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NCLH was over-optimistic on Caribbean pricing, Del Rio says

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Frank Del Rio - While pricing is higher in the Caribbean this year, it's 'less robust than our previous expectations'
Over-optimism about the Caribbean rates it could get on a hefty low season capacity increase—not any fundamental weakness in the market—is one of the reasons Norwegian Cruise Line Holdings cut its earnings outlook for 2016.

'The strong fundamentals in the region remain intact,' NCLH ceo Frank Del Rio repeated twice during Tuesday's earnings call to underscore the point.

NCLH's capacity increase in the region was 37% in Q2, and will be 28% in Q3 and 10% in Q4. This outstrips the industry's modest Caribbean capacity growth this year, and is mainy due to NCL keeping its two newest ships, Norwegian Escape and Norwegian Getaway, in the region during the low season.

While pricing is higher in the Caribbean this year, it's 'less robust than our previous expectations,' Del Rio said.

NCLH doubled low season Caribbean capacity with Norwegian Escape joining Norwegian Getaway year-round from Miami. And Oceania Cruises' two biggest ships will sail seasonally from Miami this winter.

The company already acted to remedy its Caribbean capacity balance next year by shifting Norwegian Getaway to the traditionally high-yielding Baltic in mid-Q2 2017. And Oceania's Marina was redeployed from Miami to Tahiti and the South Pacific for Q4 2017 and Q1 2018.

Meanwhile, Del Rio said the Caribbean 'isn't a story of market weakness year over year. Our ships are performing. It's a recognition that the high expectations we had are not being realized. We believe that's due to a high concentration of inventory in the weak period.'

Before, the company thought the Miami market was strong enough to support two big Norwegian ships year-round. 'Now, we feel we can do better moving one to the highest yielding [Baltic] market seasonally.'

In 2017, the Caribbean capacity situation reverses. NCLH capacity there will decline 4.5% while Carnival Corp. and Royal Caribbean Cruises Ltd. will grow their Caribbean capacity mid single digits, Del Rio said.