Executive Interview: Stein Kruse, President & CEO, Holland America Line

Since taking the reins of one of the world’s premier cruise lines over five years ago, Stein Kruse has successfully managed Holland America’s operations through both good times and bad. Follow along as we hear his insightful views on a wide range of topics impacting the industry.

MarEx: Holland America’s history stretches over 137 years. Please give our readers a brief history of the company.

Kruse: Holland America was founded in 1873 in Rotterdam. Today, we are part of the large, publicly traded Carnival Corporation & plc. However, our roots remain firmly tied to the Netherlands, and the company recently opened a new European headquarters in Rotterdam that will be the center for operations for recruitment, sales and procurement. All the company’s 14, soon to be 15, vessels fly the Dutch flag and have Rotterdam on their sterns to signify their homeport.

During our 137 years in continuous operation, the company has survived two World Wars, the Great Depression and other global economic crises as well as the changes that came with the dawning of the jet age in the 1960s and 1970s. While much has changed throughout our long history, the company has always remained close to the Netherlands and to the Dutch monarchy. In fact, the current queen’s grandmother, mother and sister have been godmothers to some of our ships. The queen herself is godmother to the last ship we launched, our Signature-class ms Eurodam. Our current marketing strategy is to leverage our premium product and feature our Dutch heritage in our onboard experience, which is embodied in our Dutch officers, artwork and architecture.

MarEx: As the modern cruise business took hold during the 1960s and 1970s, HAL was owned by a Dutch company. When did Carnival Corporation & plc get involved and how did that transition take place?

Kruse: Years ago, when HAL moved its headquarters from Rotterdam to Stamford, Connecticut, the company was owned by a prominent Dutch family named van der Vorm. At the time of the relocation, HAL’s fortunes and operations were shrinking, and management began looking for new opportunities.

One was found in a company that had chartered a few vessels for cruises to Alaska. Charles “Chuck” West was a WWII pilot who returned home to Seattle and started a travel company he named after himself - Westours. Alaska was a territory of the U.S. at the time, and Westours carved out a niche by offering tours to the last great American frontier. HAL foresaw the future of Alaskan cruises, bought Westours and made its executive vice president, A. Kirk Lanterman, President.

A few years later, Carnival Corporation, which was becoming a force in the industry, went public and became Carnival Corporation & plc. With various brands, Ted Arison, Chairman, and his son, Micky Arison, who was in charge of corporate development, began looking for new opportunities within the cruise industry. Holland America Westours fit its business model and became its first significant acquisition in 1989. Almost immediately, Carnival began transforming HAL from a small operator of four ships and embarked on an aggressive building program, starting with our four S-class ships, ms Statendam, ms Maasdam, ms Ryndam and ms Veendam.

MarEx: When did you join the company and what was your original mandate?

Kruse: A. Kirk Lanterman was the CEO when I joined the company in 1999. HAL had been under Carnival’s umbrella for about 10 years and there had been an aggressive shipbuilding program in place. I was hired to be the head of fleet operations and to oversee the newbuild program and it was a very interesting time as we were in the process of taking delivery of the R-class series of ships, ms Rotterdam, ms Amsterdam, ms Zaandam and ms Volendam. We were also in negotiations for a contract to build what would become our Vista-class series of ships. It was my mandate to ensure the legacy and tradition of the company were maintained and to install more process-oriented management procedures.

MarEx: Tell us more about yourself. Are you a mariner?

Kruse: I’m Norwegian and grew up in Norway. After I completed my compulsory military service in the Norwegian Navy, I came to the U.S. to go to university. When I was about to graduate I had no firm plans, and was not sure if I would return to Norway or seek opportunities in the United States.

About this time a venerable old Norwegian passenger shipping company named Norwegian America Line had just been acquired by Leif Hoegh Company, a large Norwegian commercial shipping company. My father mentioned he knew someone at Leif Hoegh and suggested that perhaps I could get an interview. Well, I did get the interview but didn’t hear back for quite a while, so I worked on finishing up my Bachelor of Science degree at Purdue University. One day, shortly before graduation, I received a phone call from a Harvard Business School-educated Norwegian working in New York City at Leif Hoegh’s Human Resources department, and I was hired as the first (and only) management trainee at their new subsidiary Norwegian America Line.

Except for three years as CFO for K-Line America, I have never really deviated from being in the cruise industry. I have worked all over the world and on ships as an officer. I speak several languages and have been trained in operations and hotel management. I moved around in the cruise industry for a while and ended up being hired by K-Line, the Japanese cargo operator, which had an investment in a small cruise line that was struggling, Seven Seas Cruise Line.

I feel I did a pretty good job, but there was not a lot of opportunity for growing the business unless we acquired more ships, built ships or merged the company. A business associate and friend named Mark Conroy, who was President at that time of a company called Diamond Cruise, was in basically the same situation. He and I were at a meeting in New York, and we stopped in a bar to commiserate but ended up sketching out some ideas on a napkin about what could be done to improve both our businesses and revenues. He went back to his principals, the Carlson Companies in Minnesota, and I went back to my Japanese bosses with our ideas and proposals. About five months later the two companies we headed up merged and became Radisson Seven Seas, now Regent Seven Seas.

By creating the merger, I essentially engineered myself out of a job, but the management at K-Line had gained an appreciation of my efforts and sent me to Harvard Business School to go through the Advanced Management Program. From there I headed up the finance operations at K-Line North America for three years. During that time, I received a couple of calls from A. Kirk Lanterman asking if I’d like to work for him and HAL. He finally intrigued me enough to meet with him, and I realized he was offering me an opportunity to enter the company at a senior level with the possibility of succeeding him. I felt that the stars had finally aligned and I joined the company in 1999, became President and Chief Operating Officer in 2003 and President and CEO in 2004. I’m married to Linda - we’ve been together 25 years - and we have two wonderful children, Victoria (16) and Alexander (14).

MarEx: The global recession has had an impact on every aspect of the transportation industry. Consumers are demanding much more for their vacation dollar. What are the cruise lines doing to keep their ships full and make cruising a better option?

Kruse: As I said, I have been in the cruise industry for quite a while now, and what is remarkable is that our industry is one-hundred percent dependent on the discretionary dollar - people don’t need a cruise - but we have been very resilient during all the recessions I’ve been through. HAL creates and delivers a value proposition that is unparalleled. Moreover, during the almost 30-year period that I have been in the industry, the quality of the ships, the cruise product, the service delivery, our accommodations, food, entertainment and destinations are so much improved and truly worldclass in every way.

There was a lot of swagger thirty years ago, when we were a young and very entrepreneurial industry. But we have continued to deliver and improve on the value proposition while building a product that just keeps getting better and better. The offerings are global, from overnight cruises to around the world in 114 days; and there is a product out there for everyone - whether you’re single, a couple, traveling with kids, multi-generational or whatever.

So, even in a down economy, we are able to deliver a quality product for the right price. Unfortunately, on the delivery side we are hurting a bit as our pricing came down, but the consumer is truly benefiting. As an industry, we know our satisfaction ratings are higher than any other travel product and, at HAL, we track every customer response because we want to ensure we are delivering a consistently excellent product. Our mission is simple -“Through excellence, we deliver once-in-a-lifetime experiences, every time.”

MarEx: You mentioned that when Carnival took over HAL it had four vessels. How many are in the fleet today, and what is the name of the vessel being built at Fincantieri?

Kruse: HAL has 14 ships today and the 15th vessel is being built at Fincantieri Shipyard in Marghera, just outside Venice. It will be christened ms Nieuw Amsterdam, with much Dutch history surrounding in our operations and acknowledge it’s a collaborative process. The Canadian standards are similar to the U.S.’s. The cruise industry is working closely with the European Union to try and get consistency between their standards and those in North America as it is very difficult to operate ships to conflicting standards. There are significant issues that remain to be resolved with the EU. At the end of the process, there is no doubt that the standards in both the European Union and North America will be very rigorous. I only wish every industry were held to the same high standard as we are.

MarEx: The U.S. has strict environmental standards for all commercial vessels plying its waters. However, with multiple jurisdictions in multiple regions of the U.S., how are your deck officers and engineers dealing with these various and different standards?

Kruse: No question U.S. environmental standards are complex, multifaceted and multi-jurisdictional. Our compliance group at headquarters stays on top of all the rules and regulations and synthesizes them down to a common set of rules that we promulgate as Operational Directives. These Directives are then incorporated into our marine regulations (MRs), which are electronic and searchable. The Senior Vice President of Fleet Operations sends the directives to the fleet. While the Masters’ regulatory books keep getting larger, it’s the job of professional mariners and officers to be in compliance with the MRs and the Master’s standing orders.

Is being in compliance with overlapping jurisdictions easy? Certainly not, but we can and do follow the letter of the law on all our ships. I only hope in the future that MRs and the reporting requirements can be uniform. The Alaskan environmental standards are some of the strictest in the U.S. We comply with them and would be willing to do so throughout the country if the federal government established them as a uniform standard. The problem now is that there is no uniformity, which makes it very difficult for our people.

MarEx: Ship emissions are a global concern, and the IMO and other governmental organizations are reviewing compliance guidelines. The North American Emissions Control Area is moving 12 to 200 nautical miles offshore. What is the impact on the cruise industry of this sea change in emissions regulations?

Kruse: Currently there is not a lot of technology available that will allow operators to take emissions down to some of the most aggressive levels, particularly sulfur. In the immediate future, the best way to do it is by blending the fuel to a given level. It will be the easiest way to meet these standards for now.

We cannot put a cost on health or life. If emissions reductions improve health and life, then I am all for it. I believe we owe it to our kids and future generations. There is nothing more beautiful than taking a ship through the Alaskan glaciers, and I would like to ensure we can do it again next year and thereafter. The issues surrounding environmental concerns need to be balanced and rational. Climate concerns are an opportunity for businesses to get involved and meet the challenges. The world is and will be dependent on fossil fuels for the foreseeable future. Therefore, regulators and bureaucrats need to have an open dialogue with businesses that are directly impacted by the laws being proposed.

The Europeans have had fuel cells for at least 30 years along with other technologies to deal with these problems. But there have to be incentives to move forward. Fuel cells and the science of hydrogen can be turned into real business opportunities. Greenhouse gases are a serious issue facing humanity today, and capturing carbon can be a real answer to this overwhelming problem. In Rotterdam, there are some of the largest greenhouse facilities in the world. Currently they are capturing carbon dioxide and pumping it into the greenhouses, and plants are consuming the CO2. And greenhouse businesses are booming there. Right now in the North Sea, the natural gas and oil cavities are being filled with carbon dioxide and sealed. Now that is innovative.

MarEx: The U.S. Coast Guard’s Ballast Water Rule will establish two treatment thresholds: Phase 1 by 2014 and Phase II by 2019. What is the ultimate impact of these regulatory standards on the cruise industry?

Kruse: I think we can deal with it. The technology needs to be there for us to deal with water treatment. Otherwise, deep-sea ballasting is an option and it’s doable, but there are some inherent challenges. Certainly no one wants to compromise the safety of the crews and passengers. All of the environmental regulations coming down the pike, whether for wastewater treatment, garbage, emissions or ballast water, are reasonable. There is no opposition from anybody within our industry. Let’s just make sure we understand the science and technology and work on solutions together.

MarEx: Has the cruise industry and its regulatory representatives been consulted about the time frames and impacts of environmental regulations?

Kruse: Not to my knowledge, but when we are asked to participate, as we were ten years ago when Senator Frank Murkowski introduced one of the most stringent environmental acts in the world, our industry worked well with Congress.

MarEx: Finally, regarding consumer confidence and discretionary spending, what is HAL’s plan to ensure the customer keeps coming back to enjoy cruising on some of the most modern and luxurious vessels in the world?

Kruse: During the current recession, we have continually maintained the high quality of our product and provided outstanding accommodations, dining, entertainment, destinations and service. Additionally, we have continued to invest in enhancing our ships through our Signature of Excellence program, which now totals over $525 million and delivers the latest innovations and amenities to our guests. Moreover, our cruises offer great value for our customers.

We continue to market our brand and invest in our ships, but we operate prudently. We try to do more with less and, while we have not laid personnel off, we have had a hiring freeze. We have leveraged our assets to become more productive. It is amazing what we’ve accomplished during these last twelve months. I believe we’ll emerge stronger, open new markets and broaden our international reach. Our Rotterdam office is doing well, as is our sourcing in the U.K. and Australia. HAL has universal appeal that transcends borders. Our ships are elegant, tasteful and timeless. Holland America has a long, rich history and guests keep coming back because the quality is there for all to see and experience.

MarEx: Well said. Thank you.