Viking looks to ocean vessels for new growth opportunities

AMSTERDAM — As it prepares to launch its first ocean vessel, the 930-passenger Viking Star, in April, Viking Cruises has embraced a new strategy intended to split its growth more evenly between river and ocean cruising.

At a news conference aboard the Viking Skirnir, one of 12 new river vessels that Viking dedicated here and in Rostock, Germany, on March 24, the company’s chairman, Torstein Hagen, said Viking planned to build six new river cruise ships for 2016.

That’s half the total delivered this year and a third of the record 18 ships dedicated en masse in 2013.

Hagen acknowledged that growth in the river cruise business has been slowing slightly, but he said the company’s total growth would not slow, because the new ocean cruise ships will be coming on line.

“We’re making space for some of our ocean cruisers,” Hagen said. “We want to make sure that’s at least as great a success as the rivers.”

The shift comes against a backdrop of weaker-than-expected sales of European river cruises in 2015. Hagen said river cruise bookings to date this year have been running about 10% ahead of last year, which he termed “a little bit slower than we had expected.”

Alluding to the impact on U.S. vacationers of the viral outbreak in West Africa and a terrorist incident in the French capital, Hagen said, “I think [slower growth] relates to Ebola, Paris, stuff like that.”

Another factor more specific to Viking is reduced demand for its cruises in Russia. Tony Hofmann, Viking’s senior vice president of operations, said that bookings were off about 50% for the line’s five Russian ships and one Ukrainian vessel.

“We’re now in an extremely solid financial position. We have money coming out of our ears.” — Viking CEO Tor Hagen

As a result, two Russian ships and the Ukrainian ship have been laid up, although Hagen said the staff remains on payroll.

“It will come back, I’m sure,” he said of Russian river cruising.

Until the slowdown began, Hagen said, Viking had posted overall growth of more than 30% a year for the past five years. Turnover, a European term for gross revenue, will be about $2 billion this year, he said.

Part of that will be derived from the new ocean cruise side of the business. Hagen said Viking planned to take delivery of Viking Star by March 29 and run a 10-day shakedown cruise in early April.

Hagen said that within three months of its 2013 announcement, the ship was 80% booked for the inventory that was put on sale, and it is now 85% booked for 2015. He said that in 2016, when at least one and possibly two more ocean ships will be delivered, the Viking Ocean is 49% booked.

The river cruise expansion, Hagen said, has left Viking in a good position to finance its entry into the ocean segment, which is considered to have high barriers to entry by many analysts.

“We’ve been very fortunate,” Hagen said. “We’ve had tough times along the way. We’re now in an extremely solid financial position. We have money coming out of our ears.”

The 47,000-gross-ton Viking Star, being built by Italy’s Fincantieri, has been estimated to cost about $300 million, although Viking hasn’t publicized the price. Hagen said other aspects of getting into the ocean side of the business have been easier for Viking because it already has a purchasing department, a sales operation, food and beverage and other functions.

“It’s a piece of cake,” Hagen said.

So far this year, Viking has hired about 1,200 ship employees, including 650 for the 12 new river ships and 550 for the Viking Star. They all go through a three-week training program before starting work on the ships.

At a celebration banquet after dedicating the newest river vessels in Amsterdam, Hagen suggested that his dream for the ocean cruise side of the business included at least 10 ships.

He was given a commemorative game board by Bernard Meyer, managing partner of Germany’s Meyer Werft shipyards, where Viking builds its river cruise vessels, that included slots for 100 ships, a number Hagen had laid out several years ago as a “nice” goal for his river fleet.

In accepting the board, Hagen said he had a vision for the ocean cruise business with a number that “ends with a zero, but not two zeros. It wouldn’t be surprising if we see 10 of these someday,” he said.

As Viking eases into the ocean business, its strategy calls for continued rapid growth but spread over a larger base than its river cruise business, which is largely concentrated in Europe.

“Our rate of growth is running at 35% per year, and you don’t have very many companies that accomplish that,” Hagen said at the banquet.

Viking recently announced it plans to enter the river cruise market in the U.S. with six ships built for the Mississippi River. He said he did not yet have a contract for the construction of the ships, which will be built in a yard in the U.S., but hoped to start operations toward the end of 2017.

Viking has already started running ads on TV and elsewhere promoting its ocean cruise business, and one question is how much the river cruise market will feel the effects of Viking’s switch in emphasis.

Hagen said the company has spent upwards of $600 million since 2001, when it began marketing in the U.S., all of it on river cruise promotion.

“We are not surprised river cruising is growing so fast,” Hagen said at the Viking Skirnir press conference. “With normal modesty, we are causing it to grow.”

Viking’s brand awareness is high, he said, fed by a successful sponsorship of the PBS hit series “Downton Abbey.”

Now it may be ocean cruising’s turn in the spotlight. Hagen said the mayor of Bergen, Norway, has invited 20,000 people to the Viking Star naming ceremony in May.

The decision to build only six river ships next year, he said, “is a little bit related to our entry into ocean ships. We’re now giving people a choice. And we want to make sure we have excess demand.”

But Hagen also noted that Viking retains options with Meyer’s shipyard to build an additional 18 European river ships.

“There comes a time when it will ease off. No doubt about it,” Hagen said. “But we won’t lead the ease-off, I can assure you.”

Opportunity along America’s riverbanks

Last week’s announcement that Viking River Cruises is planning to build six new vessels for the Mississippi River signaled more than just continued growth of the river cruise industry: The move opens up additional economic opportunities for the communities along America’s most fabled inland waterways.

In Europe, the booming river cruise industry contributes about $1.1 billion in passenger revenue to Western European economies annually, according IG River Cruise, an association of river cruise lines based in Basel, Switzerland.

Imagine if the small and large towns along the Mississippi River began to see even a fraction of that contribution?

Michelle Baran
Michelle Baran

In fact, they have already been experiencing a boost. The cities on the banks of the Mississippi River System have been witnessing something of a tourism economy revival since Mississippi River cruising was resurrected in 2012 with the relaunch of the 436-passenger American Queen and the christening of American Cruise Lines’ 150-passenger Queen of the Mississippi.

For instance, when the Great American Steamboat Co. decided to make Memphis the homeport of the American Queen in 2012, the deal created 250 new jobs as well as the promise of $1.5 million in annual taxes and fees to Memphis, 10,000 filled hotel rooms each year and $90 million in annual economic impact for the city, the Memphis-based Riverfront Development Corp., which was overseeing the revival of the city’s waterfront, projected during the relaunch of the American Queen.

And Louisiana is hoping that the addition of not just one, but six new Viking vessels that will call New Orleans home will indeed give its tourism economy — which has been making significant recovery strides since Hurricane Katrina — yet another bump. Viking’s new venture is expected to result in the creation of 416 new jobs for Louisiana-based operations and crews, and an additional 368 new indirect jobs, for a total of more than 780 new jobs in southeast Louisiana, according to the Louisiana Economic Development (LED).

“Viking’s project will generate major opportunities for our citizens, boost our tourism industry, and continue to turbocharge the Port of New Orleans,” New Orleans Mayor Mitch Landrieu said in a statement.

With Viking’s plans to build six vessels on the Mississippi, starting with two in 2017, and American Cruise Lines having unveiled its own ambitious strategy to begin building a fleet of modern river cruise vessels alongside its existing and forthcoming paddlewheelers, the Mississippi is about to see a significant increase in capacity.

And according to Bruce Nierenberg, CEO of United Caribbean Lines, who served as president of former Mississippi River heavyweight the Delta Queen Steamboat Co., that could mean awesome opportunities for the smaller towns along the rivers if they work together with the river cruise lines to really develop interesting and innovating on-shore experiences and programs and highlight this country’s culture and heritage.

“I hope that Viking and the others really start to spend a lot of time developing the stories in the cities and the towns [along the Mississippi],” said Nierenberg. “There’s a tremendous amount of relationship between the birth of this country and the river. If you can really tap into that … there’s an opportunity there.”

As to whether U.S. river cruising can ultimately be as successful as European river cruising, Nierenberg said, why not?

“There are no Vienna opera houses on the Mississippi,” said Nierenberg, “but there are a lot of things that you wouldn’t find anywhere else in the world.”

Viking to Launch American River Cruises from New Orleans

ON 24 FEBRUARY 2015.

Today, Governor Bobby Jindal of Louisana and Viking Cruises Chairman Torstein Hagen announced the selection of New Orleans as the homeport for Viking River Cruises’ first North American river cruise itineraries, starting in late 2017.

The Mississippi River cruises will operate from docking facilities near the French Quarter in New Orleans. According to the Governor, Viking’s new service will result in the creation of 416 new direct jobs for Louisiana-based operations and vessel crews, with an average salary of $40,000, plus benefits; and the Louisiana Economic Development (LED) estimates the project will result in an additional 368 new indirect jobs, for a total of more than 780 new jobs in the Southeast Region of the state.

Plans call for the construction of six new vessels over the next three years at an estimated cost of $90 million to $100 million per vessel, all of which will be built in U.S. shipyards and crewed by U.S. citizens. The vessels will be owned by Tennenbaum Capital Partners, a Los Angeles-based alternative investment management firm, and time-chartered to Viking.

Viking River customers are expected to travel to New Orleans from across the U.S., Europe and beyond, and bring new business to hotels, restaurants, museums and other attractions in the city, expanding sales for local merchants. More than 90 percent of sales created by the project are expected to come from out-of-state customers.

With the launch of cruise operations on the Mississippi River in late 2017, two boats will be deployed per year, for a total of six new boats in the first three years. Cruises will take passengers on a journey along the Mississippi River from New Orleans to itinerary stops in St. James, East Baton Rouge and West Feliciana parishes; continuing upriver to Memphis, Tennessee; St. Louis; or St. Paul, Minnesota, depending on the season.

The specialty-built riverboats will have a full complement of luxury amenities and host up to 300 passengers.

Viking to Launch American River Cruises from New OrelansLED began discussing expansion possibilities with Viking in November 2013. To secure the project, the State of Louisiana offered the company a competitive incentive package that includes a $4.5 million performance-based grant for site preparation at the company’s docking locations in Louisiana. The company also will receive the customized solutions of the nation’s No. 1 state workforce development program, LED FastStart®, which will include partnerships with the Louisiana Workforce Commission and local educational institutions.

“Having the top river cruise company homeport in New Orleans will be an outstanding chance to tell the story of the Louisiana renaissance to the world,” said President and CEO Michael Hecht of Greater New Orleans Inc. “Viking River Cruises choosing greater New Orleans is a testament not only to our culture and river, but also to our outstanding teamwork at the state, regional and local level. GNO Inc. is proud to have been an integral part of the team that met with Viking on two continents to bring them to New Orleans.”

“We are thrilled by the choice of the Port of New Orleans as Viking’s initial entry into the North American market,” said Port of New Orleans President and CEO Gary LaGrange. “Viking is one of the premier cruise brands throughout Europe and Asia. Their worldwide reputation underscores New Orleans as a destination city for both international and domestic leisure travelers. The Board of Commissioners of the Port of New Orleans has worked with the Viking team for nearly two years to determine the proper venue for the new ships within the port and along the Mississippi River, and we couldn’t be happier to add Viking to the port’s cruise portfolio.”

“Viking River is an exciting and compelling addition to the opportunity-rich New Orleans destination,” said President and CEO Stephen Perry of the New Orleans Convention and Visitors Bureau. “They will bring a diverse domestic and international clientele drawn not only to enjoyment of the river through cruising, but to the New Orleans part of their visit in this historic capital of American music and food as well.”

“It was an honor to be part of Governor Jindal’s recent economic development trip to Europe, encouraging companies to locate in our great state,” said Chairman Greg Rusovich of the Louisiana Board of International Commerce.

“The decision to locate Viking’s North American homeport in New Orleans speaks to the operational capabilities of our port, the expertise of our hospitality workforce and the increasing popularity of river cruising around the globe,” said executive board Chairman Henry Coaxum of the New Orleans Business Alliance. “We welcome Viking to the New Orleans business community and look forward to its success.”