Skift hold

The Norwegian Cruise Line story is essentially: “everything is fine and we’re making sure it stays that way for as long as possible.”

Sean O’Neill

Norwegian cruise line There is resilient demand from leisure travelers across all markets and among mass market and luxury travelers – defying concerns over potential weakness in leisure travel spending.

“We are on track to end 2024 on an exceptionally strong note, marking our best year as a company since returning to operations (post-pandemic),” CEO Harry Sommer said during a conference call on results Thursday.

“It’s hard to see any cracks,” Sommer said.

The company’s key metrics are essentially (1) how much it can charge for rooms, (2) how full the ships are, and (3) how much extra product people buy on board. Norwegian Cruise Line is doing well in all three areas.

Pricing power

The cruise line reports strong growth in advance bookings worldwide through 2025 for all its brands: Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas.

In the third quarter, prices rose 7% year over year – a significant change from the start of the year, when executives expected prices to remain stable.

For the fourth quarter, executives suggested prices would rise about 5%, despite difficult year-over-year comparisons. (Last year the price gain was 14%.)

Occupancy stabilizes

Although overall ship occupancy remains slightly below historic highs, executives said that primarily reflects a strategic choice rather than weak demand. They plan to put more pressure on prices than on cabin filling.

Current occupancy levels depend mainly on the mix of cabin configurations and the number of third and fourth passengers, usually children on its Norwegian brand.

“I don’t think occupancy is a tailwind or tailwind,” Sommer said, noting that he expects occupancy to remain relatively stable through 2025.

Advance booking models are evolving

Travelers are generally booking further in advance than before the pandemic. However, in recent quarters, Norwegian has seen stronger demand from some customers, giving it more pricing power for short-term sailings.

This dual trend, characterized by strong advance bookings and healthy last-minute demand, has allowed the company to maintain higher prices.

However, executives stressed that they were focused on sustainable growth rather than pushing booking curves to record levels.

Onboard spending remains strong

Almost all passengers now book some form of onboard purchases before their cruise, including beverage packages, dining experiences, spa treatments and shore excursions.

Executives said anticipated upsells are expected to continue to increase at a moderate pace. The company began applying more sophisticated revenue management techniques, using software similar to what it already uses to set ticket prices.

“We are also in the early phases of better revenue management on our integrated product,” Sommer noted, adding that improved marketing and pre-sales strategies are leading to increased customer spending.

Caribbean expansion plans

The company is betting big on larger ships and Caribbean deployments, with plans to roughly double the volume of “fun in the sun” passengers by 2026 compared to last year.

The change will be made possible in part by a new pier at its private Bahamas destination, Great Stirrup Cay, scheduled to open in late 2024. The expansion will allow the company to double its passenger capacity on the island from of 2026, which could lead to greater customer satisfaction. and repeat booking rates.

The Caribbean is seen as a key element in attracting young travelers. Today, approximately one in three cruise passengers is under 40, showing gradual penetration into a younger population. Repeat cruise booking rates for millennials and Gen Z now nearly match those of older travelers.

Newer cruise lines typically start with shorter itineraries in the Caribbean, close to home, then progress to more exotic destinations like Alaska and Europe.

Three-brand strategy

The company said its portfolio allows it to adequately segment the market comprised primarily of high-net-worth individuals:

• Norwegian cruise line: Aimed at both families and adults-only travelers.
• Oceania: Targets high-end “gourmet” travelers
• Regent: Attracts an ultra-luxurious clientele (with evidence of strong demand – its top World Cruise suite recently sold for over $1 million)

Multi-year moderation

Norwegian Cruise Line Group has adjusted its strategy since Sommer became group CEO in 2023. While the group was once focused solely on generating industry-leading returns, it is now also focused on controlling costs and capital allocation.

Sommer is looking to increase margins and reduce debt. His team is targeting adjusted EBITDA margins of 39% by 2026, an improvement of 800 basis points from 2023.

The heavily indebted company also plans to reduce its leverage to 4.5x by 2026, a significant improvement that could position it for investment grade status in the longer term. It will partly reduce debt by achieving $300 million in savings by 2026, two-thirds of which will come from streamlining ship operations.

Executives told analysts they were not considering an aggressive expansion strategy. Instead, they forecast moderate passenger capacity growth of 4% and 6% per year through 2028.

The company reported third-quarter profit of $475 million on revenue of $2.81 billion.