Norwegian Cruise Line Holdings CEO and President Frank De Rio has made it clear he is not interested in filling up ships if that will devalue his three brands.
The comment from the CEO of the third-largest cruise company in the United States is a significant step away from what the competition has been doing recently.
Focussing on creating a long-term strategy of offering steady pricing and a competitive onboard environment is the way forward, Del Rio said in his second-quarter earnings call.
This is why guests sailing onboard NCLH’s ships will likely not be seeing discounted cruises while paying up to 20% more for a voyage compared to 2019.
Past Experiences Forming Future Strategy
In the second-quarter earnings call held yesterday, Norwegian Cruise Line Holdings made it clear it will not be sacrificing profitability in the long term for a short-term effect.
Norwegian Cruise Line Holdings has been sailing at around 65% occupancy levels, but filling up the ships at all costs is not something the CEO will be considering.
Frank Del Rio, CEO and President of Norwegian Cruise Line Holdings: “I’ve managed cruise companies in good times and in bad times, and I am convinced, beyond a shadow of a doubt, that you don’t sacrifice the long-term pricing power of your brand in order to achieve short-term load factor gains.”
“I’m not willing to mortgage the company for 10-plus years in order to window dress the next quarter’s results, I just won’t do it. We’re here for the long term. We’re managing the business on a long-term basis.”
That long-term plan means NCLH and its three brands, Norwegian Cruise Line, Regent Seven Seas, and Oceania Cruises, will not be offering guests any discounted cruises to be able to bring occupancy levels to 100%.
That strategy could just be the right call to make, looking back at events in the past. During the financial crisis of 2009, cruise companies went all-out to get people to sail. The effects of those strategies took some companies more than ten years to recover from.
Del Rio: “I remind you what happened back in ’08 and ’09, when the Great Recession, certain cruise companies did drop their prices to ridiculous levels. And it took them, in some cases, 10-plus years, and in some cases, they’ve not yet reached those pre-Great Recession yields.”
Long-Term Bookings Looking Stronger Than Ever For NCLH
Looking at the long term, the strategy that NCLH is looking at seems to be the right call, as long as the company can survive with lower occupancy rates in the near term.
Del Rio: “Our guiding principle has been a focus on the long-term profitability of the company, particularly for 2023 and beyond, by protecting our long-term brand equity and building on our industry-leading pricing. This means making intentional tactical sacrifices in the short term in favor of long-term sustainable results.”
Bookings for 2023 are looking stronger than ever; even with 20% more capacity across the fleet, Norwegian Cruise Line Holdings is looking at a 40% increase in bookings for the coming year built up by the relaxing of COVID-19 measures and the upcoming maiden voyage of Norwegian Prima.
With ships currently sailing at 65%, increasing to 85% lately, the 40% increase will mean that ships will be sailing full next year. And NCLH is making those bookings with prices that are 20% higher than they were in 2018 and 2019.
De Rio continued: “In the second quarter, our load factor was approximately 65%, in line with our expectations and a significant improvement versus the prior quarter of 48%. We expect load factors to increase to the low 80% range in the third quarter, with July already coming in at 85%. This steady sequential ramp is expected to continue until we reach historical 100%-plus levels beginning for the second quarter of 2023.”
What Does It Mean For Those Looking To Book?
Pricing strategies aside, the fact of the matter remains that the financial markets are showing record inflation numbers, a volatile currency exchange market, and a fuel market that is reaching record highs.
Put all that together; no matter what, cruises will be more expensive. The only thing that Frank Del Rio is saying is that his company will not be lowering prices to get more guests onboard.
Companies that lower pricing forfeit profitability. While this may seem a good idea short-term, guests will inevitably pay the price somewhere, whether through onboard purchases, tour pricing, or other additional costs. At a minimum, while sailing onboard the NCLH ships, guests know what they paid for and why.
There will always be discounted cruises available, just not at Norwegian Cruise Line, Regent Seven Seas, or Oceania. And that may well be a good thing for the company and guests alike.
