Norwegian Cruise Line Q1 2024 Earnings Call Transcript

You know, so -- good morning, Dan, and thanks for joining us today. Listen, I wouldn't say that there are any areas that are outsized or undersized. We're seeing good pricing yield strength across all 3 of our brands across all the major areas that we deploy our ships. We're doing well in Europe, we're doing well in Alaska, Bermuda, Hawaii, of course, the Caribbean.

I think the only place where we've talked before, where we had a little bit of a challenge is the voyages in Q2 and Q4 that had previously visited the Red Sea and had to redeploy to other itineraries. But outside of those, we're seeing broad-based demand across the board. We're very happy with our yield growth in the back 3 quarters. As we discussed, both Mark and myself, we're increasing our yield guidance by a full point, which I think underscores the strengths that we're seeing. We continue to be at record book positions, record pricing. We're very happy with where we are.

Good morning, Dan. It's Mark. So first, I just want to clarify. I wouldn't classify it as cutting a fat, so to speak. That's probably a little bit too generous. We're really looking at how we can get much more efficient across the entire organization. As I mentioned in our Q1 -- in our prior earnings call, the first big piece of that was really reducing -- looking at our fuel and bunkering processes.

And if I recall correctly, I said that was a double-digit million savings, and that's actually reflected in our latest fuel guidance, where if you think about -- if you look at the curves, the curves were up anywhere from mid-to-upper single digits, yet I think we only raised our cost up by 2%. But apart from that, yes, it's across marketing, it's across the things on the vessel that the customers really don't value.

But more importantly, we're not just cutting to cut, we're really looking at what is -- what do customers care about, let's improve on those experiences while reducing items that the customer really doesn't care about. So there's no silver bullets here. It's just a lot of little things across the board. We are very excited with the progress we're making. That's been reiterated by the fact that we just reiterated our cost guidance. And I'm hopeful in the future that we can continue to improve on that.

And Dan, I'll just add one more thing, specifically related to the food. I just want to emphasize we have in not way to reduce the quality of food that we serve our guests. We still serve, especially on Oceania region, the best quality food that we can and very good quality food as well. Where we have seen the efficiencies, if you will, are in things like buying direct as opposed to intermediaries and in logistics. We have made massive improvements in logistics, warehousing, shipping that obviously will show up in the food, but do not reflect the lower quality food.

I can't emphasize that enough. We believe that our 3 brands in their respective places in the industry have the most -- have the best food quality and the most food options, and we are committed to that, but we think we can do that and still save money through the other items that I mentioned.

Yeah. Good morning, Vince. Yeah, you are correct. We still expect third quarter to be the highest yield growth quarter. And I will remind everybody that in Q4 of '23, if I recall correctly, we had pricing of growth of 15% and yield growth of 9%. So we are rolling over a very healthy Q4 of 2023. So that's not to be implied that Q4 of this year is not doing well, but it is just certainly rolling over a much higher comp, but we do expect third quarter to be the highest.

Yeah. So when we look at our 2 private islands we have today, Great Stirrup Cay in the Bahamas and Harvest Caye in Belize, those are our 2 highest-rated destinations. Now we really had a pier at Harvest Caye. So there were no issues in that area.

But in GSC, at Great Stirrup Cay, excuse me, the lack of a pier caused us to miss much more frequently than we would have liked. So for us, it almost funds on an ROI basis, just by us being able to visit there. But of course, once we have the confidence that we can visit there almost 100% of the time, we certainly believe that it will be worth making the investments to continue to improve the guest experience as long as we focus, as Mark said before, on the things that gets value.

I will say, listen, we've seen geopolitical uncertainty in various places of the world over time. So clearly, places like Belize and the Bahamas have an added benefit of being perhaps any more certain zone, more close to home, which continues to give us confidence to invest. But we think what we're doing with GSC is fantastic. We think the pier, which will be available just in a year from now, so it's not like multiyears in the future, will be a great addition. We're committed to the area. Our guests love it. I think the experience on the island is already fantastic, more of a resort-type experience, and we'll continue to improve it.

Please welcome. Thanks, Vin.

I'll maybe take the second part of the question on onboard business ticket, and I'll let Mark comment on the first part.

With the way that we package and presell our onboard items, I think the distinction between onboard and ticket is much less important than it is in the past. So I would just encourage you and the other analysts, the other listeners, to focus on the total revenue number, because really the split is a little bit arbitrary. That being said, obviously, we're happy with the future sales, as we talked about in our prepared remarks, and in our press release. We're happy with the onboard packages that are being sold in advance. And that's what gives us confidence for raising our yield guidance by a full point for the year.

In terms of conservatism, maybe Mark can talk to that.

Yeah, good morning, Steve. So look, maybe as an example, look, we continue to see the consumer very, very healthy, we continue to see very strong trends across every revenue stream on the ship. So we remain very, very optimistic on that front. And maybe a way to frame it is, if you think about our prior guidance for the first quarter, we had -- we were already 2 months into the quarter when we had provided that guidance. And I think when you look at where we ended, we beat by almost 0.75. That's predominantly driven by onboard revenue.

So while I don't want to say we are ultra conservative, yes, we know we expect the consumer to spend. But I think given our extended booking curve, most of the upside in the quarter if we see any will be driven by onboard revenue. And I want to reiterate that we continue to see a very, very strong consumer in that respect.

Yeah. So I think that's -- thank you for that last sentence because that was the answer I was going to provide you. Listen, we're super focused in this call talking about Q1 and guidance for Q2 and '24, which I think we've laid out. I think talking about more longer-term, we'll have to wait the 19 more days till May 20 to talk about it.

Thanks, Steve. And we look forward to seeing you.

Brandt? We lost Brandt.

Okay. Maybe we should move on to the next.

We'll move on to next caller.

So thank you for that, Conor. So I'll just point out that the next 12 months would include Q1 of '25. So I think that gives you some guidance. And of course, that would be, at this point in the booking cycle the best booked quarter of 2025. So not really prepared to give guidance for the last 3 quarters, but I think that gives you some insights into how '25 is shaping up.

Yeah, Conor. So look, I think we've said this before, '24 is really a normalization year in terms of drydocks as we took the advantage during the shutdown to drydock most of our ships. But if you look at the size of our fleet and the composition of our fleet, as you go forward, whether it's '24, '25, '26, you're going to see about the same level of dry docks just given the size of our fleet.

So it might go up a couple of points -- or no, I shouldn't say a couple of points, it might go up or down a few days, but there's not going to be any material step up or step down going forward as we get back into a more normalized cycle for the next few years.

Thank you.

Brandt?

Well, we'll try again on Brandt. Let's go to the next question.

Let's go to the next question, Joe.

Yeah. Thanks, Patrick. Let me start again. No, what we're seeing is not a reflection of changes in direct or significant changes in passenger mix. It's really more driven by the airline. You know that as a cruise line, we package air across all 3 of our brands. And as participation rate shifts from year-to-year and also, we're buying air a little bit better this year versus last year, the air component cost goes down.

So it's a combination of slightly lower participation rate for air and us buying air a little bit more efficiently than we did last year. But our general direct versus trade, new to cruise has remained substantially the same year-over-year across the brands.

Yeah, Patrick, look, we won't give an exact percentage. What I can tell you is, if you refer to our prior remarks on our calls, generally speaking, we had said our sweet spot is somewhere in that 60% to 65% on a forward 12-month basis or at any given time, I should say. And so if you think of it from that reference, we could be up from there, but I won't give any specific percentages on that, other than the fact that we continue to see a very strong consumer, consumers who are willing to book further out and who are willing to pay higher prices. So I think all of that lends itself to a great environment to continue to capitalize on this demand.

Well, I think if you think about -- as Harry said, our forward 12 months, which would include Q1 would imply that Q1 is ahead. But we won't comment on the rest of the year other than bookings are in line with our expectations, where we believe they should be.

So The only additional the color that I'll give is related to Europe, which is a large part of our deployment this year in Q2 and Q3, where -- because we've had the benefit of a full booking cycle, we're seeing more Americans on our European deployment this year, which tends to elongate the booking curve a little bit and also tends to deliver slightly higher yields as opposed to selling those cabins a little closer in to locals in Europe.

Thanks, Patrick.

Thanks. Well, good morning, Ben. I think there is a step down from Q1, but that's purely as a result of the comparison in the same quarter of 2023. So as we said on our last call and this call, we are not, and I will repeat this, we are not seeing deceleration. I don't know how many more times I can say that across different calls and conferences. We are getting back to what we would we call a more normalized yield growth in terms of our business, which we have always said would be somewhere in the low to mid-single digits.

And obviously, we continue to pursue much better than that. So yes, there is an impact in both Q2 and Q4 as a result of the Middle East and Red Sea, we've been very specific about that. But even absent that, we still continue to see very healthy pricing and yield growth. So I just want to make it clear. It's not a deceleration issue. It really is a comparison issue from quarter to quarter.

Then the moving parts in Q2 are really the Mid East and Red Sea for the most part, and that also impacts Q4 as well as Q4 having a significant rollover versus the same quarter in 2023.

I wouldn't interpret it that way. I'm not prepared here to discuss our full long-term plans for Great Stirrup Cay, we'll talk a little bit more about that in 3 weeks. I'm just -- my comment was meant to say that the pier was the gating item that before we committed and have a schedule for the pier, it would not have been prudent for us to make substantial additional investments to the island, which for the record, is already a great experience.

But now that we have the pier, it allows us to have a slightly more long-term view towards that. But I don't want to give any indication of whether it's happening imminently or later. We'll talk little bit more about that in 3 weeks.

Next question.

Lizzie, I think as we said, we believe in the back half of the year, third quarter will be the highest yielding quarter. Fourth quarter, there was -- if you think about fourth quarter 2023, yes, there was a small impact on occupancy as a result of Hawaii. But I think as we look at the comp rolling over, again, if I recall correctly, somewhere in the zone of 14% pricing growth and maybe 9% to 10% yield last year, that's a very quality comp to roll over.

So I think stay tuned. I think fourth quarter, there's still time and we're still building there. But we -- everything we see today, the environment remains healthy, and we expect strong results across all our quarters.

Yes. I mean the only additional color I'll add, which Mark talked about in an earlier question and not this one is a slight headwind related to Red Sea cancellations in Q4, which would be a little bit more -- a little bit less, excuse me, than the headwind in Q2 because we had a little more time to have the replacement voyages on sale. And that's why it was so critical for us to get well ahead of this for 2025.

So we've already canceled all of our voyages that have previously gone to Israel for 2025 and all the Red Sea crossings in the first half of '25 so that we wouldn't have the same headwind challenges to our 2025 growth.

So I'm trying to distill that question down into some thoughts in my mind. So obviously, we're excited to see new entrants into the market. We think anything that has -- that draws more focused, if you will, to this market and the public market and the excellent opportunity that cruising represents is positive for all of us. So I sent Tor an email congratulating this morning on a successful IPO. We obviously wish him the best of luck. We see the growth at Viking House, and we have nice growth on the Oceania region brand that's measured that we can absorb and that we're happy for.

Hi, Fred, so we have announced all cancellations of our Red Sea and Mid East itineraries for 2025, with the exception, I believe we may have one sailing still on sale in the back half of '25 for the Oceania brand. Apart from that, we have canceled all those sailings. And the thinking there is, obviously, the earlier you reroute those and create better itineraries, the better sales cycle you have.

So the certainly, the improved yield and economics that you can garner from that should improve. That said, if I had a choice of doing other areas in the world versus those select Mid-East and Red Sea, those are always a premium. But certainly, it won't be a significant tailwind, but it won't -- at the same point, it won't be a significant drag.

Yeah. So Fred, that's the job of our brands. We look at the booking curve, the consumer demand, and we do everything we can to raise price at any time that we can. I think as Mark mentioned, Q2 and most of Q3 is pretty big, given where we are in the booking curve. Is there potential in Q4? Absolutely, and we'll do everything that we can to optimize that potential.

Yeah. Thanks for your exact calculations, Robin. Obviously, there's some slight rounding in there when you look at the yield and the sensitivity. So essentially, yes, we did carry over about 100 basis point increase. And I think if you look at my prepared remarks, most of that was -- some of that was partially offset by higher fuel and then higher interest expense as -- for 2 reasons. Number one, the portion of our debt portfolio that is not fixed, which is about 5%, 6%, but then also commitment fees related to some of our newbuild announcements that went effective as well.

All in all, I think when you look at the back half of the year, as I said, we're raising yield guidance, and that's about $0.10 -- $0.10, $0.11, offset by $0.04 or $0.05 of interest in fuel.

And I didn't catch the back end of your question. I apologize.

She asked about any color on inflation.

Just to be really clear on the EBITDA side, we calculated the 1% raise that we had at just over $60 million. So it wasn't exactly a full point. It was more like 97 basis points or something like that. So the $60 million minus the fuel should get you to almost exactly the $50 million EBITDA range. So we apologize for that confusion between the $60 million and $67 million.

Listen, in terms of inflation on newbuilds, I think what you'll see is sort of 2 factors offsetting each other. I think the inflation on newbuild is similar to the inflation you see in the general population, at least when we do our calculations. I think what we can do to help offset that inflation is the same as what you're seeing in our general cost structure, the same transformation office process that looks to doing things more efficiently and effectively will allow us to offset part of the impact of inflation, certainly not all of it. So that would be our guide, if you will, going forward.

And then I think we have time for one last question, operator.

So the quick answer is, yes. We believe that the cost will be essentially flat, excluding dry dock, as you mentioned for the back half of the year. We're very proud of the efforts that the team are making, not really prepared to comment on '25 and beyond at this point.

James, all I would add to that is, again, we have talked about we have a laser focus on right-sizing and leveraging our scale, we continue to do that. This is a permanent activity for us, not a onetime exercise. So while obviously, it gets harder further down the stream you go, we are just relooking at every facet of our business, and we continue to believe that there's opportunity out there all without impacting the guest experience and actually delivering a better product than what we've had today.

Well, with that wonderful set of comments in the call, I'll share Mark [Sashen] for continuing to improve our operating margins while delivering a fantastic guest experience.

I want to thank all of you for your time today, and I really am looking forward to talking about our long-term targets and strategy when we meet on May 20th. Thank you all very much.