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Harry Sommer outlines NCLH's 'bold vision' and culture change

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Norwegian Cruise Line Holdings will be honing in on revenue growth and cost control with a 'rigor and focus the company hasn't seen before,' CEO Harry Sommer said during NCLH Investor Day at the New York Stock Exchange
Norwegian Cruise Line Holdings shares shot up more than 7.5% Monday after the company raised guidance and laid out a new three-year strategy to lift EBITDA margin, earnings per share and ROIC — all by double digits — while reducing leverage.

2024 EPS guidance went to a range of $1.32 to $1.42, up from $1.32 just a few weeks ago.

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Financial targets for Norwegian Cruise Line Holdings' 'Charting the Course 2026,' announced Monday

NCLH will be honing in on revenue growth and cost control with a 'rigor and focus the company hasn't seen before,' President/CEO Harry Sommer said in outlining 'Charting the Course 2026' during Investor Day at the New York Stock Exchange.

Everything hinges on a balance of providing guests with experiences they value and are willing to pay for — what Sommer called 'return on experience,' or ROX, and delivering outstanding financial results (ROI).

Evolving from founder-led to team-focused company

Explaining the backdrop for a 'bold new vision,' Sommer reflected on the underlying philosophy of NCLH over the last decade and how it's evolving. It was fundamentally a founder-led company, he said, referring to but not naming Frank Del Rio, though calling him 'great.'

The new approach is a culture that's more collaborative and team-focused. 'We believe our team can collectively deliver better, and we will,' Sommer said.

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Harry Sommer explains NCLH's new financial targets

Second, the company had been passionate about about raising its product to a high standard at all three brands. That done, NCLH can now shift to investing in experiences guests value and are willing to pay for.

Previously NCLH focused on smaller vessels. As its recent eight-ship newbuild order showed, the future is in 'larger, more efficient ships with more guest amenities and a more efficient operating platform to drive higher returns,' Sommer said. (Norwegian Cruise Line's next-gen ship design, with 5,000 lower berths, is 56% larger than Norwegian Prima and Norwegian Viva.)

Finally, in the past NCLH had a singular focus on yields but sometimes didn't have cost discipline. Sommer said the future strategy will continue to focus on yields but also on cost control — targeting below inflationary cost growth, disciplined capital allocation and measured capacity growth, 'which will all lead to higher EPS and record ROIC.'

Four pillars

The changes will be done around four pillars, starting with people. Sommer said NCLH is committed to being the employer of choice and to talent development.

The second pillar is a guest-centric product offering, with packaging to capture more pre-cruise spending, exceptional onboard experiences people are willing to pay for and technology to customize and personalize the trip.

Growth is the third pillar, with a sharp focus on ROIC in newbuild and refurbishment programs. NCLH projects a 6% compound annual growth rate through 2028 and 4% through 2036. (And a few vessels will be hitting 30 years that perhaps may exit.) Sommer noted that historically, with a larger 7% capacity increase,  the company was able to raise gross revenue, adjusted EBITDA and net cash flow.

And the fourth pillar is exceptional financial performance. Sommer assured investors of a 'fanatical focus' on this.

Technology and AI applications

One key to improving performance company-wide is using technology in everything from revenue management to itinerary planning and incorporating AI.

Sommer said Kellay Buckelew, chief digital experience officer, is challenging NCLH to develop a comprehensive AI program, used in areas like updating and translating marketing copy, guest chat, website shopping, reservations systems, onboard sales, guest relations letters and data analytics.

As part of the Investor Day, Norwegian Cruise Line President David Herrera delved into opportunities for topline improvement, while NCLH EVP Vessel Operations Capt. Patrik Dahlgren talked about cost efficiencies under the company's transformation office.