Airtours buys third liner to corner budget cruise market

Airtours has paid pounds 26m for a third cruise ship to add to the pair of liners it currently sails out of Palma in Majorca.

The MS Song of Norway, which has just over 1,000 berths, is the sister ship of the Carousel, which Airtours acquired, also from Royal Caribbean Cruises, in October 1994.

Airtours entered the cruise business only two years ago, attempting to create a new niche market for seaborne packages priced around pounds 500.

Until then, cruises had been pitched at wealthier consumers and priced accordingly. The cheapest cruises then started at about pounds 1,400 a head.

Harry Coe, Airtours' finance director, said the company was able to offer cheap packages because its existing tour infrastructure enabled it to sell cruises at little extra cost.

The company already operates dozens of charter flights to Palma every weekend throughout the summer and, with a chain of 700 travel agents, it can run the cruise operation with a dedicated staff of only 10.

Mr Coe said: "We've not made any secret of the fact that our cruise operation has been an outstanding success since we launched it two years ago. We are carrying 100,000 people a year. It will probably rise to 150,000."

Airtours' initial plan is to operate the Song of Norway with its two other ships in the Mediterranean after the ship completes its final winter cruises for Royal Caribbean, which will lease it from Airtours until next March.

It is expected, however, that the ship will join the Carousel on winter tours to the Caribbean, which Airtours sells mainly to the Canadian market it has acquired through the purchase of two separate tour operators. The company said it had already sold 90 per cent of its cruise capacity for the 1996/97 winter season.

Mr Coe estimated Airtours had won a quarter of the total cruise market. He also believed the company had 90 per cent of the new market for budget cruises.

Airtours faces little serious competition at the budget end of the market, although Thomson entered the cruise business this summer by chartering a ship in the Mediterranean.

Airtours' latest acquisition comes at the end of a week in which the company, in line with other tour operators, reduced capacity and increased the price of late summer package holidays by about pounds 20 to pounds 30 a person.

Airtours led the industry into capacity cuts of about 15 per cent this summer, reducing the number of available holidays from about 10 million to 8.5 million.

That move followed a disastrous 1995 in which overcapacity forced the main operators to slash prices at the end of the summer season simply to cover costs. The result was a collapse of margins and profits.