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The Honolulu Advertiser
Posted on: Tuesday, February 12, 2008

Second cruise ship leaving; so will jobs

 •  Pride of Aloha's new home will be in Asia
 •  Small businesses dealt another blow
StoryChat: Comment on this story

By Greg Wiles
Advertiser Staff Writer

$964 MILL.

Top-end estimate of annual lost sales by local businesses, including multiplier effect, from loss of two NCL ships

8,943

Estimated jobs lost locally, including multiplier effect

501,698

Cruise passengers who visited Hawai'i last year

266,421

Cruise passengers expected to visit Hawai'i this year

9.94

Average days cruise passengers stayed in Hawai'i last year

$8.6 MILL.

Net loss reported by NCL in third quarter of last year

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NCL America's decision to pull a second ship from Hawai'i adds to what has been a stunning decline for the state's cruise industry this year, with potential lost economic activity from the two ships totaling more than $964 million annually.

"It isn't good news," said Leroy Laney, a professor of economics and finance at Hawai'i Pacific University. "One is bad, two is twice as bad."

Thousands of jobs on land that support the cruise ships and their passengers will likely disappear.

The cruise business had been one of the bright spots in tourism. Though it served fewer than 5 percent of Hawai'i's tourists last year, the cruise business had been bringing more visitors here even as the overall number of tourists declined last year.

NCL America yesterday said its Pride of Aloha vessel will end its Hawai'i cruises in May, leaving the Pride of America as the only one of its vessels to regularly operate cruises here.

The company had started the year with three cruise ships doing interisland tours, but earlier this month the Miami-based company's Pride of Hawai'i was withdrawn from Hawaiian waters and reassigned to European cruises, in keeping with long-announced plans.

The impact of the ships' departure was expected to reverberate far beyond the 1,000 people who worked on each of the NCL ships, and comes in a year when the state's economic growth was already forecast to slow.

"This can't be good from the standpoint of the overall tourism market that isn't doing that well," Laney said.

Moreover, the cruise business may suffer another broadside this year if a proposed federal rule change on port calls by foreign cruise ships goes into effect.

State Economist Pearl Imada Iboshi estimated the direct economic impact of the Pride of Aloha leaving at a loss of 95,860 visitors if they decided not to visit Hawai'i at all.

That equates to losing direct visitor expenditures that total $287.4 million.

When the complete impact on the economy is estimated by using an economic multiplier, the total lost in sales is equivalent to $422.5 million, Iboshi said in an e-mail. The number of jobs lost would total 3,943.

When bundled with the losses estimated from redeployment of the ship Pride of Hawai'i, the combined economic loss may reach as high as $964 million.

EFFECT ON OTHER ISLES

The impact will be felt more on the Neighbor Islands. NCL America has used Honolulu as a place to pick up and drop off passengers arriving by aircraft, while calling on Hilo and Kona on the Big Island and spending a night in port at Kahului Harbor on Maui and Nawiliwili on Kaua'i.

Visitors aboard cruises have become a significant part of Neighbor Island tourism.

Hilo Harbormaster Ian Birnie said he tallied 241 visits there by cruise ships last year as the number of cruise ship passengers grew to more than 500,000 for the first time. In 1999, Hilo first hit the 100,000 passenger mark.

"That's for little old Hilo alone," said Birnie, who estimated the number of cruise ship visits to Hilo will drop to 129 this year, while the number of passengers will decline by about half, to 251,625.

"Half a million passengers here in Hilo was nothing to sneeze at."

Birnie calculated cruise ships calling on Hilo and Kona brought in $94.1 million in visitor expenditures and generated 1,223 jobs last year. This year, with the departure of the two NCL America vessels, he is projecting visitor spending will drop to $48.2 million, and the job count to 641.

He said there was talk in recent weeks that NCL America would pull a second ship out of Hawai'i because it had let go several ship captains.

"It's interesting because NCL has actually increased the number of passengers for all three ships," he said. "They had a higher average passenger count last year and the year before with all three ships."

But NCL America has reported losses from its Hawai'i operations and late last year said it would make a decision by the end of 2008 about keeping the Pride of Aloha and the Pride of America here.

INTERPRETATION OF LAW

More recently, NCL America has pushed for a change in the interpretation of a federal law that prevents ships flying under the flags of other countries from carrying passengers between U.S. ports. The change would require the foreign-flagged ships to spend more time at foreign ports in between calls at U.S. destinations.

Birnie said the new interpretation, if put into effect, could result in 53 fewer calls by Princess Cruise Lines and Holland America Line ships from the West Coast this year to Kona and Hilo. Visitor expenditures would drop to $38.7 million.

"It was already down one-third," Birnie said. With the rule interpretation "it will be down further."

On Kaua'i, there were similar worries about the loss of Pride of Aloha calls.

Robbie Kaholokula, County of Kaua'i tourism support specialist, said his island has benefited from what was three overnight calls by NCL America ships, with helicopter tours, ground tours to Waimea Canyon, shopping centers and others benefiting.

He said Hilo Hattie, Wal-Mart and Kmart operate shuttles from the harbor to their stores while the ships are docked and that NCL America operated a lu'au for ship guests while in port.

"The Pride of Aloha would translate into about 2,000 additional visitor bodies to the island of Kaua'i each week," he said. "That's going to be substantial."

• • •

History of NCL's Hawai'i operation

Feb. 21, 2003: President Bush signs into law a new provision that gives Norwegian Cruise Line exclusive rights to operate three foreign-built ships on interisland cruises in Hawai'i. Sen. Daniel K. Inouye pushed the measure through, overcoming opposition from Sen. John McCain, R-Ariz., who objected to the special exemption.

Norwegian purchased material for two of the ships that are covered under the provision from the failed Project America, an attempt by Inouye and Sen. Trent Lott, R-Miss., to spur shipbuilding in the United States. American Classic Voyages, which previously offered interisland cruises in Hawai'i, had planned to use two new ships built at the Ingalls shipyard in Mississippi, but the project collapsed when American Classic went bankrupt in 2001.

Sept. 4, 2003: Colin Veitch, the head of Norwegian Cruise Line, said his company will commit more than $1.2 billion worth of ships to Hawai'i and expects that the state eventually could match Alaska in cruise business.

"We actually see this destination having the potential to be as big as Alaska," Veitch said at a business luncheon in Ho-nolulu.

Jan. 14, 2004: NCL's new ship Pride of America partially sank during a storm in Germany. The ship, Norwegian's first for U.S.-staffed interisland cruises, was submerged up to its third deck and listed about 15 degrees at the Lloyd Werft shipyard in Bremerhaven, Germany.

June 26, 2004: The Pride of Aloha, Norwegian Cruise Line's first U.S.-flagged ship for interisland cruises in Hawai'i, arrived in Hawai'i for the first time, pulling into Hilo Harbor to hula, music and a mini-bazaar of vendors. The ship was the first of three U.S.-flagged ships that Norwegian planned to operate on interisland cruises.

Aug. 24, 2004: NCL America apologized to passengers of the Pride of Aloha for service it said has been below company standards because of startup "challenges" on its first U.S.-flag ship.

The company said it will send passengers refunds of approximately $35 and offer discounts on future cruises.

July 18, 2005: The Pride of America, NCL's new $350 million cruise ship, eased into Hilo Bay for its first visit to a Hawai'i port. Pride of America is the second ship NCL has dedicated to cruises in the Hawaiian Islands.

May 18, 2006: NCL Corp. Ltd. lost $28.1 million in the first quarter as rising payroll costs from its Hawai'i cruise operations and higher fuel costs more than offset an increase in revenue.

May 28, 2006: The Pride of Hawai'i, NCL America's largest U.S.-flagged ship, arrived in Nawiliwili, Kaua'i, for its first visit to a Hawai'i port. The 2,400-passenger ship rounds out NCL's fleet of three vessels to sail seven-day cruises around the Islands. Costing more than $500 million, the Pride of Hawai'i is the most expensive U.S.-flagged passenger ship built, NCL said.

Feb. 27, 2007: NCL Corp.'s Hawai'i operation was a key contributor to the Miami-based company's $116 million loss in the fourth quarter. CEO Veitch said, "We therefore are closely examining all options in our efforts to bring NCL America (the Hawai'i operations) to profitability."

April 10, 2007: NCL Corp. said it would shift the largest of its three U.S.-flagged Hawai'i ships to Europe. The 2,466-passenger Pride of Hawai'i will leave in February 2008 to help stem the company's losses here.

Feb. 4: The Pride of Hawai'i ended its weekly interisland cruise service in Hawai'i. It will be renamed Norwegian Jade and begin a new assignment in Europe.

Feb. 11: NCL Corp. announced plans to remove the second of three American-flagged ships — the 2,002-passenger Pride of Aloha — from the state by May 11.

Reach Greg Wiles at gwiles@honoluluadvertiser.com.

• • •

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