Norwegian Cruise Investor Day: More Ships, More Premium – And Cost Cuts (2024)

Skift Take

Norwegian Cruise Line Holdings is setting its sights on the premium market, enticing well-heeled travelers with the promise of more balcony cabins and a "ship-within-a-ship" concept that caters to multigenerational cruisers.

Sean O'Neill

Norwegian Cruise Lines Holdings unveiled adjustments to the company’s strategy as part of its investor day for analysts.

The company, whose brands span Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises, had a culture established by its founder, Frank Del Rio, who retired last year. Executives said the company now needs a culture more focused on efficiency. “We believe our team can collectively deliver better, and we will,” said CEO Harry Sommer.

Here are key takeaways:

“A Ship Within a Ship”

• Adding capacity: Norwegian ordered eight new cruise ships, which will add almost 25,000 more berths after they all come online by 2036.

• Balcony Bump: The core customer base includes travelers in the middle- and upper-income tiers. Thus, many of its new ship designs are tilting premium. They’ll include a higher mix of balcony cabins, which bring in twice the revenue of interior cabins and are more profitable.

• Changing the cabin mix: When families have multi-generational trips, not everyone can afford the same level of service. In response, Norwegian aims for what’s metaphorically a ship-within-a-ship concept.

• Something for everyone: “Maybe the rich grandparents want to be in pure luxury, where they have all the amenities, concierge, butler, private dining, but still have the amenities of a big ship, with lots of entertainment, other dining venues, lots of activities to do at night,” said David Herrera, president of Norwegian, in a CNBC interview.

Streamlining operations

• Cutting costs: Norwegian wants to cut $300 million in recurring costs over the next three years. It has created a team looking for surgical cuts. Two-thirds of the planned savings will likely come from ship operating costs, followed by marketing and other functions. “It 100% starts with changing the culture,” said Mark Kempa, chief financial officer.

• Port power play: One way to save money is to use port facilities more efficiently. Today 65% of the group’s itineraries involve the same top-10 ports for departure. By 2026, the goal is to have 80% of routes depart from those ports. Florida ports are broadly cheaper than sailing out of Europe and Alaska, and the company plans more itineraries from the Sunshine State to the Caribbean.

A.I. Ahoy

• AI to attract guests: Norwegian said it’s investing in AI to streamline operations, from revenue management to customer service. Execs said the company did a better job of monitoring data quality and increased its marketable database by 77% between 2019 and last year. They added that tests of quasi-personalized campaigns were promising.

• AI to make more efficient route maps. The company uses AI-driven predictive models to optimize itinerary planning by integrating revenue and cost data. These models can also help trim the company’s carbon footprint.

• AI to enhance pricing. Norwegian taps revenue management systems to predict guest purchasing behavior and discover how to maximize revenue from cabin upgrades and other onboard sales.

New financial targets

• Margin call: Norwegian aims to increase its adjusted EBITDA margin by 800 basis points to 39% by 2026, a record percentage of revenue.

• Stemming the tide of debt: The company intends to slash its leverage to the mid-4-times-earnings range by 2026. Its net leverage ratio, calculated as net debt divided by adjusted EBITDA, stood at 7.3-times-earnings at the end of 2023. Last year, Norwegian returned to a profit for the first time since 2019.

Sean O'Neill, Skift

May 22nd, 2024 at 2:55 PM EDT