Chapter 11 : Could a Cruise Line do an American?

In the wake of the collapse of American Airline into Chapter 11 bankruptcy, I wondered if it was possible for a cruise line to perform a similar maneuver.

Now in the United Kingdom this came as a bit of a shock, the fact American hadn’t been into bankruptcy like Delta and United made us believe it was financially viable like our own British Airways, or Air France KLM. However we may have been distracted by the near collapse of Thomas Cook Group PLC, who needed to restructure its finances.
Well it made us wonder, could a cruise line battling with large debts, and inefficient staffing levels effectively declare bankruptcy. Well at the moment it wouldn’t appear that this is on any major cruise lines mind. In the past however numerous cruise lines have declared bankruptcy, we have covered a few of them in our Rise & Fall of: Series, Festival Cruises, Premier Cruise LineRegency Cruise Line.

The main issue that American has entered Chapter 11 bankruptcy being that it is trying to cut staff pay and restructure staffing arrangements to match those of its nearest competitors with American saying that its labour cost the company $800 million higher than rivals, however some have argued that it is twice that. (source

However off the top of my head I can only think of Norwegian who has successfully restructed from bankruptcy, in the mid 90’s the company collapsed into bankruptcy, at the time it owned Royal Cruise Line, a prominent premium cruise line, whose ships were obsorbed into the Norwegian fleet, it was painful for the company which lost market share to competitors during the period.

It was not until Norwegian was taken over by Star Cruises that a large capital expenditure on new cruise ships could be developed, these ships now being the basis of the Norwegian fleet today.

It could be argued that Oceania Cruises is in fact a reformed version of Renaissance Cruises who declared bankruptcy in 2001, with former directors forming Oceania Cruises with three of the former ships.

Cruise Line’s have already taken labour from low-cost countries, and it is only a matter of time until senior onboard personnel are sourced from these areas. So unlike American cruise lines do not have to break a particular union.

The economic climate for cruise line’s is not a competitive as that for our legacy carriers Qantas, American & British Airways/Iberia who are experiencing struggles with unions based on restructuring plans, these plans aim to make the companies more competitive with low-cost airlines.

As Cruise Lines benefit from flexible labour, it is likely only that those cruise lines which employee American labour such as those previously operated by now bankrupt American Classic Voyages Inc (AMCV), as well as former steamboat operator Majestic America. The modern-day equivalent of this company being NCL America, however NCL America has been transferring capacity back to Norwegian Cruise Line, and now only operates one cruise ship, Pride of America.

Travel companies don’t tend to survive bankruptcy, Laker Airways, Pan American, TWA, XL Holidays, Festival Cruises as the business will run out, regularly its just the brand which is of any value, and this can be tarnished through financial problems. Thomas Cook recently experienced this with sales being down 30% in the UK following the announcement it required more finance to last the winter. (source)

So I don’t believe any cruise line would consider bankruptcy to restructure its operations, as there is very little it could do to reduce costs other than shred loss making operations, kind of the way General Motors was put through the bankruptcy process, but in the current economic climate for the cruise industry I do not believe that any major operator would do this.

Thanks,
Liam
Liam@Crociere.co.uk
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3 thoughts on “Chapter 11 : Could a Cruise Line do an American?

  1. From my experience cruise lines COULD do more than shred loss making operations if they needed to cut cost. Cruise ships are very labour-intensive due to in part design choices and in part the traditional way that things are done onboard a cruise ship (this is, at least compared to cruiseferries filling a roughly similar function). If nescessary, I think by changing the labour-intensive practices of onboard work the number of crew could be cut and hence crewing expenses – which I believe are the largest single expense on a cruise ship – would also drop.

    • I agree, However I would imagine this would be a more long term approach, and no doubt as the growth of the cruise market continues that this will become the main way cruise lines cut costs. In fact I had already heard that Ocean Village moved more restuarants to the buffet format, reducing crew numbers accordingly. Just small working practices can save the cruise lines significantly.

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