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Upper end of cruise market less focused on ship

The upper end of the premium market and the luxury market differ markedly from the contemporary market in terms of what is focal, said Kevin Sheehan, president and ceo of Norwegian Cruise Line Holding.

In the contemporaty market segment, in which the group's Norwegian Cruise Line brand operates, the ship itself and on board activities are focal to the guests. However, in the higher end of the market, the picture changes.

"Ship is not the focal pointof the guest experience," said Frank del Rio, chairman and ceo of Prestige Cruises. In the upper premium and luxury markets, outstanding service, fine food and calls at ports that allow passengers to truly see the world are more important, he said at a webcast conference call related to the acquisition of Prestige by Norwegian.

"These ships age like fine wine, provided that they are well maintained," Sheehan said, referring to the upper end of the market vessels. 

Prestige acquisition widens Norwegian group's market segments, geographical range and earnings base

The acquisition of Prestige Cruise Holdings will gve Norwegian Cruise Line Holdings a 46% stake in the upper end of the cruise market, said Kevin Sheehan, president and ceo of the Norwegian group.

Prestige is the parent company of Oceania Cruises that operates in the upper end of the premium market and Regent Seven Seas Cruises, which is a luxury operator.

Sheehan said that Norwegian had been transformed since 2008, when the private equity group Apollo acquired 50% stake in the company. As it now has delivered an improved EBITDA for 24 consecutive quarters, the time had come to expand it beyond the contemporary market segment of Norwegian Cruise Line.

The choice was between launching a new brand or an acquisition. To acquire Prestige was a natural choice as Apollo had acquired that company as well, so that the board and senior management of both management had close contacts.

The new three brand Norwegian group will cover the age range of passngers from families with small children to retired people and it also covers all segments of the industry. However, the passenger experience on each brand will not be affected.

The acquisition will also expand the geographical reach of Norwegian as vessels of Regent and Oceania call at ports which Norwegian does not visit at the moment. It will be financially accreditive from the start, Sheehan said.

Sheehan noted that the acquisition "married well" by bringing togetherthe best brands in their respective market segments and the best practises would be employed from each company. Norwegian Cruise Line itself would benefit as the acquisition opened the doors to agents that focus on the top end of the business, which are important for its Haven accommodation, but which it has had difficulties in reaching so far.

It's official: Norwegian Cruise Line Holdings Ltd. to acquire Prestige Cruises International, Inc. for $3.025 billion

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Frank Del Rio and Kevin Sheehan

Norwegian Cruise Line Holdings Ltd. (“Norwegian Cruise Line” or “Norwegian,” (NASDAQ: NCLH)), a leading global cruise operator, today announced it has entered into a definitive agreement to acquire Prestige Cruises International, Inc. (“Prestige”), the market leader in the upscale cruise segment and parent company of Oceania Cruises and Regent Seven Seas Cruises, in cash and stock for a total transaction consideration of $3.025 billion, including the assumption of debt.

“The acquisition of Prestige represents an extraordinary opportunity for Norwegian Cruise Line to expand our market presence by adding two established, award-winning brands in the upscale cruise segment with loyal followings,” said Kevin Sheehan, Norwegian Cruise Line’s chief executive officer. "Not only does this acquisition immediately enhance our financial performance, but it also deepens the bench of talent that we have been developing over the years.  Our complementary strengths and skillsets will pave the way for new cross-selling opportunities, cross-brand collaboration, cross-business support, as well as joint partnerships which, coupled with meaningful synergies that can be quickly implemented, will provide solid accretion to earnings per share and drive long-term shareholder value,” added Sheehan.

“We are excited to become part of the Norwegian family and start a new chapter for our company,” said Frank Del Rio, chairman and CEO of Prestige. “With Oceania and Regent, we have built iconic brands with distinctive product offerings and strong customer loyalty. The combination is very compelling and will allow us to further enhance our renowned guest experience.  We are looking forward to joining the Norwegian team and building upon the success that our three brands have already achieved.”

Prestige operates eight ships and approximately 6,500 berths under two segment-leading brands. Oceania Cruises is the market leader in the upper-premium cruise segment with five ships offering destination-oriented cruise vacations to more than 330 ports around the globe, gourmet culinary experiences, elegant accommodations and personalized service.  Regent Seven Seas Cruises is the market leader in the luxury cruise segment and operates three award-winning, all-suite ships, with an additional ship on order for delivery in summer 2016. Regent offers the industry’s most inclusive luxury vacation experience visiting over 250 destinations worldwide.  Frank Del Rio will remain chief executive officer of Prestige.

“The combination of three distinct brands, each serving a different market segment, under one umbrella immediately creates an industry-leading cruise operator with an unmatched growth trajectory and a portfolio of products that allows us to appeal to guests at every stage of their life cycle,” added Sheehan.  “We are fully committed to retaining the brand propositions, guest experiences and cultures of the Norwegian, Oceania and Regent brands that have allowed each to realize such success.”

Transaction Details

The total transaction consideration of $3.025 billion includes the assumption of debt.  Additionally, a contingent cash consideration of up to $50 million to Prestige shareholders would be payable upon achievement of certain 2015 performance metrics.

In early July, Norwegian's Board of Directors formed a Transaction Committee and delegated it full authority to negotiate and approve a transaction.  The Committee consisted entirely of disinterested directors.  Genting Hong Kong Limited and certain funds affiliated with TPG Capital, each of whose consent was required pursuant to Norwegian's existing shareholders’ agreement have consented to the transaction.  The Transaction Committee, who retained its own financial and legal advisors, has unanimously approved the transaction.  The transaction is subject to regulatory approvals and other customary closing conditions and is expected to close in the fourth quarter of 2014.

Norwegian will finance the acquisition with existing cash, new and existing debt facilities and the issuance of approximately 20.3 million shares of its common stock.  Pursuant to the requirements of NASDAQ Rule 5635, holders of a majority of Norwegian's common stock have consented to the issuance of such shares.

Barclays is acting as lead financial advisor to Norwegian, Deloitte Consulting, LLP is acting as diligence advisor and Weil, Gotshal & Manges LLP is providing legal counsel.  UBS Investment Bank is acting as financial advisor to Prestige and Paul, Weiss, Rifkind, Wharton & Garrison LLP is providing legal counsel.  Perella Weinberg Partners is acting as financial advisor to the Transaction Committee of the Norwegian Board of Directors and Cravath, Swaine & Moore LLP is providing legal counsel.  J.P. Morgan Securities LLC and Deutsche Bank are also serving as financial advisors to Norwegian.  Barclays, J.P. Morgan Securities LLC and Deutsche Bank have provided committed financing to Norwegian to support the acquisition.

Star Cruises’ losses mount in April-June period to $21.7 million

Star Cruises, the Asia-Pacific focused cruise shipping unit of Genting Hong Kong group, has reported a significant widening of loss year on for the April-June period.

Revenues totaled at $274.9 million compared to $252.9 million a year earlier, but loss deepened to $21.7 million from $14.3 million.  “Onboard and other revenues grew 5.7% to $32.7 million primarily driven by higher onboard retail sales. Passenger ticket revenue decreased 6.5% to $68.3 million mainly due to m.v. SuperStar Virgo’s drydock and its relocation to Hong Kong,” Genting Hong Kong said in a statement.

Star Cruises receives most of its income from gaming on board its ships and revenues from this activity increased to $167.0 million from $146.8 million.

Total cost and expenses, excluding depreciation and amortisation, increased to $261.4 million in 1H2014 compared with $232.8 million in 1H2013, mainly attributable to higher salaries and marketing and promotion expenses. Total costs and expenses, excluding fuel expenses and depreciation and amortisation, increased 15.3% to $229.7 million but increased only 10.7% on a per-capacity-day basis compared with that of 1H2013.

Fuel expenses, included in total costs and expenses, declined 5.4% to $31.6 million due to lower overall fuel consumption mainly as a result of the drydock of m.v. Superstar Virgo in January 2014 coupled with a 2.8% decrease in average fuel price. Star Cruises’ average fuel price per metric ton, net of hedges, was $636 in 1H2014 compared with $654 in 1H2013.

Total depreciation and amortisation expenses increased 7.0% to $41.5 million in 1H2014, primarily due to the additional capitalised drydock expenses of m.v. Superstar Virgo in 1H2014.

From November 2014, m.v. SuperStar Virgo and m.v. SuperStar Gemini will continue their homeport deployment in Hong Kong and Singapore, respectively. M.v. SuperStar Gemini will be offering various itineraries cruising to destinations including Penang, Langkawi, Port Klang and Malacca while m.v. SuperStar Virgo will focus on offering over-night cruises to the high seas from its homeport.

To enhance customer experience, m.v. SuperStar Virgo is scheduled to undergo minor facility enhancement projects in the third quarter of 2014 for its Hong Kong deployment. M.v. SuperStar Aquarius will commence its seasonal homeport deployment for the 2014/15 winter season, returning to Kota Kinabalu, the capital of Sabah, Malaysia.

Star Cruises’ announced newbuild programme has made good progress. Two new ships are on order with Meyer Werft GmbH at Papenburg, Germany for delivery scheduled in the fourth quarter of 2016 and 2017, respectively.

Each of these sister ships is approximately 150,000 gross tons and will be designed to offer a wide variety of Asian and international food & beverage outlets as well as world-class recreation, health & fitness and conference facilities catering to the unique demand of the Asian clientele. The two new ships are expected to reinforce Star Cruises’ leading position in Asia-Pacific and our commitment to develop the region as an international cruise destination.

Quantum class ships to float on bed of air bubbles, waste glass etc. frozen to prevent bacteria growth

Microscopic bubbles of air will be injected under the hull of the Quantum class ships as a way to reduce friction and fuel consumption, said Richard Fain, Chairman and CEO of Royal Caribbean Cruises Ltd (RCCL).

The feature will save about 4% of the fuel bill of the ship. Through a host of energy saving measures, the ships of the Quantum class will be 20% more fuel efficient than the Oasis class vessels.

Hull design, lighting, air conditioning etc. have all been looked at to reduce fuel consumption and environmental footprint.

Everything used on board will be either reused or incinerated on board or recycled. Glass and other similar waste will be frozen on board in order to prevent the growth of bacteria.

Viking Star