Increased ticket and onboard revenue drove Norwegian Cruise Line Holdings (NCLH) record second quarter (Q2) earnings.
Despite carrying fewer passengers than last year, 569,857 down from 574,838, NCLH posted more passenger cruise days, 4,517,788 up from 4,237,020, and higher gross and net ticket and onboard revenue per passenger day.
The passenger number was down due to longer cruises, according to NCLH.
Operating costs were also up, except food costs that were down for Q2 and for first six months of the year, despite an increase in passenger cruise days.
The reduction in food costs were primarily due to a series of purchasing initiatives undertaken over the past year. In a prepared statement to Cruise Industry News, NCLH said: “We have been successful in finding significant efficiencies across our food distribution through a concerted effort to improve processes in delivering consumables to our vessels around the world. In addition, we have leveraged our buying power to deliver substantial hard savings across our food purchasing without compromising quality.
“For example, on a number of key proteins that represent the highest cost items across our food costs, we have been able to cut costs significantly simply by purchasing directly from the suppliers and cutting out middlemen. These initiatives have resulted in savings while providing the same, or in many cases, better quality protein.
“During this period we have also been refining the dining experience across our fleet, and with the benefit of guest research and feedback, we have refined our menus to better meet the preferences of our guests and, as a result, we have seen our guest experience scores improve year over year.”
NCLH spent $47.3 million on food in the second quarter of this year and $95.5 million for the six-month period, compared to $49.8 million and $100.8 million, respectively, last year.
Gross revenue per passenger day was $297.52 this year, up from $280.11 last year. Net revenue per passenger day was $229.63 this year, up from $216.55.
It’s full speed ahead in China for Norwegian Cruise Line.
Despite recent announcements by other lines that ships once scheduled for year-round service in China would move to Australia for part of the year, Norwegian Cruise Line Holdings chairman Frank Del Rio said his company has no plans to follow suit.
“I’m glad to see that the others are leaving,” Del Rio said. “That leaves us perhaps the last man standing, and that’d be great. I’ll take all the demand.”
Del Rio’s comments came during a conference call with analysts to discuss first-quarter financial results.
Cruise selling in China has been disrupted since March by the Chinese government’s move to halt travel to South Korea, a protest of a decision by the South Korean government to install a U.S.-made missile defense system.
“The disruption caused travel agents to be distracted from focusing on contracting charters further out into the year, then trying to book, in some cases rebook, [and] find new customers [for those] who no longer wanted to go on sailings that didn’t include Korea,” Del Rio said. “But it’s also had a bit of a chilling effect on overall demand.”
He added that sales for new cruises had started to pick up in the past two weeks. “The South Korea situation, we believe, is a temporary bump in the road, and time will tell,” he said.
Norwegian Cruise Line is scheduled to start sailing the 3,883-passenger Norwegian Joy, its first ship custom-designed for the Chinese market, from Shanghai in late June.
Princess Cruises recently said that its Majestic Princess, also custom-built for the Chinese market, will be deployed to Australia for six months in 2018-19. The move follows the redeployment of the Sapphire Princess from China to Europe in the latter half of 2018.
Because Norwegian is new to the Chinese source market, Del Rio said he’s being cautious about predicting the impact of the Norwegian Joy on the company’s performance in the second half.
“So in many ways, all the good things that I have to say about how our business is operating on the other 24 ships is being somewhat tempered by the potential that could arise in China,” Del Rio said.
A strong Wave
Del Rio said on the call that this year’s Wave was “the best Wave season that we and likely the industry has experienced in quite some time.” As a result, NCLH brands have fewer cabins to sell for the rest of 2017, and it expects higher prices on those bookings than last year.
NCLH, which also includes Oceania Cruises and Regent Seven Seas Cruises, posted Q1 net income of $61.9 million, compared with $73.2 million a year earlier. Revenue rose 6.8%, to a record $1.15 billion.
Del Rio attributed the net-income decline to higher-than-expected maintenance and repair costs, particularly for the Norwegian Star, which broke down in Australia for five days in February.
Outside of that, CFO Wendy Beck said the results were driven by “strong close-in demand in the Caribbean, coupled with strength in onboard revenue.” Cuba itineraries are now available on all three brands, and “the performance of that itinerary is just astonishing,” Del Rio said. NCLH is also doing better than it planned in Europe this year, which Del Rio attributed to a combination of less inventory to sell than at the same time last year and positive market conditions. “That is resulting in very, very strong sales in Europe at significantly higher prices than the same time last year,” he said.
Norwegian Cruise Line president and CEO Andy Stuart, second from right, with passengers on a mid-1990s sailing in Hawaii.
Fifty years ago, a new name in travel was launched, along with a new concept for a vacation.
The first voyage of Norwegian Caribbean Line (now Norwegian Cruise Line) marked the birth of the regularly scheduled Caribbean leisure cruise.
It was impossible to anticipate the outlines of today’s cruise industry in that beginning.
The line’s first ship, the Sunward, was a converted ferry of 8,666 tons that carried 558 passengers and offered none of the modern amenities or luxuries associated with cruising.
But after that first voyage on Dec. 19, 1966, travelers would begin flocking to the Caribbean, and travel agents would find a new source of income.
“I don’t think we would be talking about cruising today like we are had they not had that idea to be in cruising in the Caribbean 50 years ago,” said Brad Anderson, co-owner of Avoya Travel.
To mark the line’s 50th anniversary, Travel Weekly asked some agents to recall memorable moments in Norwegian’s history, events that were significant or shaped the line that passengers know today.
Norwegian was a pioneer in many areas of developing the cruise product. It was the first to have a private island, in the Bahamas, the first to package cruises with included airfare and the first to create a department for corporate and incentive sales.
It daringly bought the liner France for use in the Caribbean in 1979 but floundered until its acquisition in 2000 by what was then Star Cruises, now Genting Hong Kong.
It was the acquisition by an Asian line that led to what travel agents said was the most significant development in Norwegian’s history: the advent of Freestyle Cruising on the Norwegian Sky in 2000.
“Freestyle Cruising really was a turning point for [Norwegian],” said Rich Skinner, president of Cruise Holidays of Woodinville, Wash.
Significant milestones in Norwegian Cruise Line history
1966: First voyage of Norwegian Caribbean Line from Miami on Dec. 19.
1979: The France bought and converted to the Norway at a cost of $100 million.
2000: Company acquired by Star Cruises; Freestyle Cruising developed.
2005: Interisland cruises in Hawaii launched by NCL America.
2013: The company, now called Norwegian Cruise Line, goes public.
2014: Regent Seven Seas Cruises and Oceania Cruises join Norwegian under Norwegian Cruise Line Holdings.
The decade preceding the sale had not been auspicious. Norwegian was weighed down by debt dating to the $80 million conversion of the France into the Norway.
It acquired Royal Viking Line and Royal Cruise Line to no great advantage. There were layoffs, a revolving door in the executive suite and a scattershot marketing message. Norwegian also faced two dynamic competitors in Carnival Corp. and Royal Caribbean Cruises Ltd.
After Star Cruises completed its purchase in February 2000, there were immediate discussions about how to differentiate the brand, said Andy Stuart, then Norwegian’s vice president of sales, now the line’s president and CEO.
Star Cruises chairman KT Lim, having sailed on Western-style cruises in the early 1990s, decided that the rigid, two-seating dining format wouldn’t work in Asia because his customers would not show up on schedule, Stuart said.
Star’s dining was flexible, and Norwegian studied it and then opted to adopt it as a point of difference for its line.
“The operations team believed they could execute it on the existing fleet,” Stuart said. “And then the opportunity was [that] we would have the ability to design ships for it on a go-forward basis.”
The idea almost sank at first on the Sky, Stuart said, because no one had prepared the guests.
“It was all based on the existing marketing, which was about first- and second-seat dining and so forth,” he said.
After a near-riot on the first cruise, Stuart said, guests were given the option of either set dining times or showing up when they liked.
“People started to take advantage of the new freedom and flexibility,” he said. “While people I don’t think knew Freestyle Cruising was what they wanted, once they were presented with the option, with the right tone, they were thrilled. And so was born the new experience.”
Agents said Freestyle is clearly Norwegian’s identity now.
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Ross Spalding, president of Crown Cruise Vacations, Princeton, N.J., said, “The creation of Freestyle Cruising has not only changed the thought of cruising from ‘my grandparents’ vacation’ to one the entire family can enjoy but also to one that lets me spend my vacation as I would like to, with whom I’d like to, doing what I would like to.”
Spalding and Rob Clabbers, president of Q Cruises + Travel in Chicago, also cited the creation of the high-end Haven enclave on many Norwegian ships as another milestone.
“It is a popular option for people who want to have a more upscale experience while still enjoying the amenities of a big ship,” Clabbers said.
Norwegian’s cultivation of cruises in Hawaii, starting in 2005, also stands out to Clabbers.
“It brought us new clients who wanted to explore multiple Hawaiian islands from the convenience of a modern cruise ship,” Clabbers said.
While the initial three ships in Hawaii proved too ambitious, Norwegian remains the only major cruise line in the market with the Pride of America.
Alex Sharpe, president and CEO of Signature Travel Network, said that the 2011 introduction of the Partners First program, coupled with de-emphasizing direct sales, has been a key to Norwegian’s growing popularity with travel agents.
He cited the Breakaway class of ship as “a demonstrable jump up, and creative on many fronts.”
“Finally,” he said, “I think the appointment of Andy Stuart as president and now CEO was as applauded a move as any in the industry. A longtime veteran of [the company]gets his shot and has done a great job.”
Avoya’s Anderson said a largely forgotten milestone for Norwegian was its development of homeports outside of Miami, including Houston where it pioneered “Texaribbean” cruises in 1997, and Seattle, where it based a ship for Alaska cruises for the first time in 2000.
Anderson said his first personal memory of a Norwegian ship came touring the Skyward more than 30 years ago.
“I remember thinking, ‘This looks like a lot of fun, and I want to sell more of it,'” Anderson said. “The ship looked gorgeous. Today, obviously, she would look pretty tiny. But back then, 10,000 or 20,000 tons looked pretty big.”