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From cutting food spend to an ambitious ship dry dock, NCLH 'razor-focused on costs'

CEO Harry Sommer, left, and CFO Mark Kempa addressed NCLH efforts to ''right-size' its cost base through a margin enhancement initiative
From reining in a ship's dry dock scope to cutting food cost a whopping 30%, Norwegian Cruise Line Holdings is 'razor-focused on costs.'

So said CFO Mark Kempa Wednesday during the company's third quarter earnings call.

President/CEO Harry Sommer cited a priority as 'right-sizing our cost base through our ongoing margin enhancement initiative.' So far this has led to three straight quarters of improved cost metrics, 'and we will continue to identify and implement additional measures to accelerate our margin recovery.'

Norwegian Jewel dry dock

For example, Sommer told about recently touring Norwegian Jewel ahead of the ship's scheduled 2025 dry dock.

'We walked through each planned project while on board, stopping to get real time guest feedback to help identify the highest value opportunities,' he said. The result of this more methodical approach is not just lower costs but by reducing the docking by nine days, the ship can return to revenue-generating service faster.

'All in all, the changes we made to the dry dock plan are expected to result in over 20% capex savings and a few million dollars of incremental revenue versus our original plans,' Sommer said. 'It was a day well spent.'

Fundamental culture shift

This type of approach is 'not a one-off exercise for us, but rather something we are embedding in the DNA of our entire organization,' he added, calling it a 'fundamental shift in culture.'

Kempa chimed in with a powerful example in another area: Since Q4 2022, the company has cut food cost per passenger day by nearly 30%, 'significantly outpacing the easing of food inflation' in the broader market.

According to Kempa, such savings can be achieved 'while still preserving our exceptional customer experience.'

Optimizing crew movements and marketing spend

Further NCLH cost initiatives include optimizing crew movements and ship transfers for a multimillion-dollar savings and reducing direct-mail marketing by shifting to digital avenues and using advanced analytics to better target customers and improve lead generation.

Fuel efficiency, supply chain, port negotiations

The company also expects annual efficiency gains from decarbonization projects to save more than $50m over the next few years.

And still other efforts involve supply chain and logistics optimization, repairs and maintenance, port negotiations and corporate overhead.

Adjusted net cruise costs excluding fuel

During Q3, adjusted net cruise costs excluding fuel per capacity day in constant currency were approximately $152, in line with guidance and lower than the prior quarter's $156. The Q4 figure is expected to be approximately $151, with the full-year number at about $155, or $154 as reported.

Looking to 2024, Kempa cited pressures related to dry dock costs and reduced capacity days that will add about $4 to the unit cost on top of the 2023 exit rate, and he cautioned it's too early to say how much inflationary pressure the company can mitigate.