River Cruise Line To Bump High-Seas Industry Whales

Los Angeles may not be much of a port o’ call for cruise ships, but the city can now call itself home to yet another ocean-going line. Viking River Cruises, the Woodland Hills-based leader of the river-cruising industry, is expanding into the open seas with two ocean vessels, with the first to be delivered in spring 2015. The ships will have about 500 cabins and be capable of carrying about 900 passengers. That’s about a third of the size of a typical mega-ship launched by the big ocean cruise lines. But it is targeting the “ultra-premium” sector of the industry, which is geared toward the more experienced and affluent cruiser, who has gone on mass-market cruises and is looking for a luxurious experience with smaller crowds. Rod McLeod of McLeod Applebaum & Partners Inc., a cruise and travel industry consultancy in Coral Gables, Fla., noted that Viking was considering going public prior to the recession, and the company may be gearing toward that again. “It looks great for them to have so much construction planned,” he said. “That makes them look very appealing. There’s going to be more here.” To accommodate the added business, Viking is expanding the size of its corporate headquarters in Warner Center. The company has signed a lease for an additional 36,900 square feet in the 5700 Canoga Ave. building and will occupy two floors, totaling more than 68,000 square feet. The company is scheduled to make a formal announcement on May 16 and declined to provide any executives for interviews, though it did confirm some details of its plans. The L.A. area is already the headquarters of Princess Cruises in Santa Clarita. The line, owned by Miami-based industry leader Carnival Corp. & PLC, operates 16 mass-market ships and carries more than 1.3 million passengers each year. Crystal Cruises, a super-premium line owned by Japanese conglomerate Mitsubishi Group of Cos. is based in Century City. And Disney Cruise Line is based in Lake Buena Vista, Fla., but is a unit of Burbank’s Walt Disney Co.   Viking has contracted for ship construction with Fincantiari–Cantieri Navali Italiani Spa, an Italian shipbuilder based in Trieste that makes cruising vessels for major ocean lines. Viking said it has plans to build two more ships and has an option for an additional pair, which if exercised would give it a total of six ships. Carolyn Spencer Brown, editor-in-chief at CruiseCritic.com, a Pennington, N.J. consumer website that follows the industry, said Viking will compete with a few major players in the small premium cruising market. They are Oceania Cruises, owned by New York private equity firm Apollo Investment Corp.; Azamara Club Cruises, a unit of Royal Caribbean Cruises Ltd. of Miami; and Seabourn Cruise Line, a unit of Carnival. Viking isn’t just testing the waters. If it builds a fleet of six ships, it would equal the size of Seabourn’s fleet, while Oceana operates five ships and Azamara two. “Viking’s line will be a big player,” Brown said. “This has become one of the most interesting niches in the cruising industry right now.” Distinctions Viking currently dominates the river cruise market, which features destinations such as the Danube River in Central Europe or the Mekong River of Vietnam and Cambodia. Surprisingly, the San Fernando Valley is the epicenter of the river cruising industry. AmaWaterways, a Calabasas company, operates about 15 ships, and Uniworld, an Encino river cruise subsidiary of Travel Corp. of London, operates about 20. Viking has stood out with its tremendous growth and construction. The company operates 35 ships and cruises rivers in Europe, Russia, Ukraine, China, Southeast Asia and Egypt. And as the river cruise industry has expanded, Viking has been on a construction tear. The company christened 10 new river ships in March and has plans for 12 more next year. The company said it has spent more than $400 million on its fleet in the last three years. To help cover the costs of the ocean line, the company completed a $250 million bond sale in October. The river ships, typically between 3,000 and 3,500 tons, cost Viking in the neighborhood of $30 million, while its 47,000-ton ocean cruise vessels could cost upwards of $350 to $400 million each, according to McLeod. Costs can vary by more than $100 million depending on the “bells and whistles.” Still, that is a far cry from the more than $750 million price tag of the Royal Princess, a 141,000-ton, 3,600 passenger ship Princess Cruises is launching this summer. “The competition will be hot,” McLeod said. “These other lines have more resources and much bigger pockets behind them.” However, the smaller ocean-going ship market Viking has entered eschews the massive outdoor movie screens or rock climbing walls that travelers have come to expect on huge cruise ships. And while the smaller ships still need to hit the major European ports, such as Rome and Venice, they have an advantage in being able to call on ports that the larger ships can’t access. For example, Azamara has docks in Kiel Canal, Germany and Jinhae, South Korea, while Seabourn has docks in Reykjavik, Iceland. Andi Mysza, president of MTravel.com, a booking site owned by Montrose Travel, a Montrose travel agency, said if any company is able to make the transition from river to ocean, Viking stands the best chance. “They’re the best at what they do,” she said. “If they follow that same blueprint they have, they will make it.” Set to sail The man behind Viking is not new to the ocean. Torstein Hagen, who has been chief executive of Viking since its founding, previously worked at Royal Viking Line, a San Francisco luxury cruise operator that went out of business in 1998. He founded Viking with the purchase of four Russian Vessels in 1997. In 2000, the company purchased German KD River Cruises, and more than 20 of its vessels, and relocated its headquarters to Woodland Hills, where it has been since. He made the decision to enter the ocean cruise market as it is recovering from the recession. According to Cruise Lines International Association, a non-profit industry group, about 17.6 million people will take cruises around the globe this year, representing a 7.4 percent rise since 2010. Still, McLeod said that if an opportunity exists in the market, it’s small. “They’re (Viking) used to being the big kids on a small block,” he said. “But now they’re going into the majors. This will not be easy.” What’s more, Oceania has renovated both of its ships in the last three months, with complete interior refurbishing and the inclusion of a caviar and champagne bar. But Brown, from CruiseCritic, said that Viking’s decision to join the ranks of the small ocean cruise lines further establishes it in the overall cruising market. “Viking’s entrance gives this niche strength,” she said. “This proves it’s valid and still growing.”