Posted on: Sunday, September 8, 2002

ONE YEAR, ONE NATION
Cruise industry is keeping sagging tour industry afloat

By John Duchemin
Advertiser Staff Writer

Travelers aboard a Norwegian Cruise Line ship relish the beauty of the tropical environment through which they are sailing and the comfort of luxury travel. While much of Hawai'i's tourism industry has suffered since the Sept. 11 attacks, the cruise industry is strong. . . . Hawai'i cruise facts • Cruise passengers, Jan.-June 2001: 77,385 • Cruise passengers, Jan.-June 2002: 118,515 • Trips, Jan.-June 2001: 75 • Trips, Jan.-June 2002: 67 Advertiser library photo • January 2002

A year ago, Hawai'i's cruise industry seemed a likely casualty of the Sept. 11 attacks. By the end of September 2001, cruise line American Classic Voyages, then the only major cruise line in the local market, had collapsed under a burden of debt, mothballing its two-ship Hawai'i fleet and sending thousands of workers to the unemployment lines.

But since then, the industry has only grown in Hawai'i, making it one of the few bright spots for tourism in the past year.

In the first six months of 2002, cruise passenger counts were up 53 percent from last year's levels, according to the state Department of Business, Economic Development and Tourism.

Norwegian Cruise Line has replaced American Classic as the dominant player in the market, bringing bigger ships and weekly trips in Hawai'i. With its 2,200-passenger Norwegian Star now having its home port in Honolulu, the cruise line is making regular Neighbor Island trips by way of Fanning Island.

Thanks to Norwegian's increased capacity — the Star has more berths than did American Classic's two ships combined — business is up on a per-trip basis, and other lines have started bringing more boats to Hawai'i, usually en route from the Mainland to Asian or Pacific Island destinations.

More importantly, Hawai'i has become one of the more profitable routes for cruise ships. Norwegian and other lines have been able to offer cruises at a per-day rate more than triple what they charge passengers on some routes in fiercely competitive markets like the Caribbean.

As a result, per-ship yields have so far been higher here than elsewhere — meaning other big lines, such as Carnival or Royal Caribbean, are likely to expand their offerings in Hawai'i, if Norwegian can keep its yields up, industry experts said.

"The full boats in Hawai'i pretty much match with national trends, but most everywhere else, prices have gone way down for cruises," said Mike Driscoll, editor of trade newsletter Cruise Week. "Hawai'i's an exception — Norwegian's been able to keep prices steady there."

Hawai'i's cruise renaissance is well-timed, helping shore up retail spending and hotel occupancies that have sagged this year. Most cruise visitors spend a night or two in Honolulu hotels at either end of their trip. Increased cruise travel also complements the increasing trend in Hawai'i toward the Mainland visitor market — many passengers are seasoned American cruise travelers seeking a new shipboard experience, industry observers said.

"The real draw in Hawai'i is that it's a destination not seen by many of our passengers," Colin Veitch, president and chief executive of Norwegian, said in a recent interview from the company's Miami headquarters.

Hawai'i can pin its newfound desirability as a cruise destination on several other factors. The cruise industry is in the midst of a long-term growth cycle, and the major lines are turning to new routes, expanding away from traditional voyages like the Caribbean and Mediterranean routes.

Cruise lines also are capitalizing on many tourists' post-Sept. 11 desires to stay off planes and close to home, bringing new boats to domestic locales like Hawai'i, Seattle, and the U.S. shores of the Gulf of Mexico and the Atlantic coast, Driscoll said.

Hawai'i also is benefiting because cruise lines are finding ways around restrictive maritime laws that have hampered cruise travel between domestic ports and impeded trips from Honolulu to the Neighbor Islands.

Foreign-flagged cruise ships, which dominate the industry, are barred from traveling between U.S. ports without first traveling to a foreign destination. American Classic's answer was to construct a fleet of U.S.-flagged vessels — practically unique in the industry — while the Norwegian Star's speed allows it to quickly take passengers on a side leg to remote Fanning Island, which lets the boat maintain its foreign flagging.

While Norwegian's experiment has so far succeeded, observers said uncertainties remain.

The Hawai'i cruise market is still new and untested by industry standards, and it's yet to be seen if two lines can profitably compete head-to-head here.

If Norwegian, the world's fourth-largest line, can be profitable for several years, it will likely attract a large-scale competitor, like the world's No.1 cruise line, Carnival, leading to further industry expansion in Hawai'i, Driscoll said.

"Typically, NCL is in a market for a few years; then, if it's working very well, the bigger players will come in," he said. "But it hasn't been that long, so there's still question marks about Hawai'i."

Norwegian reportedly is already hedging its bets. Officials in Hawai'i Sen. Dan Inouye's office said last month that they have talked with Norwegian about getting some sort of exemption from maritime laws that could let the Norwegian Star take passengers directly to the Neighbor Islands, a move that would give it at least a temporary monopoly in the inter island cruise market.

Norwegian officials have confirmed they have talked with Inouye's office about possibilities in the Hawai'i market and say they are interested in possible expansion of service in the Islands.

Reach John Duchemin atjduchemin@honoluluadvertiser.com or 525-8062.