Norwegian Cruise Line follows the money with itinerary optimization

The pier at Icy Strait Point. Alaska is one of Norwegian Cruise Line's most lucrative destinations.

The pier at Icy Strait Point. Alaska is one of Norwegian Cruise Line’s most lucrative destinations.

Last winter, the Norwegian Spirit did 11-day runs from Barcelona to the Canary Islands and back, a traditional warm-weather cruise in Europe’s colder months.

But on a recent conference call, Norwegian Cruise Line Holdings CEO Frank Del Rio described it as “one of the historically lowest-yielding areas” to sail.

Jump forward a year, and the Spirit will emerge in February from a $100 million drydock and head for Asia, where it will sail nine-day cruises around Japan and cruises of 12 days or longer to Japan and China.

Del Rio said it is an example of Norwegian’s strategy of itinerary optimization, in which the line looks for the highest-returning itineraries available at a given time and concentrates its ships in those areas.

Asia, Del Rio said, and other exotic itineraries will “take advantage of our huge customer base, our past guests who have never been to those areas because we’ve never sailed to those areas before.”

Norwegian is scouring its deployments to see where customers are willing to pay the most, and it is capitalizing on their extravagance.

One area in which it is loading up on capacity is Alaska, where other lines have traditionally reaped the market premium. Although Norwegian has been sailing to Alaska for 20 years, its interest deepened in 2018 with the success of the 4,000-passenger Norwegian Bliss in its first Alaska season.

Christened in Seattle, the Bliss was a smash hit, according to Norwegian — so much so that when faced with obstacles in the Chinese market, Norwegian pulled its purpose-built Norwegian Joy out of Shanghai and sent it on short notice to Alaska in 2019.

Norwegian Bliss, Photo credit Dave Jones – https://flic.kr/g/GZdoW 

Next summer, the line will repeat the feat, while also redeploying the 1,936-passenger Norwegian Sun to Alaska from the Bahamas — another low-yielding market, according to Del Rio.

In addition, to squeeze in more high-yielding cruise days, Norwegian is pushing the limits of what until now has been considered the cruising season in Alaska.

“Alaska used to be a three-month season — June, July and August. Now we’re getting there in April, and we’re not leaving until October,” Del Rio said. “It’s now a six-month season of very, very high-yielding — not only on tickets but incredibly high-yielding on onboard [spending]. And so we’re going to continue doing that.”

One of the keys to high yields in Alaska is to have land infrastructure that maximizes revenue opportunities from shore excursions as well as pre- and post-cruise extensions to lodging in the interior.

Norwegian recently announced a new aerial lift transportation system at Icy Strait Point designed to make its dock there more attractive.

The line is also extending the season in Europe, rather than bringing ships back to the Caribbean in October. Del Rio said he likes Europe because, for Norwegian, it means carrying high-spending guests.

In addition to North Americans, Del Rio said, “Guests for these itineraries do not come from locally sourced Europeans but from the rest of the world, including Australia, Asia and South America.”

He added: “And that’s a very important differentiator for us because we know that a guest who flies long distances to board the ship is a higher-yielding guest than one who drives their car or takes a bus or train to the port of embarkation.” 

Next year, Norwegian is going back to the eastern Mediterranean, another high-yield area that Norwegian was one of the first to drop in 2016 after a spate of terror attacks and a coup attempt in Turkey.

At times, however, the itinerary optimization strategy backfires. The most recent example of that is Cuba. It was a natural destination for itinerary optimization when it opened to cruises from U.S. ports in 2016, and NCLH put more resources, proportionately, into Cuba than some of its rivals did. 

But that also meant that when the Trump administration abruptly shut down U.S. departures to Cuba in June, NCLH was disproportionately hurt. In the third quarter, the withdrawal from Cuba reduced NCLH net income by $53 million from a year earlier. 

“The year-over-year comparisons are night and day, in terms of pricing, because Cuba’s demand was at such a high price,” Del Rio said.

Literally overnight, twice-weekly Norwegian cruises from Miami and Port Canaveral that had included Havana had to be repriced as “Bahamas-intensive” cruises, said NCLH CFO, Mark Kempa.

Redeployments that will fully take effect in the second quarter of 2020 will finally end the economic penalty that resulted, Kempa said. 

By sending the Norwegian Sun to Alaska next summer from Port Canaveral, Norwegian will halve its Bahamian deployment, “thus reducing capacity from this historically lower-yielding destination,” he said.

Norwegian Cruise Line Wins Key Juneau Property Bid

Norwegian Bliss

According to media reports in Alaska, Norwegian Cruise Line Holdings was the winning bidder for the “Subport” property in Juneau Alaska, located on Egan Drive on the waterfront.

Norwegian was said to be the highest bidder, offering $20 million over Royal Caribbean’s $13 million. Other bids included Godspeed Inc. at $12,8 million, Survey Point Holdings Inc. at $5.255 million and the City of Juneau at $4.25 million.

“I think it’s fair to say that that’s a fairly shocking bid,” said Juneau City Manager Rorie Watt, via KTOO Media. “I don’t know that I’ve ever seen a property sell for six times the appraised value.”

The piece of property is 2.9 acres and will allow its owner to help expand Juneau’s tourism area and take pressures off the downtown on busy cruise days.

According to KINY Radio, the property is not zoned for a cruise ship dock.

Norwegian has a 15-day window to submit a deposit and complete the purchase agreement.

Of note, Norwegian increased its Alaska capacity some 15 per cent in 2018 with the new Norwegian Bliss, while ticket pricing increased 25 per cent. This summer capacity is up again as the Joy has moved into the market and has been a strong performer.

Norwegian Joy’s Onboard Revenue More Than Doubles in Alaska

Norwegian Joy’s Onboard Revenue More Than Doubles in Alaska

Norwegian Joy in Seattle

The decision to move the Norwegian Joy from China to the North American market has been successful for Norwegian Cruise Line.

“The redeployment of Norwegian Joy to Alaska resulted to a profound improvement to her profitability, especially in the top line driven by more than doubling of her onboard revenue generation,” said Frank Del Rio, president and CEO, on the Norwegian Cruise Line Holdings’ second-quarter earnings call.

The decision to pull the ship from China came in 2018, as part of the company’s strategic itinerary optimization initiative which also included its entry into new European homeports.

The North American launch of Norwegian Joy generated over $2.5 billion media impressions and further elevated Norwegian Cruise Line’s already the preeminent position in the all-important growing and high-yielding Alaska market, Del Rio said.

“We are extremely pleased to not only see her garnering the high pricing she rightfully deserves but also to see her deliver a customer experience that ranks her first in guest satisfaction for the Norwegian brand, driven by the high-tech and industry-first innovation onboard.”

Next year is shaping up to be even stronger for Joy in North America.

“And I may add that we won’t have the challenges of selling Joy, a very large ship, in a very abbreviated eight-, or nine-month booking cycle like we did this year when we announced her departure from China,” Del Rio explained.”We have a regular (18- to 24-month) booking cycle in front of us.”

According to Andy Stuart, president and CEO of Norwegian Cruise Line, Joy is ahead in the pricing of the vessel she replaced in the Alaska market.

Bullish on Alaska, the growth will grow with the Norwegian Sun joining the market in 2020, sailing seven- to 15-day cruises from Seattle.

“We believe the Norwegian Sun Alaska deployment will generate yield that will approach, if not be equal to what she was commanding in her Cuba deployment led by strong onboard spending,” Del Rio said.