Business Monday

Norwegian embarks on its next chapter

Norwegian Escape is shown during sea trials along the coast of Norway. The ship is being christened Monday.
Norwegian Escape is shown during sea trials along the coast of Norway. The ship is being christened Monday. ©2015 Michel Verdure - www.verdurephoto.com

Just a year ago, as the company Frank Del Rio helmed was being acquired by Miami-based Norwegian Cruise Line Holdings in a $3 billion deal, the cruise industry veteran sounded uncertain about his future.

He had committed to overseeing the high-end Oceania and Regent Seven Seas brands, post-merger, through the end of 2015. Del Rio made reference to his age — he was about to turn 60 — and said he was looking forward to working with the new team for a short while.

“I feel like we’ve run the gamut; there isn’t a whole lot more to do,” he said at the time.

It turned out there was plenty more for Del Rio — now president and CEO of Norwegian Cruise Line Holdings — to do.

On Monday, Del Rio will preside over the christening of the company’s newest ship, the 4,248-passenger Norwegian Escape in Miami. Next year, he will usher in new or new-to-company vessels for both the luxury Regent and upscale Oceania brands.

The role was not one he expected: In January, after former parent company CEO Kevin Sheehan resigned abruptly for reasons that were never publicly disclosed, Del Rio was named to the top job. Overseeing Norwegian Cruise Line is Andy Stuart, a longtime employee of the line who was previously executive vice president of sales; Jason Montague, who helped launch Oceania with Del Rio, is president of Prestige Cruise Holdings, which includes Oceania and Regent.

Del Rio has spent the months since his appointment overseeing the integration of Prestige Cruise Holdings, the company he led, into the parent company; orchestrating a major new push into China; restructuring staff; preparing for the delivery of three new ships in a nine-month period; and working to raise quality and prices at the larger, more mainstream Norwegian Cruise Line.

Also — when time allowed — he has been inspecting cutlery.

Chief financial officer Wendy Beck revealed that detail during a recent earnings call when she discussed expenses to replace onboard items such as carpets, linens, plates and silverware.

“It’s standards that Frank has brought in that are minimum standards we need to be operating at,” she said.

Ship inspections, upgrades and careful attention to detail are key to changes in store for Norwegian Cruise Line as Del Rio and his team push to improve the passenger experience on the operator’s 14-ship fleet.

“We’re focused on growing the top line, growing the yields both in ticket pricing and in onboard,” he said. “You have to spend a little money on some areas to be able to facilitate the onboard experience. Perhaps there was some underspending in prior years that we’re playing some catch-up on.”

While more than 16,000 new berths are coming online for Norwegian by 2019, the company is devoting significant resources to its older midsized tonnage. By 2017, all but one of the line’s older ships will have been taken out of service and refurbished.

“One of the philosophies we have is a customer should walk in on any ship and feel like they’re walking on a new ship,” said Stuart, who joined the company in 1988 and was named president and chief operating officer of Norwegian Cruise Line in March. “And then the experience that is delivered to those guests needs to be extremely high quality and consistent regardless of which ship you’re on.”

That’s a mantra that the Prestige brands have also followed, updating older vessels even as new ships come online.

Both Oceania and Regent are expecting 2016 to be a big year, with new tonnage joining each fleet.

Regent will welcome its first new ship since 2003, the 750-passenger Seven Seas Explorer. Billed as “the most luxurious ship ever built,” the vessel boasts a 3,875-square-foot suite that includes an in-room spa area and unlimited treatments.

The three existing ships in the brand — Navigator, Mariner and Voyager — will all be refurbished over the next 18 months.

Oceania Cruises, considered an upper premium brand, will grow from five to six ships next year.

Sirena, a sister to Oceania’s trio of 684-passenger ships from the defunct Renaissance brand, will undergo a $40 million transformation to join the line. It previously sailed for Princess Cruises as Ocean Princess. The other vessels originally from the defunct Renaissance Cruises (where Del Rio was once an executive) were refurbished in 2014.

“The ships today look better than when they were delivered by the shipyard,” said Montague, president and chief operating officer for Prestige Cruise Holdings.

The brand’s newest ships, the 1,250-passenger Marina and Riviera, debuted in 2011 and 2012.

Del Rio, who co-founded Oceania in 2003, said he is happy with the two lines that he brought to Norwegian: “I love where my other two brands are.”

I think we’re in a great place,” he said. “We’re not the largest brand out there, but I like to think of it this way: that the three brands within the Norwegian Cruise Line Holdings company are the leading brand in each of the market segments that they compete in.”

On Norwegian Cruise Line, the brand Del Rio inherited, dining is a key area targeted for improvement. The line has traditionally been known more for its variety of choices (28 dining options on Norwegian Escape) than excellence of cuisine. Oceania, which has a reputation as a foodie cruise line, has been lending culinary expertise to the sister brand.

“Oceania has done a great job in helping the Norwegian brand up its game in the cuisine category,” he said. “I just came off Escape, and you should have seen the 3,000 travel agents and media on board last week lick their fingers in the food areas.”

Carolyn Spencer Brown, editor in chief of the site CruiseCritic.com, said better food could bump the cruise line, and its fares, up a notch.

“I think it’s going to actually uplift the line into a new competitive category if they follow through properly on the pledge to improve the cuisine,” she said. “So instead of competing with Royal Caribbean and Carnival, you’re going to see it reaching out to Holland America or Princess or Celebrity. It’s a very pivotal time, I think, and it’s really interesting to see where it will go.”

While Norwegian has been picking up culinary tips from the Oceania team, Montague said the larger line has provided some expertise for the high-end brands he oversees.

“Norwegian excels at entertainment; they have an entire in-house operation,” he said. “We outsourced a lot of our entertainment product. We’ve been able to leverage them. We just launched four new shows on the Oceania brand.”

Stuart said that while the brands have worked together, they have maintained their unique identities and points of differentiation.

“Frank in particular and I think the whole management team is quite determined to make sure that the individual brands retain the focus they need to maintain their individuality,” he said. “The distinction of the brands is going to be what’s going to make us successful over time, and there’s been no compromise in that regard.”

The humdrum aspects of integration — automated accounting systems, information technology, logistics and support services — have been completed, Del Rio said.

And he said more difficult moves, including reducing the workforce, are also in the past. In March, an unspecified number of staffers were laid off; sources said at the time that about 200 people lost their jobs, but the company did not confirm that figure.

“I always believed in a flat and lean organization,” Del Rio said. “I’d rather have a smaller group of highly talented, highly motivated, highly compensated individuals who are given a lot of responsibilities and the authority to exercise on those responsibilities. Unfortunately, when you put together two wonderful companies, there are redundancies and those have to be dealt with.”

For now, staffers are spread between two Norwegian offices in Miami and the nearby Prestige building in Doral; Del Rio splits his time between the two locations. By the end of the first quarter of 2016, employees will be working in three buildings on a single Norwegian campus.

Joining the two management teams was “much faster, much easier than I ever would have anticipated,” Del Rio said.

“They like each other, they cooperate with each other, they’re marching to the same beat,” he said.

Stuart said Del Rio is decisive as a chief executive.

“He’s vehemently against committees and meetings and spending a lot of time debating things,” he said. “He’s into making decisions and moving the business forward and being a nimble business that isn’t mired in bureaucracy.”

Mike Driscoll, editor of the trade publication Cruise Week, said Del Rio’s long history in the cruise industry is serving him — and the company — well.

“He has taken a lot of the learnings he’s had in the business over 30 years and applied them to Norwegian in a way that was lacking before,” he said.

Many industry observers feared that the Prestige brands might suffer if Del Rio left the company, but Driscoll said that concern has disappeared.

“With his background at Regent and Oceania, he’s making sure they don’t get pushed aside — which was a concern, being part of the bigger company,” Driscoll said. “They are a real power in that company. And a lot of the things at Norwegian are clearly coming from the experience of the premium luxury background.”

That experience includes the Prestige pricing strategy of marketing to fill ships rather than discounting prices to lure travelers.

“The other thing that we’re working very hard on is doing a better job of talking less about price and more about the value of the experience,” Stuart said. “I think it’s a little bit of the fault in our segment of cruising that we talk about price too much. We want the very last question someone asks us to be, ‘Well, how much is it?’ 

That doesn’t mean promotions are out the window; the difference is that the company adds incentives, such as beverage packages or specialty meal plans.

“Even when I would say we’re in real aggressive, let’s-drive-some-demand mode, we’re not talking about ‘how cheap,’ ” he said. “Which is a scenario where everybody wins.”

Del Rio has talked up the strategy since becoming CEO, and recent earnings results showed that pricing improved across all three brands for the third quarter.

During a call with analysts, Del Rio made an offhand comment about preferring to “raise prices to infinity” rather than stretch the booking window much longer. That emphasis on pricing hasn’t gone unnoticed by analysts.

“He wants to really protect the brand. I sort of suspect that if the economic environment were to weaken materially, brands like Carnival would have to succumb to the discounting again faster than some of these brands would,” said Jaime Katz, an analyst with Morningstar. “I think he has crafted a really interesting brand perception around those Prestige brands that has been hard to replicate across the industry.”

Passengers have also noticed — with less enthusiasm.

In a post on the CruiseCritic.com message boards, a user named “mianmike” included Del Rio’s comment and worried: “I wonder how long until FDR prices me out.”

Geoff Silvers, president and CEO of South Florida-based online cruise retailer Viva Voyage, said he expects to see some price-driven travelers move along.

“Each cruise line is working hard to differentiate their product so they can stand for more than price,” said Silvers, who lives in Miami. “There are some customers who just won’t be the right match for Norwegian. Those customers will gravitate to the less expensive cruise lines; I think that’s inevitable.”

After spending six nights on Norwegian Escape during European inaugural activities last month, Silvers said he already sees evidence of improvement.

“When you come onto Escape, it’s a complete difference from any other Norwegian ship,” he said. “It’s done very classy, very upscale, very contemporary. It’s very much like the premium competitors.”

Now that changes are underway, the company is about to reintroduce the brand to a wide audience.

More than four years after launching an advertising campaign that urged passengers to “Cruise Like a Norwegian,” the line is coming out next year with a new television, digital and print blitz.

“We do think there’s a great opportunity to tell the story of Norwegian Cruise Line and freedom and flexibility more effectively,” Stuart said. “You will see us putting a lot of energy and investment into the story of the brand.”

That story, moving into 2016 and 2017, also includes destinations that have never been visited by Norwegian (or have been long avoided). Late next year, Norwegian Star plans to visit Southeast Asia, Australia, New Zealand and the Persian Gulf. A sales and marketing office opened recently in Australia to source more local passengers for all three brands.

And in 2017, the line plans to make its debut in China — following competitors such as Royal Caribbean who have already stationed ships in the booming cruise market — with a ship built to appeal to local Asian passengers.

“Today there isn’t a cruise product tailor-made for the Chinese consumer, and so they are begrudgingly going; there is room for improvement,” Del Rio said. “I think that while we lose the so-called first mover advantage . . . we do gain perspective and learn from perhaps missteps or mistakes that others have made that we hope not to repeat.”

Cuba, the other hot destination for cruise companies, is also solidly in Del Rio’s view. He was born in Cuba and didn’t return until about a month ago after leaving at the age of 7.

The company has been in talks with Cuban authorities, but Del Rio said he has no idea what kind of timeline the government is working with. He does, however, have a thought about which ship he’d like to send for the initial sailings: Oceania Cruises’ Regatta, the first ship in that company’s fleet. Del Rio’s wife, Marcia, is the ship’s godmother.

“It would be quite an emotional approach as we enter Havana Harbor for the first time,” he said, and added: “Can’t wait for that to happen.”

Despite his packed schedule now, Del Rio said he’s glad to be steering the company.

“I’m thrilled,” he said. “The alternative today was I’d probably be taking a nap right now. How exciting would that be? I think I’d be bored out of my mind.”

Norwegian Cruise Line Holdings

Headquarters: Miami

Global offices: 14, including locations in South Florida, Germany, Brazil, Australia and China

Employees: 29,700 total

Ports visited in 2014: 420

Current fleet: 22 ships with a capacity of 45,100

Upcoming ships: Five due for all brands between 2016 and 2019

Revenues through third quarter: $3.3 billion

Profits through third quarter: $388 million

Stock price: $60.56 as of Friday

Market capitalization: $13.9 billion as of Friday

Source: NCLH

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