By their nature, small-ship cruise lines -- whose cozy, casual ships usually carry fewer than 120 passengers, and whose cruises are often nature- or history-oriented -- will never reach the lofty business realm of "too big to fail." And when economic times get bad, as they've been now since mid-2008, failure is definitely an option. Cases in point: the 2008 and 2010 shutterings of onetime market leaders Majestic America Line and Cruise West, which capped a decade that also saw the demise of Windjammer Barefoot Cruises, Clipper Cruise Line, Glacier Bay Cruiseline, Canadian Sailing Expeditions, RiverBarge Excursions, and others.
In the case of Cruise West, management blamed the company's collapse on the tight financial market and an inability to secure outside investment, but sources close to the line also cite bad management decisions -- principally, taking on too much debt and expanding into new regions with a high cost of going to market, all while the world economy was in freefall. Said one source, Cruise West management "failed to right-size the company and make changes that other business executives made" to weather uncertain economic seas.
Sick Branches, Healthy Tree: How Can Small-Ship Cruise Lines Succeed?
Despite the failures of so many once-solid small-ship lines, executives at competing companies don't see an inherent problem with the small-ship model. "I don't think the small cruise ship industry is hurting," says Charles A. Robertson, chairman and CEO of Connecticut-based American Cruise Lines (www.americancruiselines.com). "I think those companies hurt for very identifiable reasons: They were undercapitalized, and they were trying to operate very old equipment that wasn't competitive with the newer equipment."
Unlike most small-ship companies, American Cruise Lines operates a fleet of mostly newer, more spacious and amenity-filled vessels built over the past nine years by affiliate company Chesapeake Shipbuilding of Salisbury, Maryland. The one exception, the 1995 stern-wheeler Queen of the West, was substantially rebuilt before entering service for the line.
Sven-Olof Lindblad, founder and president of international small-ship line Lindblad Expeditions (www.expeditions.com), also sees the recent failures as individual cases. "I believe [small-ship] companies will continue to come and go," he says. "This is a business with many, many moving parts, and people continue to underestimate its complexity."
As part of its response to the 2008-9 economic crisis and subsequent recession, Lindblad Expeditions took on investors who now hold part ownership of the company. That financial cushion, says the company's founder, has allowed it to "stay current with commissions and invest in hardware, development, human resources, and innovation."
Old Ships v. New Ships: Getting What You Pay For
In contrast with Lindblad, Cruise West's financial troubles forced it to lay off staff as early as November 2008 and forego necessary vessel upgrades, which left much of its fleet looking dated and worn -- a difficult sell considering the line's high rates, which were generally in line with rates charged almost universally across the small-ship segment.
"I think Cruise West chose to invest in expanding their footprint rather than reinvest in their vessels, which became antiquated and outdated," says Hunter H. McIntosh, COO of The Boat Company (www.theboatcompany.org), a not-for-profit, conservation-oriented cruise company that operates two 20- and 24-passenger vessels in Alaska. "We make sure that we back up our prices with a luxury setting. You can't market to the small-ship cruise passenger, charge higher prices, and use outdated vessels."
"Old ships just don't sell very well because they're not competitive with the new ships, so the companies with the new ships are going to thrive -- unfortunately, at the expense of the companies with the older ships," says American Cruise Lines' Charles Robertson. "That's something the big ship companies like Carnival and Royal Caribbean learned 10 or 15 years ago. But the small ship companies, with the exception of ourselves, either didn't learn that lesson or they didn't have the capital to build new ships."
Captain Dan Blanchard, CEO of luxury adventure line American Safari Cruises (http://americansafaricruises.com), concurs: "Other companies charge nearly the same rate as American Safari Cruises, but on vessels without high-end features such as balconies and Jacuzzi tubs, on-deck hot tubs and saunas, and with guest capacities four to 10 times higher."
Blanchard's other small-ship venture, InnerSea Discoveries (www.innerseadiscoveries.com), is another animal entirely. Currently in the midst of its inaugural season, InnerSea Discoveries offers active-adventure, all-wilderness cruises at a rate substantially below the small-ship norm -- a proposition made possible by the vessels themselves, the former Wilderness Adventurer and Wilderness Discoverer of long-defunct Glacier Bay Cruiseline.
"The former Glacier Bay vessels were available for a song, and we jumped on the opportunity," says Blanchard. "Small-ship cruise prices have been too expensive and out of the reach of most people, so we passed on the great deal we received on the boats to our guests."
At InnerSea, Wilderness Adventurer and Wilderness Discoverer operate essentially as they did for Glacier Bay, as floating base camps for daily kayaking, hiking, snorkeling, and wildlife-watching excursions that are included in the line's rates.
"These boats are perfect for this type of expedition, where the boat is really a waterborne lodge," says Blanchard. "For InnerSea Discoveries, the ship is the means to an end, a way to get to otherwise inaccessible areas."
Sven-Olaf Lindblad of Lindblad Expeditions has similar views. "The ships are incidental," he says. "The key to success in this business is culture and rooted principles."
Having good friends and cool toys can help, too. Since 2004, Lindblad's alliance with the National Geographic Society has brought Society experts and photographers aboard the line's ships, both to lecture and to conduct research. On its current Galapagos sailings, Lindblad's National Geographic Endeavour deploys a remotely operated sub, working with Galapagos National Park to study undersea life up to 500 feet below the surface.
Knowing Your Niche, Your Guests, and Your Numbers
The Great Recession and its aftermath were at least partly responsible for the demise of Cruise West, Majestic America, RiverBarge Excursions, and Canadian Sailing Expeditions. But one line found it an opportune time to enter the market.
Island Windjammers (www.islandwindjammers.com) was incorporated in July 2008 with a straightforward business idea: provide a vacation option for loyal clients of tall-ship line Windjammer Barefoot Cruises, which had collapsed spectacularly the previous year. After purchasing the 12-passenger brigantine schooner Diamant from Galapagos tour operator Federico Angermeyer, the company began offering weekly 6-night cruises in the Grenadines in November 2009.
"We knew exactly what type of product we wanted to offer," says Liz Harvey, the founder and CEO of Island Windjammers. "Although the bad economy was, and still is, a factor in how we modeled our launch, we were confident that with careful and wise planning, the first newcomer to gain a foothold in this niche was very likely to be successful, especially on the smaller scale we planned."
Knowing the guests was key: A longtime Windjammer Barefoot vacationer herself, Harvey had been instrumental in raising money to fly many of that line's crews home after the company's sudden demise had left them stranded on their ships, without fuel or pay.
"Because we offer such a specialized experience, and because we've identified and keep in regular communication with our enthusiastic client base, and finally, because we have such a limited capacity, we're able to price our sailings at a point where we make a profit without having to discount to fill our ship," says Harvey. "Couple that with a very manageable debt load, and investors who are also loving clients and enthusiastic supporters, and we are doing well after our first year."
At the opposite end of the longevity spectrum is Blount Small Ship Adventures (http://blountsmallshipadventures.com). Formerly American Canadian Caribbean Line, Blount Small Ship Adventures is the oldest continuing small-ship line in the U.S. market. Founded in 1966 by Rhode Island shipbuilder Luther Blount, the line has forged a slow, steady business, offering small-scale river and canal cruises aboard utilitarian small ships designed and built at the line's own affiliated shipyard, Blount Boats. Originally sailing in New England and the Great Lakes, the line expanded over the years to cruises along the U.S. Intracoastal Waterway and down into the Caribbean and Central America.
"We were built on a simple idea that my father had, of bringing people to places they couldn't get to on a large ship. Today, that remains our mission," says the line's president, Nancy Blount. "We are somewhat of a conservative company. We've always been, and continue to be, family-owned and -operated. We have no debt and there are no outside investors. And we don't need to grow fast and furiously -- we're happy with the kind of moderate and continued growth we've experienced."
"For our guests, what matters is the experience, hands down. They don't need or want luxury, and they don't stop traveling -- it's in their DNA," says Blount. But in 2009, with the financial crisis affecting bookings, the line began to re-imagine itself for the future, changing its name and branding to target both its established mature clientele as well as boomer-age adventure travelers. It added some frills to its previously no-frills ships, created new and enhanced cruises, "and as a result, we began to see our bookings rejuvenate in double digits," says Blount.
In Alaska, The Boat Company weathered the financial crisis by being the sole operator in a unique niche: nonprofit cruising. Founded in 1980 as a program of the McIntosh Foundation (created by heirs to the A&P supermarkets fortune), the line offers intimate, small-scale cruises in Southeast Alaska, focused completely on nature and wildlife watching, fishing, kayaking, hiking, and excursions by inflatable launch. Its two vessels carry just 20 and 24 passengers.
Though the financial crisis affected the company, it was primarily a matter of guests booking last-minute, rather than not booking at all.
"Our client base tends to feel the current economic downturn less than most of us," says Hunter H. McIntosh, the line's COO, "though we have had to work a bit harder for the sale because everyone is comparing the prices from everyone in our segment. In any case, The Boat Company is financially stable and secure regardless of the economy, because we have the support and backing of our past clients as well as a private foundation."
Vacation experience aside, The Boat Company's powerful hook for potential customers is its nonprofit status, through which all revenues after operating expenses get channeled back into conservation efforts in Southeast Alaska.
"Because The Boat Company is a nonprofit," says McIntosh, "our clients as well as foundations and other organizations are able to make tax-deductible donations to us for general overhead operating expenses or even program-related issues" -- that is, you can write off a portion of the trip cost on your taxes, often as much as $2,500 or more. "We don't discount," says McIntosh, "but when folks find out about our tax-deduction program, most book."
Black Ink & Crystal Balls: What Does the Future Hold for Small-Ship Cruise Lines?
Across the board, small-ship executives interviewed for this article expressed confidence in the market's future.
"I'm very bullish on the small ship industry," says American Cruise Lines' Charles Robertson. "There are many fewer berths available per week now than there were -- there may have been too many. But we're building new ships, and we're very bullish on the market. I think it will thrive."
American Cruise Lines' current building project is the 140-passenger stern-wheeler Queen of the Mississippi, now under construction (and reportedly nine weeks ahead of schedule) in Salisbury, Maryland. The first new ship built for Mississippi River cruises in some 20 years, Queen of the Mississippi was designed with a mix of classic Victorian riverboat styling and modern amenities, including oversize staterooms with private balconies. She's due to enter service in August 2012.
American Cruise Lines is also poised to break into the Alaska market in 2012, planning a season of round-trip cruises from Juneau and north- and southbound one-way cruises between Juneau and Seattle.
Back on the Mississippi, which has seen virtually zero cruises since Majestic America Line's 2008 closure, ACL will have some competition from a new company, the Great American Steamboat Co. (http://greatamericansteamboatcompany.com) Created by a group of cruise industry veterans, including a former Delta Queen president, the company will operate one of Delta Queen's old vessels, the 436-passenger American Queen, which has been laid up for almost three years in the care of the US Maritime Administration. Following a planned renovation, the vessel is scheduled to re-enter service in Spring 2012.
"I believe the small ship industry is just now coming into its own," says Nancy Blount of Blount Small Ship Adventures. "If you look at the trends in travel and in life, everything is getting smaller: Cars are smaller, computers are smaller, phones are smaller -- and the travel companies that promote small groups are getting bigger. People don't want to travel in herds anymore."