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Old 02-01-2009, 03:01 AM
Bill McCready Bill McCready is offline
Join Date: Jan 2009
Location: Southern California
Posts: 11

Delta Queen—an optimistic view: Installment 2 of 3

The execs I worked with at Delaware North during 2005 and 2006, including Delta Queen Steamboat Co.’s CEO, were well aware of the DQ’s need for a new exemption in 2008, and were on schedule to obtain this exemption a year early. What happened?

First was Katrina. Even before this September ’05 hurricane suddenly knocked out New Orleans tourism, Delaware North’s DQSC division couldn’t find enough full-fare customers to fill their 3 steamboats. And when you go back and look at pre-Katrina brochures you’ll discover that a majority of the cruises either started or ended in New Orleans. If you factor in the huge number of Spring and Fall 3 and 4 day loops that both started AND ended at the Robin Street Wharf, you’ll realize that New Orleans anchored up to 60% of DQSC’s total bookings. Projecting a profit on the Mississippi after Katrina destroyed New Orleans was akin to projecting a profit at IHOP without opening for breakfast. After years of disappointing financial results Delaware North decided to quit playing with steamboats.

Fortunately, Delaware North found Ambassadors International (AMIE), a young company with an entirely new business plan. After a short courtship (and only a few months after Katrina) AMIE bought DQSC from Delaware North in April ’06---the same week as my first Delta Queen charter.

AMIE’s intriguing game plan was to bring all six American riverboats (3 on the Mississippi plus 3 in the Pacific Northwest) under one ownership. Time was ripe, they figured, to promote a type of upscale river cruising that had become wildly successful in Europe. By adding luxury touches, cutting operating costs and avoiding price wars (which had killed river-cruise profits on the Columbia), AMIE could project a profit at fare levels too low to attract new competitors, who would be forced to build new vessels. Moreover, AMIE was able to create its American riverboat monopoly at fire sale prices. In the case of DQSC, Delaware North’s selling price for their 3 Mississippi boats was about half of what they’d paid at a bankruptcy auction only four years earlier.

But to survive, AMIE had to control costs. In doing this Majestic America made some regrettably poor decisions that have fueled many, many posts to this forum. Majestic not only made a bunch of silly choices that alienated core passengers, they also upset travel agents, ditched shorter (less expensive) itineraries and rescaled Mississippi River cabin pricing to “bring it in line” with their West Coast offerings. Another thing they “brought in line” with their West Coast operation was getting rid of the unions.

When post-Katrina bookings on the Mississippi remained soft, AMIE decided it was an opportune time to lay-up the Mississippi Queen. More than a simple refit, they decided to rip out dozens of the MQ’s interior walls to create a class of larger balcony staterooms that commanded premium prices out west.

In the midst of all this integrating and streamlining AMIE failed to fast track the DQ’s exemption process—which had been started before they purchased her in early 2006. On the first Tuesday of November 2006 the Delta Queen was thus vulnerable to a sea-change that proved more disastrous for her future than Hurricane Katrina. That was the day when frustrated independent voters who were unhappy with developments in Iraq surprised political strategists on BOTH sides of the aisle by showing up in unprecedented numbers to vote against the party of the commander-in-chief. That day’s surprise vote not only swept Democrats into office, it simultaneously flipped every congressional committee chairmanship. With pro-Union Inouye and Oberstar suddenly in charge of determining the Delta Queen’s fait, the former “slam dunk” exemption became a political football.

Many posters on this forum have imagined that Oberstar is some sort of crook who tried to bribe AMIE while receiving illicit payoffs from a pair of unions. I do NOT share this opinion. By my view, Oberstar had bigger goals. A year after Delta Queen changed owners, Oberstar's office informed an AMIE representative that the Delta Queen’s exemption was dead in the water. Was AMIE presented with an option? AMIE says no. While I have no personal knowledge of discussions between the two parties, I do know that AMIE was largely controlled and managed by the Ueberroth Family, who is as closely identified with Republican Party politics as unions are identified with the Democrats (90% of organized labor’s political contributions flow to Democratic candidates). Given the natural antagonism, I do believe reports that AMIE’s immediate concessionary offer to staff the DQ with a union crew was met with jeers, and a “suggestion” that AMIE should write-off the DQ and hire union crews for their 6 other boats.

In my unsubstantiated personal view, staffing AMIE’s entire fleet with union members would not have made one iota of difference. As proof I will remind you that Oberstar and both unions quickly made public pronouncements that they were not in bed with each other, and that no Delta Queen deal was on the table. If a few hundred union jobs was the underlying issue, why would the unions and Oberstar’s office have gone to such pains to distance themselves from each other?

If Oberstar wasn’t looking for a favor or payoff, was his motivation safety? I doubt it. Instead, in the middle of ’07 Oberstar may have figured a way for the little ol’ Delta Queen to raise millions of dollars for hundreds of Democrats who would run for election the following year. While Oberstar provided plausible political cover, his fellow Democrats could put the pinch on thousands of local unions. During these behind closed doors sales pitches the Delta Queen would be offered as “proof” of the party’s devotion to union causes. By my view all of the various public efforts to “save the Delta Queen” only made it easier for Democrats to quietly wring tens of millions of dollars from union coffers.

Do I have proof? My proof is the two related votes that got around Oberstar’s roadblock. In April 2008 Steve Chabot (R-Ohio) averted Oberstar’s Committee by attempting to attach a reprieve for the Delta Queen onto a revision of an unrelated bill. He lost the first round when a congressional rules committee blocked the inclusion of his revision on a 9 to 4 vote. Does anyone want to argue that all 9 Democrats wrongly believed the Delta Queen was unsafe while all 4 Republicans were somehow better informed? When Chabot then tried to overturn the rules committee with a procedural floor vote, 90% of the House Democrats (including those representing states served by the Delta Queen) voted to prevent a move that may have opened up a discussion of the Delta Queen’s safety. Were these congressional members afraid of learning about safety? More probable is that they voted against cutting off a prime source of election-year funds.

Am I a cynic? Actually I have a degree in Political Science plus 8 years of experience as an elected official (Claremont City Council 1984-1992).

This is not to say, however, that AMIE was merely a victim. Majestic America delayed the announcement and subsequent fight to save the Delta Queen for several months. Those of us who follow this forum were dispirited that AMIE’s initial public response was hardly more severe than a shrug of the shoulders. Like many of you, I questioned whether or not AMIE really wanted to see the Delta Queen survive. I checked with my contacts, and was told by an ex-Delaware North Executive that my suspicions were flat out wrong. While the process of preparing the application had been delayed through the transition, for a full year AMIE had spared no effort in finishing, presenting or backing its request for the Delta Queen’s continued exemption.

In the Spring of ’07, when someone in Oberstar’s office told AMIE that any bill with a Delta Queen exemption would never make it out of committee (in spite of AMIE’s offer to re-instate the union), why wasn’t AMIE’s initial public response more combative?

My contacts at Majestic America (where I was working on putting together a Columbia River charter) provided two explanations. First, it wouldn’t have been effective (Oberstar is in a very safe seat). Second, AMIE had by then realized that their Mississippi strategy had been a disaster. Instead of finding new passengers, they’d driven away travel agents and past clients. Even with one of their big Mississippi boats sidelined, they couldn’t find enough full-fare passengers for the two that remained. The silver lining of Oberstar’s message was that AMIE could use this “bad news” to create a buzz. Instead of declaring an immediate war on Oberstar, they instead decided to run a short-term “last chance” promotion where they'd work with travel agents to fill empty cabins while raising needed public awareness. Unfortunately, this AMIE plan, like most others, proved unsuccessful.

Why didn’t AMIE transfer the DQ to a third party? Wouldn’t a non-profit or Democrat-affiliated bigwig have had better “luck” obtaining a new exemption? Throughout 2007 AMIE was still optimistic about the long-term success of their river cruise monopoly. The only thing worse than losing the use of the Delta Queen would be to have her survive to become a potential competitor.

In a casual conversation one AMIE insider told me that if the Delta Queen could no longer carry overnight passengers she’d be worth more if broken apart than if kept whole. In this totally candid conversation we wondered about the E-Bay value of the calliope, pilot’s bell, doors, windows, etc. Although the person I was talking to was NOT senior enough to know AMIE’s fall-back position, it caused me to recall those old west “WANTED” posters. Was the DQ worth more “DEAD or ALIVE”?

A second personal fear came by way of a small railroad museum here in Los Angeles. Their prize display is an ex-Southern Pacific steam switch engine with curious burn marks and missing sections of drive rods. It seems that on the eve of its transfer to the museum, some idiotic railroad employee desecrated the locomotive to make sure it wouldn’t fall into “enemy hands.” In my mind’s eye I could envision a "preserved" Delta Queen with a spiked boiler or shorn pitman arms.

As 2007 came to a close I was convinced beyond all doubt that 2008 would be the Delta Queen’s final season; and that she’d soon be scrapped or permanently disabled. Now, however, I can imagine a bright future. I’ll share this with you in my third and final installment.

Bill McCready
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