The Princess Diaries

ABOARD THE CARIBBEAN PRINCESS, Fort Lauderdale Ever since the heady days of “The Love Boat” television series, Princess Cruises has been top of mind for both experienced and would-be cruisers. But TV viewers who think cruise ships still have one clover-shaped pool and a single pirate-themed bar would be stunned to see Princess’ latest three newbuilds all super-sized post-Panamax ships, meaning they are too large to squeeze through the Panama Canal.

(To illustrate how long it’s been since “Love Boat” originally aired in the late 1970s, check out the photo at right of bride Jill Whelan, who played Capt. Stubing’s preteen daughter. Whelan got married April 2 on the Caribbean Princess just before she christened the ship.)

What’s more, the Los Angeles-based line is introducing the three new vessels, which increase capacity by 40 percent, within a span of three months an unheard-of accomplishment even during the shipbuilding frenzy in the late 1990s.

Princess ships have always been at the cutting edge of innovation, featuring early-on such now-standard features as 24-hour, flexible dining and plentiful stateroom balconies. Plus, Princess was the first to base 100,000-ton-plus ships in places like the Mediterranean and Alaska.

The new Caribbean Princess features a million-dollar outdoor movie screen while the West Coast-based Diamond Princess and Sapphire Princess each have four dining rooms with a themed menu and decor, as well as a fifth restaurant for traditional fixed-seating meals.

Despite its spectacular success, several years ago Princess found itself in a peculiar situation that threatened its long-term growth.

“We were becoming bigger than our holding company, and we needed more capital to expand,” CEO Peter Ratcliffe said. “The demand for the Princess product far exceeded the capacity we had.”

So began the process of breaking off from the British-based P&O Group. Princess put itself on the market and one year ago, on April 17, became part of industry giant Carnival Corp.

In this article, we take an in-depth look at Princess Cruises’ last four years as well as its future with its cash-rich parent and a new but very experienced management team.

Through exclusive, one-on-one interviews aboard the Caribbean Princess with each of the three top executives Ratcliffe, new President Alan Buckelew and Executive Vice President Dean Brown, each with more than a quarter-century at Princess or P&O we present our cruise industry version of the Princess Diaries.

2000: Breaking Away

P&O Princess Cruises “demerged” from the P&O Group, which also had extensive operations in cargo and shipping.

The separation made P&O Princess an independent company, with a goal to grow and a way to do it, likely by merging or being acquired by another cruise giant.

“We pursued all options and were willing to keep all options open,” Ratcliffe said.

P&O Princess included Princess Cruises; P&O Cruises, aimed at U.K. travelers; and several smaller brands focused on specific overseas markets.

2001: Terror, Merger

While still reeling from the Sept. 11 terrorist attacks, P&O Princess stunned the industry with a surprise announcement that it planned to merge with Royal Caribbean Cruises Ltd.

Not only was Princess scurrying to handle the post-9/11 plunge in travel, the company was buried in research and corporate paperwork to get such a major merger approved by the Federal Trade Commission and European bureaucracies.

“Post-9/11, there was a huge focus on how to deal with the resulting drop not just drop, but almost complete elimination of business,” recalled Buckelew, who was executive vice president of corporate services at the time. “There were a lot of ships that had to be redeployed and a new emphasis on homeporting ... and security took on a very salient new meaning.”

The merger announcement came on Nov. 21, but within weeks, Carnival Corp. Chairman Micky Arison, who also coveted Princess and battled RCCL previously over high-profile acquisitions, leapt into the fray.

While the P&O board publicly stuck to its endorsement of the RCCL merger, Arison was an ardent pursuer and he had the money and the clout to fight to the end.

“We were the belle of the ball with two handsome suitors,” Buckelew said. “But we had a lot of work with the Federal Trade Commission preparing that either case would be in the best interests of the consumer.”

Meanwhile, there was still the business of filling berths. Prices were slashed, as they were throughout the industry, until cheap fares overrode the fear of travel, a point Buckelew called “the intersection of greed and fear.”

2002: Low Fares, Big Splash

Princess found that intersection and, with redeployments and stringent security measures, “the result was that the 2002 wave period, from a volume standpoint, was one of the strongest we’ve had,” Buckelew said. “It was a testament to the resilience of the cruise industry.”

Fares were low, but the ships were full. The Star Princess made a big splash at its debut in January as the first post-Panamax ship to appear on the West Coast.

Still, times were tough. Some ambitious plans for 2002 were scaled back and new positions went unfilled. “Given where we began 2002, we were quite happy with where we ended up,” Buckelew said.

Meanwhile, Carnival Corp. increased its bid for Princess several times. But the P&O board remained loyal to RCCL, believing it had a better chance of winning FTC approval, and the behind-the-scenes lobbying was intense.

2003: Iraq War, New Parent

On Jan. 8, the board of P&O Princess formally backed the richer Carnival Corp. offer, valued at $5.6 billion.

Before the deal closed, the Iraq war broke out, putting downward pressure on both fares and travel once again.

On April 17, P&O Princess, happily as it turns out, became part of Carnival Corp. A complicated “dual-listed” company was put into place so that British P&O stockholders could continue to hold on to what become Carnival Corp. plc stock.

Teams were formed with members from all Carnival brands to search for “synergies” corporate-speak for cost savings. Carnival Corp. promised shareholders $100 million in savings by the end of 2004, but that didn’t mean a move to Miami or wholesale layoffs at Princess, as some feared. Rather, “best practices” and costs of certain goods and operations are shared throughout the corporation, Buckelew said: “We are left to do our own thing.”

In mid-2003, Princess started hiring additional shipboard staff in preparation for three new ships in 2004. “We were building up a pool of experienced crew members and manipulating contracts so we could have seamless introductions,” Buckelew said.

In the end, “2002 and 2003 were relatively flat yield performance,” Buckelew said. “The economy was floundering in both those years and no good news came out of the markets.

“So 2003 was sort of so-so, but the industry was looking to 2004 as potentially the first year where there is no war and no major international event targeted at American tourists.”

2004: So Far, So Good

“Coming into 2004, the economy turned around, the stock market started going up and the killing around the world was at a lower level,” Buckelew said. “The industry had a fantastic wave period.”

Princess and the 11 other Carnival Corp. brands are “on schedule” in the first quarter to meeting the $100 million in savings, Ratcliffe said.

“This year, pricing is coming back,” he said. “The sense of optimism is back.”

The 116,000-ton Diamond Princess the first cruise ship built at the Mitsubishi shipyard in Nagasaki, Japan, in 14 years made its debut in Los Angeles in March, followed this month by the 113,000-ton Caribbean Princess in Fort Lauderdale. The Sapphire Princess will join its sister ship in Seattle on June 10.

Both the Diamond and Sapphire are scheduled for West Coast and Pacific cruising for the foreseeable future the Diamond will operate Mexican Riviera cruises out of Los Angeles and Alaska itineraries from Seattle. The Sapphire will operate Alaska cruises in the summer and some Mexico and Hawaii voyages before spending the winter sailing between Sydney and Auckland. It will cruise in Southeast Asia on its way back to Seattle for summer 2005.

“Until recently, we have not had a large enough fleet to dedicate ships to the West Coast,” Buckelew said. “Now, clearly the finest ships on the West Coast will be both the Diamond and Sapphire.”

Ratcliffe maintains that Princess’ home region remains extremely important to Princess. “We are still at our strongest on the West Coast,” Ratcliffe said. “That’s our base, and the trend in the West Coast market for local cruising is bigger than we ever thought it would be. The travel agents support us enormously. We’ve always been very close with travel agents.”

The Future: No Boundaries

The groundwork has been laid and Princess is poised for even more growth.

“There are no boundaries on how far Princess can grow,” Buckelew said. “We definitely plan on more ships; it’s just a matter of time.”

The company’s new relationship with the Japanese shipyard gives Princess another option when its primary European builder, Fincantieri in Italy, is priced too high because of unfavorable exchange rates.

Ratcliffe and Arison are both pleased with the performance of Mitsubishi, especially considering the major fire in 2002 on the first ship under construction.

“Considering the fire, they came through remarkably,” Ratcliffe said. “It was a risky decision but now we have a partnership. Our purpose was setting up options outside the European currency. We now have two great shipyards.”

Arison likes to build showy new ships for his brands when they can show profitability and growing demand. “For the first time, we have access to as much capacity as we can justify,” Ratcliffe said. “With Carnival, there are no limits; only our abilities will determine our future.”

More post-Panamax ships are likely, since “the big-ship cost structure is lower” and Princess has proven they can successfully operate in regions the world over. As destination ships, they appeal to English-speaking markets in the U.K., Canada, South Africa and Australia, Ratcliffe said. Plus, Princess is making inroads in the Asia market a primary goal of Arison since it remains the largest untapped cruise market.

But Princess is also growing in the industry’s biggest single market, the Caribbean, by placing the Caribbean Princess there year-round with plans for a sister ship due out in 2006.

“We had 35 percent of our capacity in the Caribbean and now it’s 40 percent, so it isn’t seismic,” Ratcliffe said. “Clearly, today our number-one competitor is Royal Caribbean and Celebrity, so we hope they’ve noticed that we’re here.”

The flashy new feature catching eyes on the Caribbean Princess is the movie screen suspended over the pool deck; the screen will be added to the line’s three Grand-class ships as well.

All the changes at Princess are being guided by a management team Ratcliffe described as “steady” and “stable.”

Although he’s been with Princess for 27 years, Buckelew was a key behind-the-scenes player until his promotion to president. He might be a number-cruncher but he’s also at ease and well-spoken during media interviews and in the ceremonial spotlight.

Dean Brown, a 25-year veteran who currently holds the position of executive vice president of customer service and sales, will become executive vice president of fleet operations in June, when 35-year Princess veteran Brian Langston-Carter retires.

Langston-Carter, who pioneered many Princess innovations, will continue to work as a consultant for the line while he also pursues an enviable life of travel and golf. Overall, Princess executives exude a sense of optimism, even happiness, with the path the company is taking.

“The whole company was energized by the demerger and

the whole company is energized again,” Ratcliffe said. “I think Princess is better than ever now that we’re part of Carnival Corp.”

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Princess Cruises

24305 Town Center Drive
Santa Clarita, Calif. 91355
Founded: 1965
Fleet: 13 ships, 25,560 lower berths
Under construction: Sapphire Princess (June) and Caribbean Princess 2 (2006
Future changes: Royal Princess goes to P&O and Sea Princess (now operating for P&O as Adonia) returns to Princess in 2005
Destinations: All seven continents, from the Mexican Riviera, Alaska and Hawaii to Antarctica, French Polynesia, India and South America
Snapshot: Premium-level brand; super-big ships with intimate spaces, flexible dining, children’s programs, and a high percentage of balconies; two smaller ships permanently based in Tahiti and Australia.
Contact: 800-774-6237
www.princess.com