Cruise Ship Wars | Anchors Aweigh! | 1

0:08It's late 1971 in Miami, Florida. Norwegian Cruise Line co-founder Canute Kloster marches down the dock of the Miami port. Around him, the place is bustling with workers loading and unloading cargo ships. A light sea breeze ruffles Kloster's thick, wavy hair. He's just off the plane from Oslo, Norway, where temperatures haven't reached above freezing in weeks. The balmy Miami temperatures feel glorious. But Kloster isn't here to enjoy the sun. He's here to confront his business partner, Ted Arison. Five years ago, Kloster and Arison founded Norwegian Cruise Line together. The company took cruising to new levels, ferrying people from Florida to various Caribbean islands for a week of fun and relaxation.

0:59But recently, a financial dispute drove a wedge between the two men, and Kloster sued his partner. A judge has ordered Norwegian's U.S. accounts put in a receivership. But Kloster doesn't trust Arison to abide by the ruling. So he's flown to Miami to make sure Arison does as he's been ordered. Kloster half-runs the last hundred feet to Norwegian Cruise Line's office on the dock. He bursts through the door. A young receptionist sitting at the front desk looks up, startled. Mr. Kloster, I didn't know you were coming in today. I need to see Ted. He's not in today. Where is he? I don't know. When's the last time you saw him?

1:39A couple of days ago. A sense of dread overcomes Kloster. Do you know the combination to the safe? The receptionist nods. I need you to open it right now. The receptionist leads Kloster to Arison's private office in the back. She moves aside a painting of a seascape to reveal a small safe built into the wall. She carefully spins the dial, entering the combination. The lock clicks, and the receptionist opens the door. What the hell? The safe is completely empty, except for some ripped rubber bands that had been used to hold bundles of cash. Kloster's mind races. He was willing to go along with Erison's story that his accounting methods were unorthodox, but essentially above board.

2:24But as he stares into this empty safe, he can no longer deny the truth. This is theft. Then, a more chilling realization hits Kloster. He turns to the receptionist. Get our Miami banker on the phone, right away! The receptionist nods and dials, handing the receiver over to Kloster. Yes, this is Knut Kloster with Norwegian Cruise Line. I need you to look into these accounts. I'll give you the number. He rattles off the Norwegian Cruise Line account numbers. Yes, I need you to tell me the balance in those accounts straight away. Just a moment, sir. There's a pause as the banker looks up the information.

3:07Kloster taps his fingers on the desk impatiently. I'm sorry, sir. Those accounts have been closed. Closed? Yes, it says here that Mr. Arison withdrew all the money two days ago. Kloster hangs up the phone without saying another word. His heart pounds against his chest. He can't believe Arison double-crossed him. Of course, Kloster can sue him, and he'll win. Arison doesn't have a legal leg to stand on. But it will take years for the case to make its way through the American legal system. And in the meantime, Kloster will have lost his company. Kloster swallows. The odds may be against him, but he's not going to let Arison win.

3:54He's going to do whatever it takes to keep Norwegian Cruise Line operating. Arison may think he's in the clear, but Kloster is dead set on making sure there are storms on Arison's horizon.

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6:15From Wondery, I'm David Brown, and this is Business Wars.

6:34The End

6:45This year, approximately 36 million people around the world are predicted to set sail aboard cruise ships. During their voyage, they'll likely gorge themselves at the buffet, drink one too many frozen daiquiris, get sunburned on the Lido deck, and belt out an off-key Adele rendition at karaoke. Joaquin. It'll be an experience where fun, relaxation, and luxury are the main focus. The days at sea are as much an attraction as the ports of call. Traveling by boat wasn't always so sunny and easygoing, though. Throughout the 19th century, ocean liners were the primary form of intercontinental travel, and they weren't a mode of transportation people took for fun.

7:28They were a means to an end. Third-class passengers were crammed into the steerage quarters, eating meager food with no way to bathe. And the stench of seasickness reached even the most expensive first-class cabins. But over the first half of the 20th century, passenger ships faced a slow decline in business, as restrictive immigration laws, the Depression, and two world wars reduced people's ability to travel overseas. But the nail in the industry's coffin came after World War II with the development of jet travel, which allowed passengers to cross oceans in hours rather than days. But in 1950, an enterprising businessman in Miami got a good deal on an old passenger ship.

8:16He decided to start ferrying retirees to the nearby Caribbean islands. And to sell people on the experience of traveling by ship, he decided to make their time on board part of the appeal. He added swimming pools, set up shade structures and deck chairs, and served tea every afternoon. And modern cruising was born. But it wasn't until the 1960s that cutthroat visionaries on both sides of the Atlantic saw the mammoth potential in cruising. Within six years, Norwegian Cruise Line, Royal Caribbean, and Carnival were all founded, and soon began battling it out to be the top cruise company in the world.

8:56In our new four-part series, we'll track the corporate skirmishes, boardroom betrayals, and brazen thievery that occurred as these swashbuckling CEOs transformed a niche vacation option for retired Floridians into a$30 billion industry. This is Episode 1, Anchors Away.

9:23It's summer 1966 in Miami, Florida. Ted Arison tosses a ball made of rubber bands between his hands as he sits in the office of his friend Meyer Halevy. The two men both grew up in what is now Israel, and both went into the freight business. Arison owned air cargo companies, while Halevy operates a car freight one. Arison thumps the ball against Halevi's desk insistently. His barrel chest strains against the buttons of his shirt as he watches his friend with a mischievous twinkle in his dark brown eyes. But Halevi doesn't look up from the report he's reading. Can we grab lunch already? I didn't fly all the way from New York to watch you futz around with spreadsheets.

10:06Hold your horses, would you? Some of us still have to work for our living. Arison recently sold his air cargo company for several million dollars, and as part of the deal, he signed a four-year non-compete agreement. He's about to move back home to Israel to wait out his forced retirement. Hey, trust me, I'd much rather be working. I'm 42 years old, these are my prime earning years, and instead I'm going to be twiddling my thumbs in Israel. Oh, okay, I'm ready. He's interrupted by his telex machine, a kind of proto-fax machine, clicking with an incoming message. Oh, wait, hold on, let me just see what this is.

10:47Oh, it's from Lou Fraser. He's the guy I was telling you about, who's chartering two of our ships and using them to take tourists to the Caribbean. Ah, that's a smart business. When I was in Nassau last year, the beach was brimming with people who had come off one of those cruise ships. Seemed like they were having a grand old time. Well, Lou says that business isn't going well and he's facing financial difficulties. Oh, come on. You're too smart to fall for that BS. This is a negotiating tactic. He's just trying to get a lower charter fee. You think? Absolutely. I guarantee you that in a couple of days he's going to get in touch again and ask for a lower fee.

11:28But you don't have to take that. I know the cargo business. I'll move to Miami and take over the charters for the boats myself. Are you being serious? Why not? I need something to do, and how different can moving passengers be from moving freight? All right. Well, if Lou tries to renegotiate this deal, I'll let you know. In the meantime, let's get lunch. Finally. I'm starving. The two men saunter out of the office and into the Miami sun. Arison's mind quickly moves on. He never expects that his off-the-cuff comment will completely change the course of his life. A few days later, after Arison has returned to Long Island, Halevi receives a phone call from Lou Fraser.

12:12Just as Arison had predicted, Fraser tries to negotiate a lower charter fee. But instead, Halevi cancels Fraser's charter and calls Arison. The charters are his, if he wants them. One ship, the Neely, is ready to sail. The other will arrive from Israel in a few months. His house already packed up with his family booked to return to Israel the next day. Arison makes a snap decision. He's not moving back to Israel after all. He's going to Miami. He's in the cruise ship business now. Arison arrives in Florida and quickly gets to work. He negotiates with Lou Fraser to buy out the bookings of passengers who had already paid for voyages.

12:57He hires a bulldog operations manager named Meshelum Zonis to run the hospitality side of the ship, including entertainment. And by the end of September 1966, he's run several weeks of successful cruises. The ships have been full, the passengers happy, and Harrison sees nothing but blue skies ahead. But in the fall, he gets word from union leaders in Haifa, Israel. The new ship is ready to sail to Miami, but Halevi's company is in financial dire straits. The union won't let the ship leave port, unless Erison deposits guarantees on the crew's salary. Erison doesn't have that kind of cash on hand, so the ship is trapped in Haifa.

13:43It's also the first Erison has heard about his friend's financial difficulties. And those difficulties get worse. Halevi's entire company goes belly up, and the Neely is seized by the Israeli government, which owns the mortgage on the ship due to non-payment from Halevi. Just months after investing all of his money into the cruise business, Arison has lost everything. He's devastated and feels like a fool. But over Thanksgiving dinner, a solution presents itself.

14:22It's Thanksgiving, 1966, in Miami, Florida. Ted Arison sits at the large dinner table at his attorney's house. All around him, people chat and feast. But Arison can't get into the holiday spirit. He's too depressed about losing his business. He pushes food around his plate, too despondent to eat. His lawyer notices Arison's meager attempts at eating. Buck up, Ted. I know things look bleak, but once you charter another ship, you'll be back in business in no time. How am I going to get a ship? I have no money, no credit. You get creative. Promise back end on future bookings. You're a smart guy. You'll figure something out.

15:06There's got to be some ship owner eager to make a deal. Well, there is one possibility. I was reading Travel Weekly yesterday and read about this brand new ship owned by this Norwegian guy named Canute Kloster. It was supposed to ferry people from England to Gibraltar, but with all the political problems in Gibraltar, the ship can't make the trip. From what the article said, I think it's just sitting empty in England. Well, you see, there you go. Call him up. But I have nothing to offer, and this ship is owned by the son of one of the most prominent shipping families in Norway. Why would he want to work with some putts who got into the cruise ship business less than six months ago?

15:46Well, because you have passengers with no ship, and he has a ship with no passengers. He'd be a fool not to at least talk to you. Well, it doesn't matter, because I can't even afford to make a long-distance call. Come on, use my phone. Harrison sits up in his seat, a grin coming over his face. Just the prospect of a deal is improving his mood. He shoves a big bite of mashed potatoes in his mouth. His appetite has returned. That night, Erison calls Kloster, and the Norwegian agrees to come to Miami in two days to meet with Erison and see his operation. Erison spends the next two days running around the Miami port, convincing his suppliers and crew to stay on for just two more days so he can present them to Kloster.

16:36Arison needs to sell Kloster on the idea that he has the skills and resources to run a successful cruise company, even though Arison's company is a house of cards. When Arison picks Kloster up from the airport, he can't hide his nerves. His hands shake and his voice sounds thin and strained. Once they get into Arison's office, each of Arison's suppliers outlines the numbers they ran on the Neely before it was seized. The concessionaires are doing their best, putting on a whole song and dance for Kloster. But as Arison looks at Kloster's face, he can see that the Norwegian isn't convinced. Arison becomes more and more withdrawn, convinced that this has been a waste of time and that he's doomed to financial ruin.

17:23But he's determined to see the meeting through, despite its inauspicious start. So Arison takes Kloster to meet Miami's newly named port director.

17:36The port is in the midst of massive construction, betting on the future of cruise shipping. A new passenger terminal is half-built, and piles of dirt and heavy equipment are parked around. Seeing the half-constructed port through Kloster's eyes, Arison's mood sinks even further. There's no way Kloster is going to see the potential. The port director bustles up. A retired naval admiral, he still walks with perfect posture, and an air of confidence surrounds him. He clasps Arison's hand and grabs his shoulder. Ted, good to see you. He turns to Kloster, shaking his hand with a powerful grip. And you must be Knut Kloster.

18:17The business your family has in Norway is most impressive. Thank you. I know looking around here, this must seem like a mess. But I have the best engineers working for me, and they can get anything built faster than anyone. And if you commit a ship here, you'll get your own terminal. I can promise that. Kloster nods, taking in the chaotic scene around them. You know, people back in Norway think I'm foolish to get into the passenger trade. My family made its fortune first by shipping ice and then oil. But I don't want to do the same thing my father and grandfather did. I want to build my own legacy.

18:57Harrison sees an opportunity to make a point. Cruising is definitely a way to do that. This industry is at the precipice, and it's only going to grow. We can be at the forefront. Hmm, maybe. The cruise director jumps in. Ted's right. I fully believe that the future of holiday travel is seagoing leisure. And this port is going to be the premier destination for it. What Ted is offering is an opportunity to shape a whole new industry. Kloster nods, a small smile quivering at his lips. He can't deny that he likes the sound of that. The director puts his hand on Arison's shoulder. And you won't find a better partner than Ted Arison.

19:41I watched him run the Neely. This is a man who knows how to run a cruise ship. Arison knows he owes this port director the best bottle of whiskey money can buy. If Kloster says yes, it'll be because of the Director's sales skills, not Arison's. Kloster crosses his arms and surveys the scene. Arison watches him on tenterhooks. Finally, Kloster turns to Arison. Well, I have one condition. I say it, anything. You have to guarantee me half a million in profits a year. If you don't hit that benchmark, our agreement is void. No problem. Kloster reaches out his hand, and Arison shakes it. He hopes his shaking hand doesn't betray his nerves about what he's just agreed to.

20:32He has no idea if he can turn half a million dollars in profits. But he's going to figure it out. Because one thing Arison does know is that he'll never allow himself to lose everything again. And he will do anything to guarantee that.

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22:43It's November 1966 in Miami, Florida. Ted Arison sits across from Canute Closter in his small office on the port of Miami. They've recently agreed to work together to start a cruise line. But now, it's time to hammer out the specifics. Arison lays out his plan. Look, I don't think this needs to be complicated. You handle the ship and the maritime staff. I handle the cabins, the food, and the entertainment. Yes, as long as it's clear that my staff is in absolute control when it comes to operating the ship. Definitely. My people don't know how to operate a ship. Our job is getting passengers on board and making sure they have a good time once they're there.

23:25Now, on to the name. I'm thinking Norwegian Cruise Line. Well, don't you think that might confuse folks? We're sailing from Florida to the Caribbean. Norway's nowhere in that picture. It's a Norwegian-built boat. A Norwegian crew operating it. I think it makes sense. Besides, Norway has a strong nautical tradition. It will give people confidence they are in safe hands. Yeah, I don't love it. But if it's make or break for you, then sure, we can call it Norwegian Cruise Line. Very good. Next item to discuss, since you'll be dealing with the travel agents and bookings, it makes sense for you to collect the booking fees and then send us our cut.

24:10Sure, but deposits are just deposits. People cancel and need refunds. So I don't think we should transfer the money until the cruise is complete. Ploster wrinkles his brow. Isn't it possible that some people will book their passages several months, if not a year in advance? Yeah, that's likely. So the money will just sit in your account for a year? Well, if that worries you, I can send you the balances and the budgets on a regular basis for you to see. Kloster thinks for a moment, then nods. That will work. Arison grins. I think this is the beginning of a beautiful friendship. Me too. and a lucrative one.

24:53Absolutely. With the agreement worked out, the two men get to work. Kloster dispatches one of his ships to the port of Miami. Arison's son, Mickey, drops out of college and starts working for the company, too. They start a national marketing campaign and almost immediately, Norwegian Cruise Line is a hit. Every week, they sell out their cabins. And when a ship is full, a ship makes money. Lots of money. Seeing the potential for growth, Kloster invests his money into building brand new ships. Soon, Norwegian Cruise Line has three ships sailing weekly out of Miami. And they're all selling out, making oodles of money.

25:38Other companies start to take notice of their success and want a piece of the action.