Cruise Business Insight: To shine, Star must order new tonnage

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Written by Kari Reinikainen Kari Reinikainen

Category: Top Headlines Top Headlines

Published: 08 October 2013 08 October 2013

It was in 1993 that the name of Star Cruises came to public awareness after the Malaysian company had acquired two modern 40,000 gross ton cruise ferries for conversion into cruise ships for use in the Far East.

In the years that followed, the company grew rapidly, mostly through the acquisitions of second hand tonnage, but at the end of the decade, it added two 75,000 gross ton newbuildings from Meyer Werft, SuperStar Virgo and SuperStar Leo.

 For quite some time, Star Cruises dominated the Far Eastern source market: other ventures were set up in the region too, but few became a success in the end. Star opted for a strategy to become global in terms of source markets at the turn of the millennium, when it acquired Norwegian Cruise Line (NCL) group.

This, however, meant that the company paid fairly little attention to develop its home turf – in fact, SuperStar Leo became NCL’s Norwegian Spirit in the process of this shift of focus – so that foreign competition could start to establish itself in countries like China, Malaysia and Japan plus Australia, which also had been strongly under the Star Cruises’ radar in the early part of its history.

Today, Star Cruises has five ships, of which the SuperStar Virgo is the largest and newest: it was built in 1999. The company needs to raise its profile in the face of growing competition from the likes of Costa Crociere and Princess Cruises of the carnival group and Royal Caribbean International and Celebrity Cruises of Royal Caribbean Cruises Ltd (RCCL) group that all operate high quality tonnage in the region, at least seasonally.

A contract to build a 150,000 gross ton ship at Meyer Werft, which was announced on Monday,  will give Star Cruises the profile lift it needs plus a vessel designed to its needs: a second hand acquisition is always a compromise. With modern design features, it can achieve lower fuel consumption and raft of other advantages, while its huge size will offer economies of scale.

In the long run, the question will probably be how many such vessels can Star Cruises, which is part of Genting Hong Kong group, afford to build. If we look at the business model of both Carnival and RCCL groups, that is based on building large ships that offer economies of scale in the ship level and by building several of these so that economies of scale can be achieved on the brand level.

Star has made a bold move that is probably right. But if competition on the Far Eastern source markets continues to intensify, which appears to be the case, it may have to raise stakes further.

UPDATE: Star Cruises contracts newbuilding from Meyer Werft; delivery in October 2016

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Written by Kari Reinikainen Kari Reinikainen

Category: Top Headlines Top Headlines

Published: 07 October 2013 07 October 2013

UPDATE – Meyer Werft statement: Meyer Werft will deliver Flag Ship for Asia in Fall 2016

Star Cruises, the leading cruise company in Asia, has placed a contract with German shipbuilder Meyer Werft for a new cruise ship – adding to its existing fleet of six ships. The order is still conditional on financing. The 150,000 gross ton new building will have 1,680 cabins and is scheduled for delivery in fall 2016.

This order will increase the shipyard's order book from six to seven large cruise ships up to the year 2017. Meyer Werft's management and staff are very pleased that this new ship will be built in Papenburg/Germany. “We are very happy to continue our long lasting partnership with Star Cruises. It is a great challenge to create a state of the art cruise vessel specifically for the Asian market. Therefore we are very thankful that Star Cruises gave us again the confidence to create this special cruise vessel with them," says Bernard Meyer, managing partner of the shipyard.

About 3,100 direct employees of Meyer Werft as well as about 20,000 employees of supplier companies and partners in Europe participate in working on this project.

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UPDATE: Cruise Business has learned from a Star Cruises' source that the vessel in question will have a gross tonnage of approximately 150,000.

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Genting Hong Kong, parent company of the Malaysia based Star Cruises released the following stock exchange announcement on October 7:

"The Board is pleased to announce that on 7 October 2013, the Buyer (an indirect wholly-owned subsidiary of the Company) and the Company (as guarantor for the obligations of the Buyer under the Shipbuilding Contract) entered into the Shipbuilding Contract with the Builder in relation to the construction and delivery of the Vessel at a contract price of Euro 707.2 million (equivalent to approximately HK$7,465.2 million) including an allowance in the amount of Euro 57 million (equivalent to approximately HK$601.7 million) for Buyer’s Items.

As one or more of the applicable percentage ratios (as set out and calculated under Rule 14.07 of the Listing Rules) in respect of the transactions contemplated under the Shipbuilding Contract is more than 25% but less than 100%, the entering into of the Shipbuilding Contract constitutes a major transaction of the Company and is subject to the reporting, announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

A circular containing, amongst other things, further details of the Shipbuilding Contract and the transactions contemplated thereunder together with a notice of SGM to approve the Shipbuilding Contract (provided however no SGM will be convened in the event that written Shareholders’ approval in lieu of holding such SGM pursuant to Rule 14.44 of the Listing Rules is obtained by the Company, which the Company will promptly announce) is expected to be despatched to the Shareholders on or before 18 November 2013.

As the Shipbuilding Contract shall only become effective subject to satisfaction of a number of Conditions, the construction of the Vessel may or may not proceed. Shareholders and investors should exercise caution when dealing in the Shares."

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Star Cruises, the Far East focused cruise shipping company in Genting Hong Kong group, is rumored to be close to an order for a $960 million ship at Meyer Werft in Germany.

Trade Winds, the Oslo based shipping weekly, says on its website “Genting adds $960 million ship." Peter Hackmann, head of press information at Meyer Werft in Germany, told Cruise Business Review: “We never comment on orders or projects until a deal has been signed. So, let’s see what the next few hours or days may bring, but at this point, the comment is no comment.”

Meyer Werft is a leading builder of cruise ships and it built two 75,000 gross ton vessels for Star Cruises in the late 1990s. The company then embarked on a project to build a further pair of 112,000 gross ton vessels at the same yard, but the project was abandoned after Star Cruises acquired Norwegian Cruise Line group at the turn of the millennium.