Looking at the changes in his company and the industry, Norwegian Cruise Line’s (NCL) new CEO, Kevin Sheehan, remarked at Seatrade that cruising is moving from the hands of pioneers into the hands of professional managers and that he is a part of that shift.
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“The business is working differently now with private equity coming into the picture,” he said. “I come from that background.”
In January 2008, NCL Corporation, the parent company of NCL and NCL America, announced a $1 billion cash equity investment by private equity group Apollo Management, which then took a 50 percent stake in the line with Star Cruises.
“Things may have been done in a certain fashion for a long time, but in 40 years there have been big changes. And, now people from outside the cruise industry are coming in,” Sheehan said. “There is a lot of different expertise. It’s a very healthy scenario, and it has changed a lot of the way things are done.”
Certainly NCL has seen radical change in the past year — changes in leadership, strategy and results. The results are quite impressive, particularly in the current economic climate. The first quarter of 2009 showed an EBITDA (earnings or net income before interest, taxes, depreciation and amortization, used by management to measure operating performance) up 46.3 percent to $50.9 million, compared to $34.8 million last year for the first quarter.
Part of the story is that net cruise costs dropped 14.7 percent compared to the first quarter of 2008, mostly because of 43.3 percent lower fuel costs and lower payroll costs from re-flagging Pride of Hawaii and Pride of Aloha from the U.S.-flagged fleet to the international fleet.
The cruise industry is maturing, but Sheehan said the concept that new capacity stimulates growth looks as though it will still feed the industry for many years. He pointed out that less than 20 percent of the potential market has taken a cruise in North America and, in international markets, it’s more likely 10 percent.
He also sees the ability to convey the value in cruising as the key tool to drive growth.
“Cruising is a phenomenal value and a product with incredible convenience,” he added. “For many it is the major event of a year or a life, and we’re creating lifetime memories.”
The ease of travel on cruise ships is the second crucial message, he believes.
“There’s something there we haven’t cracked — getting across that these floating hotels save so much anxiety in the logistics of travel and drive-up cruising is even more so,” he stated. “Taking a cruise, you can be on vacation 20 minutes after you leave home.”
NCL’s strategy since Star took over the company has been to build a large presence in a few carefully selected markets for brand distinction, but this policy is evolving, particularly with the importance of the drive-up markets.
“The way business was targeted in the past is not necessarily how we will do it in the future,” Sheehan said. “It’s very attractive in this environment to avoid air, so cruises out of ports like New York are very important to us, drawing from Boston and the East Coast. We move the ships where they will be most effective, although we are a little player, and we want geographical stability with agents so we stay front of mind.”
He added that the company is moving ships around more than they had hoped, adding in a clear reference to Alaska, “If new taxes make it difficult in a given area, we have to respond.”
The ship within a ship design has worked out well for NCL, Sheehan said, allowing the company to attract middle and high-end cruisers.
“We are getting away from being so reliant on people pursuing lower prices that we are underpricing the product,” he added. “We have the youngest fleet and pricing at the bottom end of the spectrum. We should be priced similarly to Celebrity, Holland America and Princess.”
Sheehan said NCL is transforming itself, with middle management far more empowered than in the past, when decisions were made by a very small group. “I think we turned the organization into a bunch of entrepreneurs,” he stated. “There were no increases this year and there was not one comment. Everyone is behind the company’s growth.”
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