More Bad News for Majestic America?

August 9, 2007
Last week, Majestic America Line announced that it would retire the historic Delta Queen because the U.S. government declined to continue its special exemption from safety requirements -- less than a month after the return of Empress of the North, which was out of service for eight weeks after running aground outside of Alaska's Icy Strait Point. Now, there's more bad news: The line's 422-passenger paddlewheeler Mississippi Queen, which has missed cruising in 2007 due to a planned major refurbishment that has not yet taken place, may not sail next year either.

As well, it's now revealed that Contessa, a 48-passenger catamaran that's been sailing upscale, small-ship Alaska itineraries to offbeat ports, will also likely stay on the sidelines next year. These latest developments were revealed yesterday during a second quarter earnings report.

Majestic America, founded in 2006, is owned by Ambassadors Cruise Group, a subsidiary of the Los Angeles-based Ambassadors International. The cruise arm was formed through the combination of American West Steamboat Company and the vessels of Delta Queen Steamboat Company, two cruise lines that specialized in small ship cruises on American Rivers. It operates seven ships, including Columbia Queen and Queen of the West, which focus on Columbia River, Mississippi River and Alaska journeys. Contessa, purchased in 2007, was the company's latest acquisition.

Ambassadors International also owns Windstar Cruises; it acquired that line from Holland America in April. It was noted in the earnings call that in its first quarter of operations under new ownership, Windstar was performing well and that the outlook for the future is bright.

But it has not been an auspicious few months for Majestic America, which suffered a major economic loss, according to Ambassadors International Chairman, President and Chief Executive Officer Joe Ueberroth. "The performance of Majestic America Line has resulted in a pre-tax loss of approximately $6.3 million for the quarter," said Ueberroth, who noted that while the results were significantly impacted by Empress of the North's incident, there were other issues, too.

"Even without the impact of the grounding," added Ambassadors Cruise Group President David Giersdorf, "we clearly made some tactical mistakes resulting in an impact on occupancy and yield in the Alaska program compared to 2006. We were very aggressive in our approach for Alaska at the outset." Empress of the North, Giersdorf noted, was a particular challenge as the company upped rates by 20 percent in response to a major refurbishment investment in the vessel, and eliminated customary perks such as free air offers and group discounts. "We did not generate sufficient demand at these initial pricing levels and we delayed too long in responding with revisions; thus we found ourselves ultimately relying on deeper discounts to generate bookings."

One of the particular challenges in 2007 for Majestic America has been the line's effort to reposition ships that had long offered moderate quality cruises at a mid-price range under management by former owners. In some cases, the ships, which sail three seasons a year, were significantly refurbished over the winter, with the introduction of upscale features and amenities. The strategy was to add more sophistication to the heartland experience.

But it appears that the traveler traditionally drawn to river cruising in the U.S. balked at the fares that resulted.

"We made some tactical mistakes," said Uebberoth, who nonetheless put a bullish shine on the news during the phone call. "We think that we'll have a very improved outlook in 2008. Vessels on the Columbia River were strong, there are two of them, in 2007, and we expect improvement in 2008. On the Mississippi River there will be two vessels operating most likely. We said we'd give some consideration to the Mississippi Queen but most likely it'll be two vessels operating: the Delta Queen and the American Queen."

Delta Queen, as we announced earlier this month, will sail its last season on the Mississippi in 2008 (it will be retired from service in November of that year). The company, which has very ambitious plans to overhaul Mississippi Queen, had planned to commission the work from a U.S. shipyard this summer/fall; though no information was forthcoming from the company's spokeswoman, it would appear that the refurbishment is on hold.

"Over the next several weeks, we will be giving careful consideration to delaying the reintroduction of the Mississippi Queen until after the retirement of the Delta Queen," said Giersdorf.

We'll keep you posted on further developments impacting Majestic America Line.

--by Melissa Baldwin, Senior Editor