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NCLH's new transformation office drives cultural shift on costs

A relentless focus on costs — Harry Sommer, left, and Mark Kempa
Norwegian Cruise Line Holdings created a transformation office to drive the company's cost-reduction efforts.

CFO Mark Kempa likened it to a 'continuous improvement' office that's identifying operating inefficiencies and opportunities across all areas.

NCLH's strong cost focus in 2023 resulted in adjusted net cruise costs excluding fuel per capacity day of approximately $154, 21% less than in 2022.

This was not just a one-year exercise, CEO Harry Sommer said during Tuesday's fourth quarter earnings call, but a 'cultural shift in the way our entire company looks at costs to ensure we are operating as efficiently as possible, while delivering experiences our guests value.'

Dry dock increase aside, 2024 cost outlook flat

During 2024 adjusted net cruise costs excluding fuel per capacity day are expected to be $159, a 3.4% increase in constant currency, which includes approximately 325 basis points for higher dry dock days (roughly 175 days total).

Without this, the number would be essentially flat year-over-year.

Effectively $100m in cost savings

'This effectively represents $100m of cost savings given our expected core inflation rate of around 3%,' Kempa pointed out.

He added NCLH will continue its 'relentless' mission to enhance margins and reduce costs, 'leaving no stone unturned.'

Fuel consumption/bunkering

One key focus area is optimizimg fuel consumption and bunkering strategy. Fuel costs are one of the biggest expenses — about $700m a year, Sommer said.

NCLH is working with classification society DNV on decarbonization and forged a long-term agreement with ABB to help reduce fuel consumption.

Kempa described a 'big leap' in optimizing the company's fuel bunkering strategy to maximize price leverage across ports and suppliers seasonally and, in many cases, across a single voyage. He expects this to drive double-digit savings in the first year alone.'

Food waste

Kempa also identified food waste as a big area that can lead to significant multi-year benefits.

But when it comes to marketing spend, Sommer said there are no plans to ratchet that down.

'We will remain at the same level,' he said. 'Any savings will be on efficiency, not [reduced] volume.'