Monday, July 14, 2008

Shake Up at Silversea!!! What Does It Mean?

Silversea is, it appears, in either a crisis or a very proactive mode, based upon an article today in Lloyd's List. According to Amerigo Perasso Silversea is reacting to a number of factors including (1) soaring fuel prices; (2) weakening dollar; (3) softening US economy and (4) difficulty in retaining high quality staff. There is also a fourth: the "credit crunch"!

Briefly, Silversea has shaken up its hotel operations by firing senior vice president for fleet operations Rocco Auteri and vice-president of hotel operations Silvio Rossi and transferring operations to Ft. Lauderdale from Monaco, where Christian Sauleau will be located. It is also expanding its use of V.Ships for crew staffing and management.

Plans for a second new build are not necessarily on hold, but the option has not been exercised. While Silversea is in the beginning stages of a $500 Million dollar expansion and upgrade, Mr. Perraso made a very telling statement, "The credit crunch is also a factor. We have strong support from our lenders but in this climate there are doubts about syndication.”

And then there is the final quote from Mr. Perasso, "We have to increase customer loyalty and we will try do that through crew excellence".

What does this mean? I have previously commented that Silversea was for sale and that it was having serious problems retaining both passengers and crew. While I was slammed for saying such terrible things, it seems that now - a year plus later - it is all true.

Connecting the dots, Silversea announced its major expansion - leveraging its assets rather than paying for new assets - with the goal of attracting investors. Silversea placed such a high value on itself that the potential investors balked...and now they are simply not an option. I do not know what the means in the way of its ability to service its debt, but..........

Silversea has needed more passengers for quite a while. So about two years ago it announced it wanted at least 50% of its passengers to come from Europe; not something that encourages U.S. travel agents to push their product. Clearly that has not worked sufficiently as far as repeat passengers go as is evidenced by the comment about increasing loyalty.

While I again commented negatively on the announcement earlier this year that Silversea's passenger count was up over 30% (for how could that possibly happen if its ships were previously sailing at anything but half of capacity?), the problem with a lack of passenger loyalty is now obviously admitted. (And it costs a lot more to find new clients than to retain present ones!)

I had also previously commented that Silversea was having problems with retaining chefs and passengers not be as pleased as in the past with crew interaction providing an overall polished and positive experience. Clearly Silversea has admitted this as well.

I pause, however, and ask: Is there a reason the 800 pound elephant is not being addressed, to wit: The skyrocketing cruise fare prices? It may be that Silversea will need to adjust its pricing (possibly swallowing some pride) so as to increase its passenger loads and loyalty.

So, as I said, it may be a very positive thing that these concerns are aggressively being addressed, or it may be a signal that it is too little too late. I really don't know.

With the recent news from Regent and now this from Silversea, it does show the benefits of Seabourn being part Carnival Corp. Fuel, operations, cash flow, credit, etc. as part of a behemoth allows Seabourn to continue profitably if not only because of the quality of its product, but its ability to efficiently cope with (hopefully) short term problems in a way that not only allows its service and products to remain consistent, but to improve.

Hold on to your seats. I think it may be a bumpy ride.