a year late.
Oct. 10, 2001
American Classic Voyages announces it will trim 27 cruises from the schedules of Mainland subsidiaries Delta Queen Steamboat Co. and Delta Queen Coastal Voyages in 2001-02 to "better align capacity with expected demand during a challenging environment."
Oct. 13, 2001
Insurance companies stop offering travel insurance to passengers on American Classic Voyages cruise ships because it is considered a risky company in the new financially volatile atmosphere of the post-Sept. 11 cruise industry.
Oct. 18, 2001
Trading in shares of American Classic Voyages is halted in advance of news that could materially affect the company's stock price.
Oct. 19, 2001
American Classic Voyages files for Chapter 11 bankruptcy, basically saying it is out of money. The company cites a 50 percent decline in bookings, a 30 percent increase in cancellation rates, and no prospects of any additional cash. Its assets are listed as $37.4 million; its liabilities at $452.8 million. Analysts say the filing is the culmination of the company trying to grow too fast, on too many different fronts, without enough cash to support it. With those elements working in the background, the blow to tourism from the Sept. 11 terrorist attacks pushed the company over the edge.
