Dick West, Cruise West's CEO and the son of its founder, Chuck West, finally broke his silence this week, just short of one month after the small-ship cruise line stopped taking bookings and less than one week after it officially closed its doors.
In a wide-ranging, candid interview with Travel Weekly Cruise Editor Johanna Jainchill, West spoke about the financial meltdown Cruise West experienced as a result of the recession, ultimately leading to the demise of a company that had operated small-ship cruises in some form since the 1970s and had been involved in tourism since the 1940s.
West talked about the end of that legacy. He addressed the concerns of the travel agents to which the now-defunct line owes tens of thousands of dollars in commissions, and the fate of passengers who paid cash for cruises they embarked in foreign countries and thus will not be protected by the Federal Maritime Commission.
Q: Why were you unable to speak about what was going on over the last few weeks?
A: We had to be silent because we still had cruises operating in Alaska, and we didn't want to announce we were shutting down. We had potential buyers for some ships but not others.
But we had cruises operating, and there was the danger that if we announced a complete shutdown, some creditors, like a food purveyor, might have arrested a ship [in mid-cruise]. So we had to keep our cards close to our chest.
Q: What happened to Cruise West that ultimately led to its downfall?
A: It all started about two years ago, in October 2008, when the market crashed. ... It was like after 9/11; the phones went dead. Not just no bookings but also a lot of cancellations. Before that, we were ahead about 25% over the previous year for our Alaska bookings.
We realized we needed to make drastic changes. We laid off a third of our office staff that November, and we laid up two of our Alaska vessels. That helped reduce some of our overhead and operating costs, and we were hopeful that after the first of the year things would get better. ... But it didn't happen. The 2009 Wave season was a bust. We made it through that winter, but in spring 2009 we realized we needed investors with deeper pockets and we started a search. But as we all know, the market was not good for investors. We did have a few people come forward and make offers and even signed letters of intent, but nothing happened.
In 2009, [Alaska] tourism was off by 40%. The big ships discounted like crazy.
Q: Why did you need deeper pockets?
A: We didn't have the money to put into the ships. Our plan was to renovate the fleet. ... We had a plan developed and one ship finished. But when the recession hit, we didn't have the money to do the other ships, so we kept putting it off. We needed funds to invest in the ships and invest in marketing. We had a great product, but we were not filling our ships.
We kept coming up empty-handed. We tried several merger-and-acquisition companies, and we kept getting close. We had a dozen [letters of intent] over the past year, and they all fell apart. We signed a stock-purchase agreement, but one piece of financing fell off and the deal collapsed. It was just a roller coaster, up and down up and down.
We finally brought on DVB, a German bank that worked with Silversea and Lindblad. They came up with many prospects, but each time it was the same story: The finance market was too tight.
Q: What led to the bridge loan you took this summer?
A: In [June 2010] DVB found a Seattle private equity group that had $700 million in state pension plan monies. They liked our products. They did due diligence for over two months. I was confident it would work out. But in July, we reached a point that we needed a bridge loan. We needed cash right away to make it through the month. ... We did everything to try and get a bridge loan and keep things going. I ended up finally working with Columbia Bank, our credit card processor.
Q: Are you personally financially ruined as a result?
A: Yes. As my wife and I said, we have each other, and we have our family... People have been so supportive: friends, people in the industry. We feel bad and responsible. We tell ourselves we did nothing wrong; it was the economy and it took us down. But we still feel so bad.
My wife and I gave up all the equity in our house in exchange for a $1.5 million loan that I invested in the company.
Q: Because you were confident that the private equity company would invest?
A: Yes, the mortgage on the house, personal guaranties, just to keep us going. I believed so much that the [private equity] would come through.
Dietmar [Wertanzl, the former president] and I would have been personally liable for unpaid wages and vacations and things like this under Washington state law. So we had to make sure we had a reserve for that if anything went bad. That got us through the Alaska season.
Everything was positive and going fine with the private equity company, and an agreement was due on Aug. 27, and that day, they said, "We can't do it." It was like saying, "You are going to the electric chair."
It meant that we were at the end of the line. We had to tell the bank. We had been telling the Federal Maritime Commission and the bond company that we had this deal coming, to stick with us, and they had given us until the 27th. We thought we'd have it, and we didn't.
Q:Is that why Dietmar left?
A: Dietmar saw he only had a downside with the potential liability exposure. I understand that.
So now we are stuck. We have the banks saying, "This is it." Columbia Bank forced the sale of the Oceanus to cover their credit card exposure ... for the people who have paid money and not traveled yet.
Q: Is that why you sold the ship mid-cruise?
A: We no longer had control... We had the World Cruise going, and DVB was able to find a buyer that could act quickly, within seven days, so we had to cancel the cruise. We sold for well below market price, at a distressed price, probably half the price. It was making my wife and me sick.
Q: Are your passengers basically protected?
A: Some aren't if they paid cash. If they paid cash and the cruise is from a U.S. port, they will be covered. If they paid by credit card they will be fully covered, so that's good. But there are a number of people who paid cash for some of the Oceanus cruises or for Galapagos, the cruises from foreign ports that the [Federal Maritime Commission] doesn't cover. Their only recourse is the [U.S. Tour Operators Association] $1 million bond. But that has to be split among a number of claimants. There won't be enough for everyone who paid in cash.
Back in June, we stopped taking cash from people unless we knew they had third-party insurance that covered insolvency. We were insisting on that.
Q: I understand some shore excursion operators were not paid as far back as 2009?
A: There were several people that did not get paid for 2009. Everyone for 2010 was prepaid, ... but in 2009, we ran out of the cash to pay people. We expected to get through this and find investors so we could pay them. ... I feel worse about the little guys, the mom-and-pop operators in Alaska and the Columbia River.
Q: How is the Danube cruise able to operate?
A: It was full and had so much [unearned passenger revenue] on it that the credit card processors agreed to pay the charter company and tour company to operate the cruise because they will get more back. The other cruises didn't have sufficient bookings to make the same arrangement.
Q:Do travel agents have any recourse on the commissions Cruise West owes?
A: No. We don't have anything. We've been depleted. That's very distressful for me, of course, being a long-time supporter of travel agents. We realize that they earned the commission, but there is nothing to pay them with. We paid travel agent commissions until August or so, but then we had to start holding back. I feel horrible. I was the past chapter president of ASTA in the Pacific Northwest. My dad was president of ASTA.
Q: This is a family business. Who is still involved?
A: I'm the only one.... In 2005, after my father passed away when he was 92, my three sisters were also minority shareholders, but I had voting control of the company and was the only one involved in the business. I had been running it since the 90s. I was the one that took it from a small company to the company it was.
My sisters wanted out soon after Dad had passed. They wanted to sell the company. And my wife and I felt, we had just acquired [more ships] and we were looking at starting to take off here and getting to the size where we [had] some economy of scale. And people loved what we were doing, and we had a great travel agent base and were a preferred vendor for many groups... We said, we don't want to sell, but we will buy you out. We paid them $2 million each, and then they still had a note for $8 million over five years.
Q: What happened to your other ships?
A: Somebody bought the note for [the Spirit of 98, the Spirit of Endeavour, and the Spirit of Discovery] at a significant discount. We didn't get anything; it went to the bank. They got them for a song. It's heartbreaking. They got such a deal. The other four ships are still owned or controlled by GE Capital. They have those ships tied up, and they are looking for a buyer.
Q: Do you think you and Dietmar tried to expand too much by adding new destinations during a down economy?
A: When Dietmar came in early '08, it was before the crash. We saw we had a great franchise in a customer base that liked what we were doing but clamoring for new destinations. Those itineraries were very successful. Galapagos sold out; Antarctica did so-so, about 80%; the European river cruise did well. They were actually some of our best performers and were profitable. The world cruise did do well early, but then the economy fizzled.
Q: Is there any message you'd send to the travel agent community?
A: That I am really sorry for everything -- to lose the legacy that was so great, the brand, it's such a shame, the Cruise West brand and the legacy we had and the product we gave. ... We went down to the Endeavour last Saturday on its last trip with Captain Mike. ... All the guests were crying, and I was crying. ... It's all so heartbreaking.