Tuesday, March 10, 2009

Some Thoughts About Silversea Cruises

I was trying to stay away from another concerning post, but the news about Silversea Cruises needs to be discussed.

I have said for a number of months that I have concerns over Silversea's future.  In November 2008 I wrote Silversea - Lost at Sea? which was followed by a telephone call from Marilyn Conroy, resulting in my early December 2008 post Silversea- A Call From The Captain .  The news I have been hearing is not really any different from what I expected, but it is not what I would call good news.

Late yesterday it was reported on a variety of shipping sites that Silversea is effectively indefinitely postponing (canceling) its second new ship.  Now, the wording in these articles, quoting or referring to Amerigo Perasso, Silversea's CEO, is interesting.  I found the most accurate and complete quotation to be as follows, "But I don't anticipate us taking delivery of a second ship until a couple of years after the delivery of the Silver Spirit...I think we are approaching a moment when it will be very interesting to go back to the drawing board and sit down with Fincantieri...Commodity prices are going down dramatically, and not just the price of steel, and the order book of the yards is lagging. I believe it was a good idea not to confirm that option too soon."

But this information (which I will discuss below) must be coupled with two other important facts: 

     1.  Silversea is effectively mothballing the Prince Albert II for months due to slow...and I mean really slow...sales; and,

     2.  Silversea had put off indefinitely the refit of the Silver Cloud, which was scheduled to occur shortly.  According to Silversea, "The drydock is now scheduled to address the technical issues that ships need every so often as well as replacing some carpets as needed. The bathrooms, additional deck, new suites, flat panel TV's (which require a complete rebuilding of the cabinetry), etc. have all been postponed."
Clearly there are financial issues at work here, but that is not to be unexpected.  What really concerns me is that other than the Spirit (and I cannot help by believe there was an intention to confuse the market by picking the identical name of a Seabourn ship...not a class move at all!), there is a huge pull back. 
That may be fiscally responsible or fiscally necessary, but it most definitely is not a message you want to be sending out to the market.
Silversea has, in just a few months, gone from a cruise line that was consistent across the board to one that you need a flow chart to know what each ship offers. So you want to go on a cruise and you are looking for a luxury experience?  What flavor of Silversea are you looking for? 

You know I have been emphatic that, especially when talking about luxury, there has to be - what's the magic word?:  Consistency.  Silversea has now positioned itself to have four (4) distinctly different ships.  Silversea will have one ship sitting idle, one ship in need of upgrading, one ship put off entirely, one ship refurbished and one new ship.     That is not a fatal flaw, and I do not mean to infer that.  But what I see are bigger problems coming...and soon.  I may be wrong, but here is my reasoning:

The delay...really canceling...of the second ship makes sense.  In this economic climate, visions of grandeur if you do not have the financial backing, simply is not an option.  (Why do I say "cancel"?  Because comments like not having a new ship until a couple of years after December 2009, means 2012 at the earliest and "going back to the drawing board"  effectively means that.)  I did not condemn Regent for doing it and do not do so as to Silversea.  So let's take that off the table other than to say the reasoning must relate to long term cash flow and Silversea's obvious perception that there is not a potential for a real return on investment in the next few years as its cash stores are depleted by a soft market not being as profitable as prior years.

I then look at the 50% off and 25% commission offerings.  That is discounting far beyond Seabourn's 40-65% discounts and seems to be a real scream for cash.  Add to that the charging for specialty restaurants and the change to less expensive Filipino crew...who were admitted not properly trained when installed on the ships.

Then I look at passenger loads.  One ship is actually vacant; not a single passenger for months.  The other ships are running at around 50% capacity or less.  (Yes, some cruises are higher occupancy, but not consistently.) 

Then I look at the cancellation of the Cloud's refit.  This screams of there not being enough cash in the coffers.  There may be enough to pay for the work (I don't know), but more importantly it tells me that Silversea is looking at its longterm situation and is now looking to keep its cash; calculating that its net cash from sales to reduced passenger loads will not be greatly affected by the loss of luxury quality on the Cloud.  (Remember my comments about downgrading a Five Star to a Four Star?  I am not saying it necessarily applies, for it is still a nice ship...today, but keep it in mind.)

There is no question that Regent's $40,000,000 refurbishment was designed to help it compete with the new Seabourn ships.  Seabourn's service and cuisine, by anyone's standard, is as good or better than any other cruise line's; and most would consider it to be the best.  Regent's "ace in the hole" has been its suites and multiple dining venues.  With the Seabourn Odyssey and Seabourn Sojourn, that immediately disappears, so the quality of the public spaces had to be improved.  [Also, I believe Regent has changed its demographic -so while demanding "Six Star" it shoots for the premium market; there by insulting itself a bit from the Seabourn luxury pull.  (Pricing is now a huge issue, though.)  But I digress.]

Silversea also sees Seabourn as its primary competition.  It has been providing a true luxury cruise experience and its "ace in the hole" was pretty much the same as Regent's (that why I spoke of Regent above).  Silversea sought to meet Seabourn head on:  New ships to counter Seabourn's new ships and to replace its aging (though not ancient) hardware.  Significant refurbishment of its older ships to keep their competitive edge over the Seabourn triplets (which are being modernized in many ways bit by bit).  The Prince Albert II, to grab the younger wealthy adventure traveler away. 

Now where is Silversea?  Regardless of whether Silversea is making the most prudent decisions regarding cash flow, the consistent issue I see in all of them is the failure to honor its plan.  As I showed, Silversea is now a fragmented product with a little here, a little there.  I am just now sure where it winds up.  But what I do know is that a steady course is really needed at this time.

If I have one suggestion, it is one I give credit to Seabourn for:  Make sure your service and cuisine is consistent.  (This is where Silversea has drawn the most criticism of late.)  Seabourn has a very loyal following on the oldest ships in the luxury business because of it.  Silversea's situation, from an operational (not fiscal) standpoint, need not be terrible.  Focus on the maintenance of a consistent luxury product.  Is that merely what I think?  No.  Mr. Perasso was quoted in the same articles as saying he would not reduce Silversea's luxury services. 

Service issues, cuisine issues and extra charges is  what I am hearing at the prime Silversea issues, as noted above.  Maybe Mr. Perasso's words will be backed by some of those unspent construction and refit funds to address these issues. We shall see.