NCL Corp.'s Hawai'i cruise operations have become a major drag on profits and the company is "closely examining all options" to turn the unit around.

NCL America, as the Hawai'i operation is called, was a key contributor to Miami-based NCL Corp.'s $116 million loss in the fourth quarter, the company said. The loss was up from a $32.8 million deficit in the same period a year earlier.

NCL America has three U.S.-flagged ships cruising interisland routes with about 4,000 predominantly American crew members. Using mostly U.S. citizens makes costs higher for NCL America than for cruise lines operating with mostly non-U.S. employees. Meanwhile, NCL America still has to compete with foreign-flag ships that sail to Hawai'i.

Competition from foreign-flag cruise lines in the Hawai'i market is forecast to reach "unprecedented" levels, said NCL Corp. President and Chief Executive Colin Veitch in a news release.

NCL America's rapid expansion — adding a new ship in each of the past three years — has also boosted expenses.

"We therefore are closely examining all options in our efforts to bring NCL America to profitability and to reduce the negative impact on NCL America on the overall group result," Veitch said.

Robert Kritzman, NCL American executive vice president and managing director of Hawai'i operations, said he is "looking at various options" but was "not in a position to discuss specifics at this time."

Historically, the cruise industry has relied on foreign ships that hire workers from developing countries with larger pools of people willing to work long hours, often for less pay and under more difficult conditions than their American counterparts.

U.S. law forbids foreign-flagged vessels from transporting passengers between U.S. ports without visiting a foreign port along the way.

The U.S.-flag NCL America ships are allowed to operate interisland cruises, and they have agreed that 75 percent of ship crew members will be U.S. citizens.

"We have always known the cost structure for the U.S.-flag operation would be higher than our international ships," Kritzman said.

However, he said the company sees some good reports: "Our costs have been coming down and customer satisfaction scores improving."

Last month, Kritzman said the number of overall Hawai'i cruise ship passengers grew from 240,800 in 2004 to about 398,000 last year. He said that number is expected to swell to 486,000 this year.

Kritzman said the NCL America ships have been cruising at full occupancy but are still paying high startup costs associated with the rapid expansion.

Kritzman hopes the Hawai'i cruises will eventually be able to command a higher price. "We still must achieve a price premium in Hawai'i," he said.

Kritzman said competition from cruises with foreign crews, "particularly those offering 15-day cruises from the West Coast," have pushed prices down.

Reach Robbie Dingeman at rdingeman@honoluluadvertiser.com.