Thursday, August 9, 2012

Regent Seven Seas: Ships Fuller, But Very, Very Slim Profits - Part II

Regent Seven Seas Cruises just announced their second quarter financials.  Now, I know that for many that may seem irrelevant to their cruising experience, but the fact is that the information can be used to predict the future...and a bit more accurately than tea leaves.


Back on May 15, 2012 I wrote Part I of this article.  At the time I said that the cost of "free", "free", "free" was catching up with Regent and that "From a business stand point I would consider Regent Seven Seas a "sell", but from a travel advisor's perspective I would consider it a "buy with caution".
From what I read concerning Regent's second quarter results, I would refine that a bit further to a "buy short term with caution" and "neutral to avoid long term".  Why?

I, again, must tip my hat to Regent's marketing.  It has found a way to take a premium (not luxury) product, pitch it as being the most luxurious and most inclusive, and pretty much fill its ships at the some of the highest prices in the industry.  That, to be sure, is a compliment...from the business side of things; though not the consumer side.

In these unique economic times Regent has found a way market itself such that it increased its passenger occupancy rate (not number of guests) by 8.5% over the same period last year, while having a ship in drydock for two of those weeks (lowering its available berths by 1.1%).  But it is how it found the way to do it that  I am concerned about...and my concern grows.

Regent claims its cruise expenses increased due to two major areas: hotel operations due to the 8.5% increase in occupancy rate and engine maintenance (not repairs).  Leaving what can only be concluded to be prior inferior/deferred engine maintenence aside (but noting that if you want to show profits to the public, you cut back where they can't see or understand it), what could be the increased hotel costs if there is no increase in suites, staff, etc.?  It was additional offerings to get those folks onboard:  business class air and such.

But that is not a one-way street, costs did go up because of those promotions, but Regent also has increased the number of premium tours (not "free") and has reduced the number of "free" tours while at the same time reducing their quality not only by their offerings, but by literally putting multiple busloads of guests on the same tours.  (Example:  Someone is presently on a cruise to St. Petersburg and opted to pay extra for the Hermitage tour which included the Gold Room and which had one guide per 15 people versus the "free" tour which did not include the Gold Room and had 30+ people per guide.  Her guide:  No so good, either.) 

Also, Regent has eliminated some luxury service levels to all but the upper suites.  It calls them Concierge and Butler services and they are marketed as extras for higher paying guests, but what it really means is that the majority of its guests do not receive the same service or amenity levels that are expected on a "Six Star Luxury Cruise Line".  (And I expect Concierge Service to include - Let's say it together - A Concierge.  It does not.)  It includes priority dinner and tour reservations...and discounts on wine, spirits andpremium tours (so in effect, you pay more upfront to pay less on extras while onboard.  Huh?)

Also, apparently, Regent has all but eliminated the gentleman hosts which were popular for dance lessons and after dinner dancing for quite a number of Regent guests.

While we have seen, and heard of, the cutback in service and quality, there has been an improvement:  The new Italian Sette Mare is an improvemnt over the previous much rightly maligned La Veranda alternative restaurant).

Frank Del Rio said in yesterday's press release, "We believe that our steadfast refusal to discount our luxury product has positioned the brand well for the upcoming year."  But then I recalled that just received an email from Regent offering "Special Promotion" fares on a number of cruises.  I checked one out:  Regent Navigator - November 8, 2012 (7 Days):  Stripping out the air and pre-cruise hotel the price is a very reasonable $2,399 per person.  As they say, "A Rose by any other name..."

Now, what does the future truly hold for Regent?  It - like Silversea - is focused on longer term higher pricing.  I totally agree with that because in the end the present day lower prices cannot sustain  the levels of service and quality that Regent, Silversea, Seabourn and Crystal are required to provide.

But when you drill down a bit further, Regent's "record revenues" (read "sales") resulted in a 21.1% drop in EBITDA (earnings before all the tax write-offs) and a very slim profit margin. To be sure, a profit is a profit and that is notable in these times, but...and for the consumer it is a BIG "BUT"...what is the cost and what it the long term plan.

We can see that Regent's model does not work.  Its sales are up.  Its profits are down.  Its product is slowly being diluted.  It is discounted while claiming it "steadfastly" is not.

So for me: 

  • In the short term, if you are a "I take a ship's tour in every port" type of cruiser and are willing to compromise a bit on cuisine and service quality in order to have a "walk on-walk off the ship with never reaching into my pocket" approach, Regent just may have some deals out there for you. 
  • But unless you have a real need to book your 2013 or 2014 cruise on Regent today, I would wait....because something has to change.  I just don't know what it is going to be.