he luxury cruise market has so far
endured a turbulent 2001, buffeted by unprecedented capacity
growth, a wobbly economy and shifting definitions of the market's
fleet capacity and scale.
The fallout has been felt by nearly every operator in the luxury
Cruise pricing and profits are down across several categories
this year, and the luxury segment seems to have been the hardest
Because high-end cruise vacationers are discriminating and
demand a high level of service, operating a luxury cruise line is a
As one cruise line official pointed out, smaller luxury vessels,
just like larger ships, pay high operational costs, including the
salaries of top officers. But because smaller vessels can't spread
their costs over a larger passenger base, they must attract premium
rates to be profitable.
However, with cruise rates at a two-year low, some luxury lines
are downsizing or selling unprofitable ships to other operators.
Others continue to build new ships, but not before hiring new chief
The challenging pricing environment is most evident at Cunard
Line, the luxury cruise category's largest operator.
Last month, Cunard reduced its operations by dismissing 92
land-based employees. The move represents a 3% reduction in
Cunard's 3,000-member work force, 534 of whom work on shore.
Pamela Conover, Cunard's president and chief operating officer,
said the dismissals were prompted by capacity changes at Cunard's
Seabourn division, which recently sold two 116-passenger ships to
Norwegian investor Atle Brynestad.
Seabourn also shed the 740-passenger Seabourn Sun this year.
The ship is being transferred to the company's Holland America
Line brand and will sail under the name Prinsendam.
Carnival Corp., the parent company, merged Cunard and Seabourn
when it bought the former company in 1998. The merger created the
largest luxury cruise company.
But since then, Carnival Corp. has focused on new ships for its
mass-market and premium brands and hasn't built any luxury-market
The one luxury vessel Cunard has contracted for under Carnival
Corp., the Queen Mary 2, will debut in 2003 as the largest cruise
ship ever to sail.
Some of Cunard's pain has been self-inflicted. Earlier this
year, Howard Frank, Carnival Corp.'s vice chairman, admitted that
Cunard "took some missteps on pricing strategy last year," which
worsened the line's fortunes when the economy went sour.
As one cruise official pointed out recently, Carnival Corp. is
the only publicly traded company among cruising's luxury segment,
so it's the only company required by law to release detailed
For that reason, it's difficult to compare Cunard's recent
financial performance with other operators in its segment. But it
isn't hard to notice the change across cruising's luxury
Silversea Cruises has been one of the fastest-growing companies
in the segment, having added two ships, Silver Shadow and Silver
Whisper, in the last 12 months and increasing the line's capacity
Each is nearly twice the size of the line's first vessels,
Silver Cloud and Silver Wind, leaving the line with an additional
776 passengers to attract each week.
Like other luxury lines, Silversea has had to reduce rates to
fill its berths, which has been a challenge because of the line's
rapid capacity increase.
The Fort Lauderdale-based line has been among the industry's
This summer, Silversea's Italian owners, the Lefebvre family,
completed a "restructuring of the family holdings," resulting in
the appointment of Dott Manfredi Lefebvre to chairman, a post
previously held by his brother, Prof. Francesco Lefebvre.
As his first order of business, Lefebvre named Albert Peter
chief executive officer. Peter has a strong background in finance.
According to company officials, he has been the line's banker
throughout its expansion program, which began in 1998.
Prior to joining Silversea, he held senior management positions
in the international banking and venture capital industry.
Peter is now responsible for a growing fleet whose newest ships
are helping to redefine the luxury segment.
The first Silversea ship was introduced in 1994, with a
passenger capacity (296) and gross tonnage (16,800) roughly
comparable to what was then its main competition, two identical
Seabourn ships (208 passengers, 10,000 gross tons).
Since that time, however, luxury operators have followed an
industrywide trend toward larger vessels offering more passenger
capacity and the potential for more revenue.
These new-generation vessels are changing the category's scale
Previously, the largest luxury vessels were Crystal's twin
940-passenger, 50,000-ton ships and the 38,000-ton, 740-passenger
Seabourn Sun (Cunard Line's 1,500-passenger Queen Elizabeth 2 is an
anomaly because of its multiclass system).
All three were considered by cruise experts as outside
prevailing luxury parameters, which generally called for ships of
18,000 tons with 200 to 400 passenger berths.
Modern luxury ships are far more likely to carry 400 to 1,000
passengers and feature tonnages of 50,000 and up.
For example, Crystal Cruises' newest ship will be a 68,000-ton,
1,080-passenger vessel. It is being built at France's Chantiers de
l'Atlantique shipyard, and delivery is scheduled for 2003.
The unnamed vessel will feature a space ratio of 62.9 (compared
with ratios in the low- to mid-50s for the Harmony and the
Symphony), and 85% of the ship's staterooms will be equipped with
Executive changes have also been afoot at Crystal Cruises. Like
Silversea, Crystal's owners tapped an executive with a track record
In July, Gregg Michel replaced Joseph Watters as Crystal's
president. He had been Crystal's senior vice president of finance
With Crystal since its launch in 1988, Michel was a member of
the original management team that developed Crystal's onboard
One luxury-market official was blunt in describing the state of
this year's luxury cruise market. "It's not been an easy year,"
said Mark Conroy, president of Radisson Seven Seas Cruises. "It's
not a good year for anyone."
Still, Radisson is doing as well as any other line in the
segment. Radisson is now the second-largest operator in the luxury
segment, having introduced the industry's only all-suite,
all-balcony ship, the Seven Seas Mariner, earlier this year.
Another vessel, 50,000-ton, 700-passenger Seven Seas Voyager, is
under construction at Italy's T. Mariotti shipyard, with delivery
slated for 2003.
Radisson's newest vessels exemplify the upgraded amenities and
facilities found aboard contemporary luxury ships.
As recently as the mid-1990s, balcony staterooms and shipboard
Internet facilities were considered gracious luxuries. Today, they
are essential elements of any successful luxury ship.
The first passenger vessel to offer a balcony with every
stateroom, Seven Seas Mariner, represents the apex of luxury-market
"I think [Mariner] worked out better than we thought," said
Conroy. "The biggest problem is my minimum cabin is almost as good
as my best suite."
Otherwise, Mariner's superior accommodations -- (suites range
from 359 square feet to 1,204 square feet and all include king-size
beds and TVs with VCRs) -- and varied amenities (including a
12-terminal Internet center) are de riguer for discriminating,
high-end cruise vacationers.
The luxury market's struggles have not deterred some operators
from testing the waters.
Last month, Norwegian investor Atle Brynestad named former
Cunard chief Larry Pimentel co-owner, chairman and chief executive
officer of SeaDream Yacht Club, a new seagoing venture focusing on
the former Seabourn Cruise Line ships Sea Goddess I and II, which
Brynestad purchased in August.
Interestingly, Brynestad has already tried to separate his new
product from the highly competitive luxury cruise market.
"The product will be an extraordinary ultra-luxury,
mega-yachting experience not currently available," he said.
Still, most operators aren't ready to give up on the luxury
"The customers are out there," said Jim McHugh, vice president
of marketing at Silversea.
"We've seen [agents] be successful when we give them the tools.
You'd be surprised how many people there are in this group."