Hawai'i's cruise industry suffered a major setback yesterday when 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, which began cruising Hawaiian waters in June, will leave in February 2008 to help stem the company's losses here. Norwegian Cruise Line lost $116 million in the fourth quarter and cited its Hawai'i operation as a key reason.

The growth in the cruise industry has been a bright spot for the tourism industry, which recently saw a dip in arrivals and a decline in hotel occupancy.

"There's no question it (losing the ship) is going to be a void," said state tourism liaison Marsha Wienert. "It will be an impact to our economy and the industry as a whole."

Many local companies rely on the cruise ships for a steady stream of business, from the folks who grow the produce passengers eat, to those who run tours or sell souvenirs to the passengers when they come ashore, Wienert said.

She said she was pleased the company gave plenty of advance notice, which should help those affected. "It doesn't leave everyone high and dry," she said.

The Miami-based cruise ship company said added competition in Hawai'i had forced it to cut prices and made it difficult to earn a profit.

"Clearly, we are victims of our own success," said Colin Veitch, NCL's president and CEO. "We have demonstrated that Hawai'i is a highly attractive cruise destination and Hawai'i now has four times as much capacity serving it in 2007 as it did in 2004 when we started NCL America (its Hawai'i unit)."

'TEMPORARY' STAY

Pride of Hawai'i is the newest and most luxurious of NCL America's fleet, which includes the Pride of America and Pride of Aloha. The Pride of Hawai'i's accommodations include 4,500-square-foot, three-bedroom garden villas with private sundecks.

The cruise ship company said moving the Pride of Hawai'i to Europe was a "temporary withdrawal," but it did not say when it would return.

Robert Kritzman, NCL America's executive vice president and managing director of Hawai'i operations, said the company remains committed to keeping the other two ships home-ported in Hawai'i.

"We take this action with regret, but sure in the knowledge that a temporary retrenchment is the right thing to do for the good of the business and the good of Hawai'i in the long run," Veitch said.

"We remain committed to building a strong U.S. flag cruise business home-ported in Hawai'i, and we need to make sure that our other two ships, Pride of Aloha and Pride of America, are able to achieve acceptable profitability before we can confidently re-introduce Pride of Hawai'i."

Kritzman said the combination of three U.S.-flagged NCL ships plus competition from other cruise lines has pushed prices down too far.

"We're trying to right-size our capacity here and our fleet," Kritzman said. "We're still committed to Hawai'i; we've made a major investment here."

BARGAIN PRICE

A check of the company Web site indicates it's possible to book a seven-day interisland cruise on the Pride of Hawai'i for as little as $499 per person based on double occupancy.

"We feel strongly that the two ships will be able to achieve the kind of pricing that we need," Kritzman said.

Hawai'i senior Sen. Daniel Inouye, who helped clear the way for NCL to cruise interisland, said in a statement that he was disappointed with the announcement of the withdrawal. He described it as a difficult decision that Veitch had to make "for the good of the overall company as he and his corporate team work to further grow demand in the Hawai'i market."

Inouye said the cruise ships have contributed to robust growth while diversifying tourism. "Since NCL America's entrance into the market in 2004, Hawai'i's cruise capacity has quadrupled," he said.

Kritzman said the company carried 287,003 passengers in Hawai'i last year and projects a total of 400,000 for this calendar year.

U.S. law forbids foreign-flagged vessels from transporting passengers between U.S. ports without visiting a foreign port along the way.

The U.S.-flagged NCL America ships can operate interisland cruises, by agreeing that 75 percent of ship crew members will be U.S. citizens.

Historically, the cruise industry has relied on ships based in foreign ports that hire workers from developing countries with larger pools of people willing to work long hours, often for less pay and under more difficult conditions than their American counterparts.

Veitch said he hopes removal of one ship will make a critical difference in ensuring the long-term success of "a strong domestic cruise industry in Hawai'i."

Kritzman said the company made the announcement nearly a year before the move to allow time for people to plan.

CREDIT OR REFUND

Veitch said guests booked on Pride of Hawai'i in February 2008 and beyond will be offered a $50 on-board credit per stateroom to switch to another NCL ship by May 1. Those who choose to cancel will receive a full refund.

Kritzman said the 960 NCL employees now aboard the Pride of Hawai'i will be offered jobs within the company.

"We don't think it will really have an effect on our employees," he said, although some may transfer to other ships.

"We intend to make employment available to everyone who wants to stay with the company," he said.

"We're a growing company. The company overall is still growing."

He said the Pride of Hawai'i will be sailing European waters by summer 2008, probably with a new name and a less-colorful paint job.

Reach Robbie Dingeman at rdingeman@honoluluadvertiser.com.