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Billionaires are sensing the call of the seven seas
IT WAS a cold and cloudy July day in Reykjavik, and French arts patron Maryvonne Pinault was at a pier fulfilling her godmother duties for Le Laperouse, the first of six 184-passenger, upscale expedition yachts from her husband's Marseilles-based cruise line Compagnie du Ponant. French billionaire and Kering SA chairman Francois Pinault wasn't there to watch his wife smash a bottle of Champagne against the ship's hull in the time-honoured nautical tradition. But it was always going to be her ship more than his; buying the cruise company was Madame Pinault's idea, after all.
In 2015, Mr Pinault's holding company, Groupe Artemis, acquired Ponant from Bridgepoint Capital for an undisclosed sum. Now the cruise line, which reports annual revenues of about US$182 million, is part of a luxury portfolio that also includes Gucci, Christie's auction house, and famed vineyard Château Latour. The Pinaults, by extension, are joining a tight-knit community of billionaires in the cruise industry, ranging from newcomer Richard Branson to industry forefather Micky Arison and the self-made Norwegian upstart, Torstein Hagen.
In an industry very much dominated by top players - Carnival Corp and Royal Caribbean Cruises Ltd control 70 per cent of the market - it is mostly niche segments such as Ponant's that are attracting wealthy entrepreneurs, says Brian Egger of Bloomberg Intelligence. Despite barriers to entry such as the cost and time it takes to build new ships, he says the industry can be a "good bet," especially if you're going after an underserved demographic.
The potential market is expansive. According to the Cruise Lines International Association trade group, cruising is a US$126 billion industry with plenty of room to grow. Mr Egger says that only about 20 per cent of Americans have taken cruises, and the number is smaller for Europeans and smaller still for Asians. "It's still a relatively under-penetrated sub-segment of the leisure and vacation market," he says.
Get new cruisers on a ship, though, and they're very likely to become return clients. So perhaps it's no surprise that billionaires like Mr Pinault are feeling the call of the seven seas.
Mr Branson identified one such niche before announcing his intention to start a cruise line in 2014: Virgin Voyages. With significant funding from Bain Capital, he's spending US$2.55 billion to build three adults-only ships for so-called "rebels with a cause," starting with the 2,700-passenger Scarlet Lady, slated for completion in 2020. It'll have a naked mermaid on its hull, mostly serving the Caribbean and employing a "Scarlet Squad" that promotes female leadership within the crew.
Meanwhile, Malaysian Chinese billionaire Lim Kok Thay, chairman of resorts and casinos company Genting Group, has been reshaping the luxury cruise market since he acquired Crystal Cruises from Japan's Nippon Yusen Kabushiki Kaisha in 2015 for US$550 million in cash. Mr Lim isn't as new to the cruise industry as Mr Branson: His company also owns Asia's Star Cruises and Dream Cruises and maintains a small stake in Norwegian Cruise Line. But with Crystal, he's delving into the global industry's top-end sector and making it even friendlier for the world's richest cruisers.
Under Mr Lim's stewardship, Crystal has undergone a lightning-fast expansion. The company, which had just two ships at the time of acquisition, has bought and renovated an existing river ship, built four new, all-suite river vessels to sail the Danube and Rhine, added a charter jet service, purchased three shipyards, and ordered an additional ocean-and-expedition ship. It's also renovated its two original products, Crystal Symphony and Crystal Serenity, reworking their overall footprints to add butler-serviced penthouse suites and offer additional space per passenger.
And there's Madame Pinault, who fell in love with Ponant and its environmental bonafides on a cruise to Antarctica. She and her husband are leaning into the niche. In addition to the six expedition yachts, the Pinaults have also commissioned the world's first electric-hybrid icebreaker powered by liquified natural gas. It's costing the company about US$323 million and will carry 270 passengers when it's complete in 2021.
"Shipbuilding is a capital-intensive undertaking," reminds Bloomberg Intelligence's Mr Egger. While the romance and favourable economics of the cruise industry are likely to continue to attract wealthy entrepreneurs, even those with ocean-deep pockets still face risks in the seafaring trade.
"Cruise sales are affected by swings in consumer discretionary demand and the price of fuel, the expense for which amounted to between 6 per cent and 8 per cent of Carnival's sales in the past three years," says Mr Egger. Also, he notes, hurricanes, shipboard incidents, and geopolitical events can disrupt itineraries. "Fortunately for cruise operators, ships, unlike their land-based hospitality rivals, are mobile assets that can be redeployed to avoid stormy weather - both political and meteorological." BLOOMBERG