First of two parts
Dec. 20, 2001 – Last July, when The West Indian Co. put out its routine release on cruise ship traffic scheduled for the coming season and beyond, the situation looked normal — another bumper year so far for St. Thomas, and ever more passengers and ever bigger ships on the way.
WICO had just spent $20 million widening the pier at the end of the dock to allow taxi and tour buses to pick up passengers more easily, and another $4 million on a 770-foot bulkhead encapsulation to allow the new eagle-class mega-ships to berth at the dock.
Arrivals in the first seven months of 2001 were up 14 percent over the year before, generating an increase of $85 million in economic activity for the period, and the projection for calendar year 2001 was a record 1.9 million passengers. Although St. Croix port calls would be shrinking from 154 to 103 due to the repositioning of one ship and the cutback from weekly to semiweekly visits by another, the coming year otherwise looked like smooth sailing
Since then, it's been anything but.
First was the fallout from the Sept. 11 terrorist attacks: Travel nose-dived in the first week or so, then rather quickly began climbing back — but with the cruise companies repositioning some ships away from departure points most passengers have to fly to, notably Puerto Rico, in favor of ports they can drive to, such as Galveston, Houston, New Orleans and Tampa. Ships leaving these mainland ports cruise one of several "Western Caribbean" itineraries — none of them calling at St. Thomas or St. Croix.
Then, in late November, came the announcement that Britain's P&O Princess Cruises PLC and Royal Caribbean Cruises Ltd. had agreed to a merger that would create the world's largest cruise operation, a $6 billion to $7 billion enterprise with accommodations for 75,000 passengers aboard 41 ships. The deal between Royal Caribbean, now No. 2, and P&O Princess, now No. 3, would push Carnival Corp., now No. 1, into second spot.
While Carnival has 44 ships, collectively they have accommodations for 61,000 passengers.
Roiling the waters further, Carnival Corp. on Monday launched a $4.4 billion (or $4.5 billion or $4.6 billion, depending on whose report you go by) hostile bid to buy Princess Cruises by taking its own offer — worth, in any case, about $1 billion more to Princess than the Royal Caribbean deal — directly to Princess shareholders.
Meantime, for the last two months, unrelated debate has raged on St. Thomas about the economic implications for the government and the private sector of an agreement the V.I. Port Authority entered into last summer with Royal Caribbean and Carnival. It calls for the two cruise lines to partner in investing $31 million to expand the Crown Bay dock and develop and operate a shopping complex on adjacent land. Their fleets would get preferential berthing at the dock, and the companies would get 75 percent port tax breaks for 20 years.
With acrimony escalating between the Port Authority and cruise lines on one side, and WICO and local business interests on the other, Gov. Charles W. Turnbull called representatives of the VIPA, WICO and St. Thomas-St. John Chamber of Commerce boards to Government House on St. Thomas on Monday. The governor, a career educator, gave each group the same homework: to submit a position paper to him by Friday.
Turnbull made no public comment on the matter before or after the Monday meeting.
To the victors belong the seas
A Reuters news service report out of London Monday said the battle between Royal Caribbean and Carnival for P&O Princess "comes as a sharp downturn in luxury tourism, exacerbated by September's attacks in the United States, pushed operators to cut costs by seeking alliances." The report also said the cruise industry "thrived through most of the 1990s but fell out of favor over the past two years on worries about overly ambitious fleet expansion."
A meeting of Princess shareholders is scheduled for January to approve (or not) the merger with Royal Caribbean. In order for the deal to go through, 75 percent of Princess shareholders must approve it. Assuming that approval is forthcoming, the merger is to be finalized in the second quarter of 2002.
Carnival wants the shareholder meeting postponed.
According to The Associated Press, Princess executives rejected a friendly offer from Carnival on the same terms last week because they "believe regulators would reject the bid over antitrust concerns," given that Carnival already is the world's largest cruise operator. On Monday, Princess issued a release stating that it favors going with Royal Caribbean because union with Carnival would be "subject to greater regulatory risk" in both the United States and Europe.
Carnival Corp. chair Mickey Arison, however, told analysts and press representatives that Carnival "would submit the merger proposal to regulators so both deals could be examined. If regulators decide both combinations are possible, shareholders could then select the deal they prefer."
The New York Times reported that Carnival officials had first approached P&O Princess back in September, two months before the Royal Caribbean deal was announced, about a possible merger but never received an answer.
Analysts note that while Carnival is offering Princess shareholders more in cash and stocks that the stock-only offer from Royal Caribbean, the deal with Royal Caribbean would have Princess shareholders maintaining a controlling interest of 50.7 percent in the new company. According to Morgan Stanley, Carnival now has 36 percent of the North American cruise market, Royal Caribbean has 32 percent and P&O Princess has 11 percent.
One encouraging sign Royal Caribbean received after announcing its plan to merge with P&O Princess was that Norwegian authorities ruled that the transaction would not be considered taxable, a major shareholder told The Wall Street Journal. Royal Caribbean's largest shareholder, with a 24 percent stake, is Norway's Wilhemsen family.
According to the Cruise Critic web site (www.cruisecritic.com), if either Princess or Royal Caribbean pulls out of their agreement announced last month, it will have to pay the other $62.5 million.
Carnival Corp., based in Miami, is already an umbrella operation encompassing not only Carnival Cruise Lines but also Holland America, Costa, Cunard, Seabourn and Windstar. Meanwhile, Royal Caribbean, also Miami based, owns Celebrity Cruises in addition to Royal Caribbean Cruises. P&O Princess, a British company, owns the Princess Cruises (headquartered in Southern California), British-run P&O, and several other smaller lines operating in Europe and Australia.
On the Cruise Critic web site, a P&O Princess spokeswoman called the agreed-upon union "a merger of holding companies, so none of the brands should be significantly impacted. They will continue to compete with each other." The web site also said the two companies would continue to trade separately on the stock market.
With regulatory agencies in the United States, Britain and Germany holding wild cards in this mega-stakes poker game, and the eventual outcome anyone's guess, the corporate conflict is meantime being played out on the stock markets in New York, London and Oslo. That may seem far removed from daily life in the Virgin Islands. But the drama is one that has immediate and long-term economic impact for the territory, in a number of ways.
What's changed already
Even before Sept. 11, the western Caribbean had become the area of fastest growth in the region, because "the cruise lines are now tapping into the heavy drive markets of the Southwest for their clientele," a July release from the West Indian Co. stated. St. Thomas, St. Croix and St. John are ports of call on southern Caribbean and eastern Caribbean itineraries, but are not a part of western routes.
On Oct. 20, Carnival Cruise Lines announced that it would reposition the homeporting of it
s 1,500-passenger Holiday from San Juan to New Orleans beginning in April 2002. The ship has called weekly at St. Thomas year round. "Passengers are not flying outside of the mainland," Giora Israel, Carnival's vice president for strategic planning, said at the time, five weeks after the terrorist attacks. "We're suffering drastically with ships based outside the mainland."
At the same time, Israel said Costa Cruise Lines, a Carnival subsidiary, would leave its 1,900-passenger Costa Victoria in the Mediterranean this season. The ship had been scheduled to call biweekly at St. Thomas starting in December.
Israel also is representing Royal Caribbean in its planned joint venture with Carnival Corp. and the Port Authority. The letter of intent signed by the three entities last August calls for the Crown Bay dock expansion work to begin in the second quarter of 2002.
Carnival marketing representative Barbara McCreary said in November that the Holiday was "the only Carnival ship leaving the eastern Caribbean." The Destiny, also sailing out of San Juan, is beginning a new "best of the Southern Caribbean" route next April but will continue to call at St. Thomas, she said. A new "spirit" class ship, featuring 80 percent of staterooms with outside views, most of them with private balconies, will be making its Atlantic crossing next Sept. 5, and "we don't know yet where it will be positioned," she added.
Princess Cruises, meanwhile, repositioned its Sea Princess, which was to have sailed a Southern Caribbean route weekly from January through April of 2002, to the Mexican Riviera. St. Thomas thus is losing 14 weekly calls by the 1,950-passenger ship, which would have been sailing out of San Juan.
Dean Brown, Princess executive vice president for customer service and sales, said in announcing the Sea Princess itinerary change, "Vacationers have become increasingly interested in finding unique travel experiences closer to home." He said the company was responding by adding new opportunities for passengers to enjoy "the convenience of round-trip departure from North American ports."
Meanwhile, at the start of November, Princess Cruises added the new, 2,600-passenger Golden Princess to its Caribbean fleet — sailing out of Fort Lauderdale. The vessel is calling at St. Thomas weekly through April, and then is scheduled to return next October.
Norwegian Cruise Line, newly acquired by Star Cruises, announced last spring that it was pulling the venerable S.S. Norway out of the Caribbean for repositioning in Europe (later amended to Asia) this fall. But on Sept. 24, it did an about-face, announcing that the ship, after refurbishing, would resume Caribbean cruises the last week of December.
But NCL also canceled a total of 10 visits to St. Thomas — in December, January, February and March — of the Norwegian Sky.
WICO spokesman Calvin Wheatley noted, however, that the Holiday, Sea Princess and Norwegian Sky are all older, smaller ships that are destined to be retired from the fleets to make way for new mega-ships.
An Oct. 7 article in The Washington Post also noted that Holland America would begin using Port Canaveral, Fla., as a homeport but also would increase the number of Caribbean cruises out of Fort Lauderdale.
Part 2: The state of the cruise industry in the Caribbean, and what the implications are for the territory with respect to the proposed Crown Bay development and the territory's Long-Term Operating Agreement with the Florida-Caribbean Cruise Association and its member lines.
CRUISE INDUSTRY UPHEAVAL AFFECTING V.I. – PART 1
First of two parts
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