Cunard's battered image sinking after accident

Cruise crisis: Expensive embarrassment may seal fate of company struggling to recover credibility as new owners ponder future of troubled name in shipping

TOM STEVENSON

City Editor

The future ownership of Cunard was thrown into doubt by the holing of the Royal Viking Sun, only hours after the cruise line's parent company, Trafalgar House, had been acquired by Kvaerner, a Norwegian engineering and shipping combine.

The timing of the accident could hardly have been worse for Kvaerner, which announced on Thursday morning that its pounds 904m offer for Trafalgar House had been accepted by an overwhelming majority of its target's shareholders. The deal is now subject only to regulatory approval.

Kvaerner, which said yesterday that it saw no reason for the deal to be jeopardised by the accident, has made no secret of its desire to sell on Cunard to recoup some of the cost of buying Trafalgar House. The Norwegian group has no interest in the engineering and construction company's non-core trophy assets, which until recently also included the Ritz hotel in London.

The accident raised questions about the ongoing value of Cunard, which has a price tag in Trafalgar House's accounts of pounds 294m. That figure itself represented a big fall from a year earlier after a heavy write-down in its value was imposed following the QE2's costly "cruise from hell" in December 1994 when a bungled refit led to hundreds of passengers making successful claims for compensation.

Yesterday a spokesman for Cunard said it was too early to tell how much the latest disaster would cost the company. At this stage there are too many variables such as the cost of chartering evacuation aircraft at short notice and towing the Royal Viking Sun to a port for repairs.

As well as the immediate cost, however, Thursday's accident represents a poor advertisement ahead of the proposed sale of Cunard's ageing fleet. Potential buyers, such as Britain's P&O, owner of Princess Cruises, and big rivals Royal Caribbean Cruises, Carnival Corporation and Disney, are sceptical about the wisdom of buying older ships.

Modern cruise liners are more fuel-efficient, cheaper to run and gain more revenue from better on-board entertainment packages. Some observers think that Cunard might have to spend $1bn to bring its fleet up to scratch.

This latest high-profile accident is a commercial disaster for Cunard. Not only will it now face unquantifiable repair and compensation payments, but its reputation as the industry's poor relation is confirmed.

When a firm of consultants was sent into Cunard in the wake of the 1994 fiasco, it described it as "the worst-managed company we have ever looked at". It was a damning assessment of a fleet that included the QE2 and prided itself on unrivalled service.

A year ago, a new chief executive, Peter Ward, was parachuted in to sort the company out. He was staggered by what he found: "There weren't even any business plans. There were two dozen different ways of making every decision."

The consultancy, Arthur D Little, sent staff to four Cunard offices in Sydney, London, Hong Kong and New York. All of them bought a ticket for the same berth on the same day and ship. Last year, Cunard lost pounds 16.4m and at least two more years of losses are forecast.

Cunard has suffered a number of embarrassing incidentsin recent years. Last month the MV Sagafjord drifted in the South China Sea after an engine- room fire knocked out its power.While less widely reported than the QE2 fiasco, which cost pounds 7.5m in refunds and travel credits, it was a major setback to Cunard's attempts to rebuild its tarnished image. The Royal Viking may have scuppered them for good.

Journey into troubled waters

Cunard, a name synonymous with luxury ocean-going cruise liners for 150 years, has run into troubled waters in recent years.

n It lost pounds 16.5m last year and chief executive Peter Ward, brought in to turn it around, said it was unlikely to break even until 1998.

n In March the Norwegian Kvaerner group bid pounds 904m for Cunard's parent, Trafalgar House, sparking speculation that the company and could be put up for sale.

n In February its cruise liner Sagafjord became becalmed in the South China Sea carrying 500 passengers. It was towed to the Philippines after a fire in the generator room. It is to be withdrawn from service.

n Last year Southampton officials condemned food hygiene on board the QE2 and threatened legal action after inspecting its Queen's Grill.

n Cunard paid pounds 7.5m to mutinous QE2 passengers after a trip dubbed the "cruise to Hell", in December 1994. It sailed before a pounds 30m refit was completed, leading to complaints of "exploding toilets" and debris-strewn decks.

n US coastguards accused Cunard of risking passengers' lives and said the ship should never have been allowed to set sail. They blocked its departure from New York while essential repairs were done.

n Plans for a another pounds 15m QE2 refit were announced this week.

n In 1993 Cunard was fined pounds 1,000 and told to pay pounds 120 after complaints that a cruise advertised as a "two-day" trip lasted only 38 hours.

n The QE2 grounded in 1992 after striking an "uncharted" object off the eastern US. Millions of pounds were lost while repairs took the ship out of service.