Headwind in the horizon for Windstar

Ambassadors International, the US based company that owns Windstar, has tried hard to sort out its house and exit all other businesses save for Windstar itself. Until recently, the listed company owned US flagged coastal cruising vessels, designed marinas and was involved in the event organisation business as well – hardly a mix that one could say offers obvious synergies.

This was understood by the Ambassadors management as well, but while focusing on Windstar may be the right way in the short term, in years to come Windstar itself is likely to face a problem that is common to many an operator of small, niche vessels: ageing fleet.

Windstar has three ships, the 5,350 gross ton Wind Spirit and Wind Star were built in 1988 and 1986 respectively, while larger 14,745 gross ton Wind Surf was originally built for club Med in France in 1990 and acquired second hand by Windstar. The two first-named shiop cost $34.2 million to build, while the larger vessel was also much dearer, costing $140 million to construct.

All these ships should have a fair bit of life in them. As a rule of the thumb, cruise liners are depreciated roughly over 30 years, but in fact their life cycle tends to extend well beyond that. Nevertheless, at some point all ships become due for recycling.

It is difficult to think that Windstar would be able to find a yard that can deliver adequate quality at an acceptable price should it want to replace the three vessels with anything similar. Capital expenditure tends to rise faster than revenue when a small company enters the newbuilding sector: this was shown in the case of Celebrity Cruises and Costa Crociere in the latter half of the 1990s.

So, is Windstar a lost case? At least for quite some time into the future it should not be. However, in the long term it faces a problem that many small operators of niche cruise vessels are facing too yet none of which appears to have found a solution and that is the economic dilemma of fleet renewal.

Perhaps Yachts of Seabourn, the luxury brand owned by Carnival Corp & PLC offers an indication which way to go: their latest trio of ships carry 450 passengers, more than twice the figure of their original threesome, while their 30,000 gross ton size is three times that of the older ships.

So far so good – but then arises the question if the product remains the same if you increase the size of your ships by so much. And the answer is that it most likely does not.