Virgin berths: Creating a cruise line for Virgin Group
In a suburban office building near Fort Lauderdale, a small group of executives is creating a cruise line from scratch as part of the Virgin Group.
The data led Virgin to make what McAlpin now calls “a course correction.” The company decided to shrink the size of its ships by a third and increase its fleet by a third. In- The U.S. Market: Perspectives on Cruising 40% — Adults who have been on a cruise in the past five years and who intend to go on another in the next five 40% — Adults who have never been on a cruise but would be willing to try 20% — Adults who say they will never cruise stead of a pair of 4,200-passenger ships, Virgin would build a trio of 2,800-passenger vessels.
That meant Virgin and its Italian shipyard, Fincantieri, had to start over. Working frequently from the Hotel Savoia in Trieste, Italy, near Fincantieri’s offices, Virgin execs and the shipyard raced to rewrite the GAP. The work was time-sensitive: Virgin had to get a construction timeframe settled in order to secure coveted weekend departure spots at PortMiami before another cruise line claimed them.
The new GAP was done in six weeks — “record time,” McAlpin says. A few weeks later, Virgin announced that its first ship would set sail in early 2020, leaving every Sunday from Miami on seven-night Caribbean voyages. The second and third ships will follow in 2021 and 2022.
McAlpin says shifting to a fleet of three smaller vessels offers several advantages. Virgin ships will be able to sail places mega-ships can’t; the line can offer a wider range of voyages; and there’s less financial risk if an itinerary underperforms.
Not a factor in its decision to switch to smaller ships, Virgin insists, is a lawsuit filed in early 2015 by former Norwegian Cruise Line CEO Colin Veitch. Veitch says he approached Virgin in 2012 with a plan to start a new cruise line with a pair of 4,200-passenger “ultra ships.” Veitch and Virgin negotiated a framework for a deal and worked together for more than a year until Veitch says Virgin suddenly walked away. Virgin, which denies stealing Veitch’s plan, negotiated a confidential settlement with Veitch earlier this year. Once the business was established, Virgin says, decisions about ship size and design were entirely “customer-led.”
Virgin won’t say how much its ships will cost. But other cruise lines have paid about $250,000 per berth for similar sized ships, according to UBS research — putting the cost of Virgin’s ships somewhere around $700 million each.
Details of what Virgin’s cruise ships will look like or what they will feature onboard remain a closely protected secret. Cruise lines don’t typically start booking until about 18 months before ships depart, and Virgin is determined to save as much publicity ammunition as it can until it actually has a product to sell.
Among the few hints from McAlpin is that Virgin intends to work with architects from outside of the cruise industry to craft unique designs for the company’s ships.
Some clues to the company’s thinking can also be found in records filed as part of the lawsuit brought by Veitch, the former Norwegian CEO. According to one presentation prepared for potential investors, dated January 2012, Virgin and Veitch planned to target a core market of young, affluent couples in the North America and the United Kingdom — couples in their 30s and 40s with household incomes of about $100,000 per year. Secondary markets were to include older “young at heart” travelers, singles and groups of friends, and younger couples on a budget.
Live music was a core entertainment feature, and the ships were to be technologically “wired” in all areas. Unique architecture would be a point of emphasis, with small, intimate spaces mixed in with “some spectacular features.” The company expected to begin by sailing in the Caribbean and the Mediterranean and eventually add Middle Eastern itineraries.
The presentation also indicated that Virgin expected to carve out a position as a premium product within the mass-market space, much like Disney Cruise Line, which earlier this year announced orders to add a fifth and sixth ship to its fleet.
Virgin executives make it clear they hope to emulate parts of Disney’s strategy. “We see that there is a business model that works very well, which is all about using a brand and creating a differentiated product specifically created for Virgin customers,” McAlpin says.
“We’re not looking to be 30 ships. We’re happy to be more than three, obviously,” he adds. “But we’re also happy to focus on our product and creating a differentiated experience and getting a premium for that.”
Virgin says it expects to spend the rest of this year working on ship design before the shipyard cuts the first piece of steel sometime in 2017.“And then it’s pencils down,” McAlpin says. “At that point, changes become very expensive.”
In the meantime, Virgin Cruises is trying to foster a startup culture inside its temporary headquarters in Plantation, on the third floor of a suburban office building overlooking I-595. One wall of the company’s lobby has been covered with a bright mural of a blonde wearing a captain’s hat, sunglasses and red lipstick. The other has a Sex Pistols poster and an oversized television where the slyly self-aware phrase “This ain’t some Mickey Mouse cruise ship” flashes at visitors — a welcome joke for McAlpin. There is exactly one landline telephone, just in case security needs to call.
Everybody wears multiple hats. Andy Schwalb, the chief technology officer, has been doubling as the IT guy, helping colleagues install software on their computers and phones. Employees recently found McAlpin on his back in the break room, plugging in a new office dishwasher. McAlpin, a Seminoles football fan, says he looks for the best “athletes” who can do multiple jobs when adding to the company.
“Every day there are new challenges we face,” Saverimuttu says.“But I think ultimately it’s about everybody being focused on the prize. And the prize is creating the right kind of business, the right kind of culture and, ultimately, creating a Virgin Cruises brand that we’re all proud of and customers love.”
To fill its executive ranks, Virgin Cruises wanted a mix of people well-steeped in the Virgin brand; those who were experienced cruise industry veterans; and some from outside both silos who could bring a fresh perspective. The initial team:
» Tom McAlpin, president and CEO, was the CFO at Disney Cruise Line when it launched in the mid-1990s — the last time a major cruise line was established in North America — and later rose to company president. He left Disney in 2009 after 15 years with the company and became CEO of The World, a luxury condo cruise ship based in Fort Lauderdale. That’s where he was when Virgin came calling.
» Nirmal Saverimuttu, chief commercial officer, was a principal with Virgin Management, the arm of Richard Branson’s Virgin Group responsible for North American investments. He guided the launch of the Virgin America airline and Virgin Hotels. After Saverimuttu recruited Tom McAlpin to run the Virgin’s new cruise line, McAlpin turned around and persuaded Saverimuttu to come aboard.
» Dee Cooper, senior vice president for design and customer experience, is a former Virgin Atlantic executive who led award-winning redesigns of the airline’s upper-class cabin and its terminal at Heathrow Airport. She had struck out on her own as a consultant, with a client list that included the 2012 Summer Olympics in London.
» Stuart Hawkins, a senior vice president, will oversee ship construction. Hawkins worked with McAlpin on the launch of Disney Cruise Line and had been a senior vice president at Carnival’s Princess Cruises division.
» Nathan Rosenberg, chief marketing officer, is a dual Australian and Canadian citizen who had previously overseen the launch of Virgin Mobile in Canada. In a timing quirk, Rosenberg was technically the first Virgin Cruises employee. “They wanted to test the payroll system,” he quips.
» Andy Schwalb, chief technology officer, was the former head of technology for Walt Disney Co., part of a team of five executives who conceived and designed Walt Disney World’s sweeping “MyMagic+” project. The more than $1-billion program included an advance reservation system allowing visitors to book ride times weeks in advance; microchip-embedded wristbands that function as credit cards, room keys and park tickets; and a suite of data-gathering and analytics technology. Schwalb’s job is to rethink the cruise experience — from when customers load the website to book a trip to the moment they step back onto shore. “We’re looking for where the pinch points are and saying, ‘how can we improve that?’ ” Schwalb says.
» Frank Weber, vice president of operations, had been at Norwegian, where he designed food-and-beverage concepts ranging from a craft-beer hall to the Jimmy Buffett-branded “Margaritaville at Sea.”