Tuesday, 9 December 2014

Branson looks to make waves with expansion into cruising

Branson looks to make waves with expansion into cruising


After toying with the concept for many years, Richard Branson finally took the plunge and committed his Virgin brand to a new cruise venture, to be known as Virgin Cruises.

The startup will be the first major cruise line to be created from scratch with new builds since Walt Disney Co. unveiled its cruise plans nearly 20 years ago.

Though sometimes controversial, Branson, the founder of Virgin Group, has earned international respect in the business world as a visionary entrepreneur.

But one cruise veteran said Disney’s experience demonstrated what kinds of challenges Virgin faces.

“It’s not an easy business to break into,” said Mark Conroy, former Regent Seven Seas Cruises president. “It took Disney four or five years to get it where it needed to be.”

Branson’s vision and business acumen should help overcome obstacles. His Virgin Atlantic Airways provides a distinctive product in a fairly uniform industry, and the Virgin label is a part of more than 400 businesses worldwide, including entries in travel, entertainment, telecommunications, media, financial services and healthcare.

“We plan to shake up the cruise industry and deliver a holiday that customers will absolutely love,” Branson said in a statement announcing the formation of Virgin Cruises.

In that statement, Virgin Group said the line planned to start by building two “world-class” ships. The size of the vessels was not disclosed, nor was a date mentioned for the start of operations. Virgin said those details were being withheld for competitive reasons.

Conroy estimated it will take 36 to 40 months to design, build and deliver a ship that will serve as a prototype for the line.

The new cruise line plans a headquarters in the Miami-Fort Lauderdale area, which could be seen as a sign that it will be more focused on selling to the North American market initially than to the U.K., where most of Branson’s other businesses are based.

In the U.K., cruise tours are sold under the Virgin Holidays Cruises label, combining a land vacation with a cruise on a variety of established U.K.- and U.S.-based cruise lines.

Conroy said starting a cruise line has become a dauntingly expensive proposition, estimating it will cost $750 million to $1 billion to build the ships that Virgin disclosed.

“In the olden days, you could start a cruise line with $20 million or $30 million,” Conroy said. “Not today.”

To help with financing, Virgin Group said it has enlisted Bain Capital, a well-known private equity and venture capital firm, to be its lead investment partner. Notable investments in startups by Bain Capital’s venture arm include DoubleClick, LinkedIn and Shopping.com.

For cruise expertise, Virgin has hired Disney alum Tom McAlpin as CEO of Virgin Cruises. McAlpin helped found Disney Cruise Line and was its president from 1996 to 2009. He subsequently became CEO of The World, Residences at Sea. A Miami native, he started his cruise career at Royal Caribbean International.

“Opportunities like this do not come often, so I am very excited to lead this business and introduce the Virgin brand to the cruise industry,” McAlpin said in a statement.

Adam Snitzer, principal at Peak Revenue Performance, a Miami Beach cruise consulting company, said Disney’s continued success in the cruise business was partly due to McAlpin.

“He’ll bring a lot of fresh ideas to the Virgin brand,” Snitzer said. “Getting a new cruise line off the ground is a lot of work. Tom’s done it before for Disney. I see no reason to think he can’t do it again.”

Snitzer said that Branson’s arrival is good news for a business on the hunt for new and younger customers.

“To the extent that many people still see cruising as ‘food fests for seniors,’ having a cool, hip, well-known entrepreneur like Branson as an owner will only help to further break down that old misperception,” he said.

Branson’s interest in cruise was well known in the industry. “He’s probably talked to everyone in the business over the years,” Conroy said.

Ray Cotton, a principal with Bain Capital, said the cruise industry needs what Branson’s got.

“With a small number of global players, an experience in need of refreshing and consumers ready for something new and exciting, the industry exhibits all the characteristics of one ripe for a new entrant,” Virgin’s statement quoted him as saying.

But Conroy said cruise lines are already doing some interesting things without any outside pressure, citing ships such as Royal Caribbean’s Quantum of the Seas and Norwegian Cruise Line’s Norwegian Breakaway.

“Norwegian is a transformed company,” Conroy said.

Although the Virgin brand is a strong marker for hip and youthful, Conroy said he was uncertain whether it would command the same premium as Disney does in the family market.

“It all depends on what it delivers,” Conroy said.

Virgin Atlantic has cultivated a loyal following, but if anything its transatlantic fares are lower than those offered by old-line competitors such as British Airways or Lufthansa.

Conroy said that Branson’s dealings with travel agents are encouraging. “I know a lot of agents who know him, and he seems to be agent-friendly,” he said.

Evan Lovell, a partner at Virgin Management Ltd., said in a statement that the cruise line will benefit from Virgin’s “extensive travel and leisure experience,” which includes passenger train service in the U.K. and a new hotel brand that is scheduled to open its first property in Chicago next month.

Much like Disney, Virgin can benefit from mining its existing databases to market the cruise venture to customers who have already tried some of its other travel-related products.