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Silversea Cruises & Royal Caribbean – Synergies Both Financial and Operational Result in RCI’s 66% Stake in Silversea Cruises

luxury cruises, royal caribbean, Silversea, Silversea Expeditions

It was announced today that Royal Caribbean Cruises will acquire 66% of Silversea Cruises, bringing both something each needed. I think it is going to be a very good things for both parties…and that is something that rarely happens. I will, of course, focus on the luxury end of things; with some historical perspective.

Silversea Cruises has, to my mind, always been missing “something”. While its owner, Mandredi Lefebvre d’Ovidio, has always been at the fore of the luxury cruise market, Silversea has suffered from a failure to find a true vision of what it is (other than of Italian heritage) and financial stresses. This had led, over the years, to a rapid and significant turnover of executives (other than at the very top) and ships that suffered from lack of consistency, maintenance and, of course, age.

Silversea Silver Shadow

While Silversea began working on updating its hardware with the 2009 launch of Silver Spirit, the ship build-out had many issues; most of which were related to financial issues including issues with its interior designer, which lead to a series of design flaws. With the Silver Shadow and Silver Whisper, Silver Wind and Silver Cloud getting a bit long in the tooth, things were not going well at all from the ships to the service to the cuisine. I, personally, experienced this during my 2013 sailing on the Silver Shadow. Goldring Travel’s Review of Silversea Silver Shadow (With Comparisons to the Seabourn Odyssey-Class Ships)

Silversea Silver Discoverer

Meanwhile, Silversea’s excellent expedition experience was being hampered by the same issues. And as it worked to expand in this high profit area, it ships were suffering as needed maintenance and upgrades were deferred. I personally experienced this in 2016 when I sailed on on the Silver Discoverer. Silversea Expedition Cruises – Exotic Journeys Focus on “The Journey” – Silver Discoverer Indonesia/Myanmar Expedition: Part IX (Reflections). The ship was literally just out of dry dock and it was in woeful condition with broken air conditioning, improper lighting, and tired staterooms…but the Expedition Team made it a fantastic experience; if not a luxury one.

It was clear things had to change…and, fortunately, it did! Silversea did four very important things:

Obtained significant financing;
Properly designed a state-of-the-art luxury cruise ship, Silver Muse;
Converted the Silver Cloud into a true luxury expedition ship; and,
Engaged in a serious refurbishment program of its existing luxury fleet

However, with all of these sorely needed investments, Silversea needed it ships to sail full and with strong pricing since there is all that debt it took on to do the foregoing that has to be serviced. In theory these upgrades would cause that to happen, but it only has to a degree. And that is where Royal Caribbean, with its very deep pockets and its world-class marketing and distribution systems come in.

There is a dirty little secret in the Luxury and Expedition cruise markets: Oversupply of ships both presently and into the future. On the luxury end, for example:

Seabourn has brought on two ships in a two years (Seabourn Encore and Seabourn Ovation)
Regent Seven Seas launched Seven Seas Explorer last year and upgraded its other ships
Hapag Lloyd recently launched Europa 2

On the expedition end:

Lindblad Expeditions is rapidly expanding and bringing on new hardware
Ponant is focusing more on expedition and is bringing on six new ships
Celebrity Cruises is building its Celebrity Flora for the Galapagos
Hurtigruten is building new ships
Quark Expeditions is building new ships

and the list goes on. While this is going to be a boon for the consumer, it doesn’t make things great for Silversea…especially with a heavy debt burden and no ability to really market itself differently or tap into various “move up” and “new to cruise” markets.

Royal Caribbean’s Oasis of the Seas

Meanwhile, there is the other half of this equation: What is in it for Royal Caribbean?

It has strong positions in the contemporary (Royal Caribbean), upscale (Celebrity) and premium (Azamara) markets, but even though it has some fantastic luxury suites on its ships across its brands, it has not been able to provide either its move-up guests with a true luxury product or to better tap into the “new to cruise” luxury market.

It may sound like a lot of money, but to effectively take over Silversea for one billion ($1,000,000,000) dollars is actually a very good deal for both parties…and the 66% ownership interest makes it clear to me that there is a very good level of trust that Royal Caribbean has great faith in Manfredi, personally, and the Silversea vision and product deliver.

I do not know the corporate structure of Silversea or how that might change, but my guess is that only certain major decisions can be made with a two-thirds (67.6667%) vote, so Manfredi retains enought control to make him feel as it Silversea is still his baby. It may be that Manfredi cannot be removed absent such a vote, so if he sells off any portion of his holdings Royal can up in its own CEO or restructure the entire company. But until then Manfredi continues to run significant portions of the operation.

However, there are things that Silversea needs (as noted above) that Royal can easily give and things that Royal may want that Manfredi (with a minority interest) will not be able to prevent happening; though clearly he has a high degree of trust in Royal Caribbean.

Azamara Journey

I am looking forward to Silversea getting “buffed up” and the addition of Royal’s vision. Why am I so positive? If you recall I recently sailed on Royal’s Azamara Journey and found Azamara’s premium product in its suites to be better than Regent Seven Seas. Azamara Club Cruises – Azamara Journey Asian Adventure – Part VI – Reflections (Azamara Journey vs. Regent Seven Seas Voyager). Royal allows Azamara’s captains a good bit of flexibility both operationally and guest experience, keeping things that may be relevant to large ships on the large ships and not imposing them on the smaller ones (unlike its larger ship brands) keeping Azamara nimble. A vision of “a luxury product is different” is essential…and, so far, Royal has shown it well understands this.

This is an exciting development in the luxury cruise market…and not only for Silversea. It is going to force all of the luxury cruise lines to up their games. That is good news!

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