Norwegian Strategic on Alaska

Norwegian Bliss

Norwegian Cruise Line Holdings (NCLH) President and CEO Frank Del Rio underscored his enthusiasm for Alaska on the company’s third-quarter earnings call.

He said the company will continue to make investments and cultivate partnerships in the region, noting the new pier NCLH has agreed to build in Ketchikan, its $20 million purchase of 2.9 acres of waterfront property in Juneau, and the construction of a second pier at Icy Point Strait.

“We are investing in port facilities and guest experiences,” he said. “Alaska is destination-centric and you much have the land capabilities in place. We have almost doubled our capacity in Alaska over the past three years and will be even stronger as we finalize our investments.”

NCLH’s Q3 Alaska capacity was up 17 per cent over the same period last year.

In Ketchikan, NCLH has entered into a 30-year preferential berthing agreement with Ward Cove Dock Group, which allows for the construction of a new double ship pier in Ward Cove.

Meanwhile, current zoning laws are said to prevent a pier from being built on the property in Juneau.

The pier will be built to simultaneously accommodate two of Norwegian Cruise Line’s 4,200-passenger Breakaway-Plus class ships and is expected to be ready for the summer 2020 season.

NCLH partnered with the Port of Seattle in 2015 on the renovation and expansion of the Bell Street Terminal at Pier 66 which was ready for the 2018 season and the 4,000-berth Norwegian Bliss.

NCLH and the port entered into a 15-year lease agreement providing its ships priority berth space in Seattle for the full term of the lease in return for passenger volume guarantees. NCLH manages the cruise operations at Pier 66, while the port operates the facilities outside the cruise season.

Next year, the Norwegian brand will have three ships in Alaska, with the Norwegian Bliss, Joy and Sun will be from Seattle. In 2021, the new Encore will take over for the Joy. Oceania and Regent will each have one ship in the Alaska market, with the Regatta and the Seven Seas Mariner from Seattle, Vancouver and Seward.

Del Rio cited what he called “incredibly strong ticket pricing and onboard spend” in the Alaska market and also noted the lengthening of the season, which now runs all the way from April to October.

“In the coming years, we will further bolster our presence and commitment to the region,” Del Rio noted.

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 Encore Conveyance Complete

Norwegian Encore

Norwegian Cruise Line today announced that the new 4,200-guest Norwegian Encore successfully completed her Ems River transit, having officially left Meyer Werft shipyard.

On Monday, Sept. 30, 2019, the Norwegian Encore began her conveyance to Eemshaven, Netherlands, with initial crew on board the new ship.

Norwegian Encore

The ship will be delivered on Oct. 30, 2019, and will be christened by Grammy Award-winning artist Kelly Clarkson in Miami on Nov. 21, 2019, and will commence seven-day voyages to the Caribbean on Nov. 24, 2019.

“Today we celebrate a huge milestone for our history-making ship,” said Andy Stuart, president and chief executive officer of Norwegian Cruise Line. “Now is when the anticipation truly begins to build. Our partners at Meyer Werft have collaborated with us to bring the industry-leading experiences from the successful Breakaway Plus class ships to Norwegian Encore, making her truly the best in class.”

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