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INSIDE VIEW:

BETTING ON
CELEBRITY

A conversation with
Royal Caribbean Cruises Ltd.
Chairman and CEO
Richard Fain.

by

Richard H. Wagner

Page One
Celebrity     Cruises
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Richard Fain has been Chairman and CEO of Royal Caribbean
Cruises Ltd. ("RCCL") since 1988.  Under his leadership, the
company has grown from a single cruise line with five ships cruising
primarily in the Caribbean to become the parent company of five
cruise lines with a half interest in another.  The world's second largest
cruise company, RCCL now encompasses 38 ships with a passenger
capacity of more than 84,000 and derives some 46 percent of its ticket
revenue from its international operations.   It is a multi-faceted growth
story but in this article, Mr. Fain speaks about one aspect of that story
- - the ongoing transformation of Celebrity Cruises by the introduction
of five new and innovative ships collectively referred to as the
“Solstice class”.

The Corporate Players

RCCL's two largest and best known cruise lines are Royal Caribbean
International ("RCI") and Celebrity Cruises.  While the two lines have
a common ownership, they provide quite different cruising
experiences.  "With the Royal Caribbean brand, we say the objective
is to deliver the 'wow.'  We like it when people come onboard and
say: 'Wow, look at this' or "Wow, I don't believe that.'  On Celebrity,
we are hoping people say 'ahhh."

  Royal Caribbean, the company's original cruise line, is geared
toward adventure and physical activity in a family-oriented setting.  Its
ships are typically large, high quality and spectacular in their décor
and their features.  This is the line that introduced rock climbing
walls, ice skating rinks, and surfing simulators to cruise ships.

  Celebrity Cruises was founded in 1990 as an offshoot of the Greek
shipping company Chandris Lines.  With two new ships and a
refurbished Chandris liner, it established itself as a small provider
which offered a service-oriented cruise experience in the premium
end of the market.  During the consolidation of the cruise industry that
took place around the turn of the millennium, Fain was able to
successfully negotiate Celebrity's merger into the Royal Caribbean
family.

  For much of the time since RCCL's acquisition of Celebrity in 1998,
the Royal Caribbean brand tended to overshadow Celebrity.  Royal
had more ships and their spectacular size and features tended to attract
the press.  However, at the same time, Celebrity was quietly building
a reputation of having high quality ships, tastefully decorated with
museum-quality art collections and of providing an onboard
experience strong in its dining, spa and enrichment programs. While
other up-market lines tended to cater primarily to an older audience,
Celebrity attracted baby-boomers who were already established and
who valued a cultured but relaxed cruising experience.  Over the last
decade, the line has evolved from being a boutique operation to being
a well-respected player in the premium market segment.

  "I think Celebrity has found its maturity, found its voice and found its
ability to communicate its personality.  I think that it is a more
sophisticated, premium experience."
  
The Solstice Gamble

RCCL's faith in the Celebrity brand was underscored when it ordered
for Celebrity five 122,000 gross ton ships to be delivered between
2008 and 2010.  This move would transform Celebrity and move the
line to a new level.  Not only would it increase the number of ships in
the Celebrity fleet but the ships would be nearly a third again larger in
terms of gross tonnage than the biggest ships in Celebrity's existing
fleet.  They would have nearly half again as many passengers and they
would have multiple dining venues, larger staterooms and a variety of
new and innovative entertainment options even including a half acre of
real grass lawn on each ship.

  "Collectively, this class represents a two and a half billion pound
[$3.7 billion] investment - - the largest new building commitment for a
single company in industry history.  I have to tell you that it was a bit
scary to be making such a large bet on one project but I can now call it
a bet because it has now paid off.  You might ask why did we
undertake such a massive project.  Frankly, it was because of our
confidence in the strength of the industry and the power of the
Celebrity brand.  We knew that our guests already loved Celebrity and
we also knew that there was a powerful demand for the kind of
superlative design and engineering [these ships] represent."

  Adding five large ships to the fleet would put Celebrity in the front
ranks of the lines competing in the premium market in terms of overall
passenger capacity.  To illustrate, the Solstice class would give
Celebrity a fleet of 11 ships but with an overall passenger capacity of
23,900 passengers which is slightly more than the overall passenger
capacity of Holland America's 15-ship fleet.   However, there were
risks in this undertaking.

  First, there was the question of whether ships this large would work
in a premium cruising context.   Looking back over history, one sees
that one of the ways the Royal Caribbean brand has grown has been
through the introduction of classes of ships that were much bigger than
its existing ships.  Sovereign of the Seas and her sisters were much
bigger than Song of America, which had been considerably bigger than
RCI's first ships.  Voyager of the Seas was a quantum leap in size over
the Sovereign class.  Freedom of the Seas was larger than the Voyager
class.  Most recently, Oasis of the Seas is almost half again larger than
the Freedom-class ships.  These progressively larger ships gave RCI
the benefit of economies of scale and also allowed the company to
include new features on the ships that distinguished them from the
competition and which attracted customers.  While this strategy has
proven itself in the mass market segment of the industry, it was a
gamble whether it would work on ships that were supposed to be
delivering a more luxurious experience.

  Fain was confident that it would work.  "Traditionally, you could
basically categorize ships based on size and the smaller they were by
and large, the more luxurious they were.  [But] luxury is not just
having a lot of space and being alone.  Luxury is having a choice of
where to go to eat, having a choice of dining rooms, having a choice of
entertainment.  I like being in a suite but I also want to be able to go to
a casino that is more than three slot machines and a dealer.  I like the
fact that we have 10 places that I can go for dinner onboard.  This is
another form of luxury.  So one of the interesting things is that five
years ago [i.e. when the Solstice class ships were ordered], people
would say you could never have a 2,800 passenger premium ship but
now nobody questions that [the Solstice class ships are] premium
ships."

  Beyond the onboard experience, there was also the question of
whether large ships could do a premium itinerary. A widely
subscribed to maxim was that the larger the ship, the more restricted it
is in what ports it can visit and thus of less interest to sophisticated
experienced cruisers.  However, Fain realized that this maxim was
based on an erroneous premise. "There are very few ports that could
handle a ship half [the size of a Solstice class ship] but not handle [a
Solstice class ship] because when you make the ship larger, the length
does not go up anywhere near proportionately.  Most of the increase is
in width and height and almost no port cares about your width and
height.  Clearly, there are some ports that a very big ship cannot go
into but it is relatively few."

  The aforementioned risks were risks as to whether the Solstice class
ships would be successful but there also could be a risk to Celebrity
as a whole from this project even if the Solstice class ships were
successful. The introduction of a series of new and innovative ships
could have an adverse impact on Celebrity's existing fleet.  The public
might become conditioned to new ships and perceive anything that is
not fresh from the shipyard to be old.  Moreover, if the new ships had
features that the existing ships do not have, it could become difficult to
sell tickets for the existing ships.

  "The bulk of our profitability continues to come not from the newer
vessels but from the older ones and I think that will continue to be the
case.  The world today is very much focused on 'newer' [but] one of
the things that I am quite impressed with and proud of is the
determination of our management people not to just look to the latest
but to make sure that the experience is commensurate throughout the
fleet. Unlike some other products, we are in a position to take some of
the things we have learned from the new ships [and incorporate them
into the existing fleet].   So, for example, when we saw the tremendous
response to some of the features on Solstice [the first ship in the
class], we undertook to 'Solsticize' our earlier ships.  The
Constellation [has gone] into drydock and [has received] some of the
nice features from the Solstice class ships - - the Tuscan Steakhouse,
the Bistro on Five, Café Al Baccio etc - - retrofitting her so we get the
best of all worlds.  We do the same sort of thing with the Royal
Caribbean brand too."  Similar retrofits have been scheduled for
Celebrity's Summit, Infinity and Millennium.  Celebrity Century went
through a $55 million refit prior to the introduction of Celebrity
Solstice.

  In addition, while the introduction of the Solstice class required
Celebrity to make an investment in its existing fleet, the publicity
generated from the Solstice class ships has inured to the benefit of the
existing fleet.  "I think that adds a bit of a halo to the fleet.  I think all
of the publicity associated with Oasis of the Seas and the Solstice
class have really helped the whole industry, not just us."

  With three Solstice class ships now in service, Mr. Fain's gamble
appears to be paying off despite the risks.  The ships have won praise
from travel writers, travel agents and most importantly, passengers.  "I
have been very gratified by the response that all the Solstice class
ships have gotten."

  One aspect of the Solstice class that has won them much praise is the
attention to detail in their design.  "The word that I have gotten most
often from the guests that we have had is it is 'stunning'.  I do think that
people care about that.  There are those who say it is not worth putting
that much effort or money into the design, into the art etc.  But I think it
makes us feel good.  It lifts our spirit and makes whatever we are
doing that much more enjoyable."

   "Each of these things requires somebody to think about it, care what
the outcome is.  They are not just putting lines on a piece of paper.  I
am in awe of their ability to do that.  I think part of it is the passion.  I
really do think that one of the things that distinguishes us is the passion
that everyone shares".

  Still, it is not just the décor that makes these ships successful.  
Celebrity has been able to transfer its standard of service to its new
large ships. "We have always said the most important aspect isn't even
the ship, it is the men and women who operate the ship.  We really
noticed starting with the Solstice what a tangible impact the crew's
pride in the vessel makes.  I remember when I went for the delivery of
Solstice our crew members were proud of the ship that they were
about to start working on and I promise you that they were at least an
inch taller than they had been on any other ship.  It is a virtual circle -
- the ship is beautiful, the crew is skilled, the pride in both makes the
ship work better."

    "A lot of effort went into the crew areas, the back of the house
areas.  Part of what makes this [class of] ship run so smoothly is the
back-of-house areas get the same attention as the front of the house
areas do; not just for giving the crew a good place to live but also to
make their job easier and more efficient.  If you have a good flow for
how you get food to the restaurant or how you get garbage out, that
makes their job easier."
Cruise ship interview - -  Celebrity Cruises - - Pichard Fain - page 1
Celebrity has grown subsrtantially since its first
purpose-built ship Horizon.  However, it has
maintained its reputation for quality.
CLICK HERE TO GO TO PAGE TWO OF THE INTERVIEW
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Its all about ships
and more
Celebrity Solstice, the first ship in the Solstice class
The second ship in the class, Celebrity Equinox.
The first member of the existing Celebrity fleet to be
"Solsticized" was Celebrity Constellation.
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