Cruise lines' merger poses new questions for Alaska

PHOTO/Ed Bennett/AJOC
Two major players in the Alaska and international cruise ship market -- P&O Princess PLC and Royal Caribbean Cruises Ltd. -- have proposed merging in a deal worth $3 billion.

The move could strengthen the companies during a downturn in the travel industry.

A combined new company would tally 41 ships and 75,000 berths in vacation markets like the Caribbean, the Mediterranean, the Baltic, the Panama Canal and Alaska.

Last year the two companies served about 3 million customers and tallied total revenue of more than $5 billion for the one-year period ending Sept. 30.

The merger, announced Nov. 20, would require regulatory and shareholder approval.

The combination of London-based Princess Cruises and Royal Caribbean of Miami would allow the companies to boost business by strategic ship redeployment, enhance product offerings in existing vacation markets and gain cost savings, according to the companies.

Company officials said savings could result from marketing efficiencies, improved purchasing, reduced information systems costs and by combining Alaska tour operations.

They expect at least $100 million in annual savings one year after the merger is complete.

Lynn Martenstein, Royal Caribbean’s vice president of corporate communications, said details of the plan regarding Alaska operations, where both companies operate, were still in the works.

"There’s no question Princess has a significant land tour package in Alaska, and I think that’s one of the areas we are looking at."

The merger agreement also called for Royal Caribbean to deliver shareholder voting agreements representing at least 44.5 percent of the voting control of the company on or before Dec. 3, she said.

In Alaska, Princess and Royal Caribbean operate separate fleets of ships, buses and railcars, while Princess operates four hotels with a fifth under construction.

So far some experts from the cruise industry don’t expect many changes in Alaska as a result of the proposed merger.

John Hansen, president of the NorthWest Cruise Ship Association, expects the brands operated by the companies -- Princess, Royal Caribbean and Celebrity Cruises, owned by Royal Caribbean -- to continue their proposed Alaska sailings at least for 2002.

"At this point, we don’t know if it will make any difference in the Alaska market," said Hansen from the organization’s Vancouver, British Columbia office.

"I haven’t heard any proposed changes in ship deployment. It’s still pretty early," he said.

Robert Simonson, an analyst from William Blair & Co. in Chicago who tracks Royal Caribbean, agrees the companies will probably not reduce 2002 Alaska sailings. The company had increased capacity to North America rather than some European destinations in response to some U.S. travelers wanting to stick closer to home in the wake of the Sept. 11 terrorist attacks.

The company repositioned a number of cruises to the Caribbean and the West Coast, Simonson said.

Although Royal Caribbean has added railcars in Alaska, Simonson expects the company would also use some Princess properties here. Sharing assets could help make the company more profitable, he said.

"I suspect that they will try to utilize the assets Princess has for Alaska since Princess’ infrastructure is much larger up there," he said.

A merged company also could book passengers on each of the three brands so travelers could secure the room they want, he said.

In Alaska, Princess has developed its network of properties, from hotels to buses and railcars. Likewise, competitor Holland America Line Westours Inc. operates 13 66-passenger railcars in Alaska, 180 buses, 17 articulated lounge buses and 14 Westmark Hotels in 11 communities.

In 1989, Holland America Line-Westours Inc. became a wholly owned subsidiary of the Carnival Corp., one of the largest cruise companies.

Officials from Holland America Line Westours did not return phone calls by press time.

Princess has 10 railcars carrying 88 passengers each, a large fleet of buses plus four hotels in Alaska with a fifth, the Copper River Princess Wilderness Lodge, set to open this summer.

Last summer Royal Caribbean kicked off its Alaska land tour company, Royal Celebrity Tours, with the arrival of two 88-passenger railcars supported by a fleet of 20 buses.

In August, Royal Caribbean President Jack Williams visited the state and in Anchorage announced plans to add two more railcars and increase the bus fleet to total 38 for 2002.

If the merger is successful, the combined company would tally 184 sailings in Alaska served by 11 ships. Holland America Westours, expected to run 115 Alaska sailings from six ships, also implemented changes to rearranged its schedules to feature more cruises around North America.

For the 2002 Alaska cruise season, Princess expects to operate six ships for a total of 104 sailings. Earlier this year the company had planned to operate five ships in the Alaska market, but in October officials altered 2002 itineraries. A sixth ship with 11 sailings was added to the Alaska market with round-trip voyages from San Francisco to the Inside Passage.

This summer Royal Caribbean plans to run three ships to Alaska with 48 sailings while its other brand, Celebrity Cruises, plans to operate two ships in the state with 32 sailings.

Upon completion of the merger, Royal Caribbean would represent 49.3 percent and Princess would represent 50.7 percent of the equity value of the new company, which would operate under a new name.

The combined company would have corporate headquarters in Miami with another corporate office in London plus other offices in Los Angeles and Seattle.

Together the companies have ordered 14 ships to be delivered in the next three years totaling another 30,000 berths.

Royal Caribbean operates 23 ships with a passenger capacity of 47,400 berths. The company has six ships on order.

Princess, which operates 18 ships with a total of 27,370 berths, has ordered eight new ships for future service.

Updated: 
12/02/2001 - 8:00pm