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Del Rio to investors: 'We're different'

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'What happens to Carnival isn't going to happen to us,' Frank Del Rio said during investor day aboard Norwegian Prima
'Don't throw us into the pool of the cruise industry because we're different,' Frank Del Rio, president and CEO, Norwegian Cruise Line Holdings, told investors on Thursday.

'Pricing is sacred to us. You win based on price,' Del Rio said, reiterating the NCLH mantra of marketing to fill, not pricing to fill, and the forecast that his company will score record pricing, yields and EBITDA in 2023.

'Others may have higher occupancy than us, earlier on. Great. Pricing lingers ...' he said. So when lines discount, it's not easy to then raise prices. Some competitors, he said, still aren't back to the rates they had before the Great Recession.

And Del Rio maintained NCLH goes for a different customer than its major competitors, with a focus on the more affluent who are able and willing to spend.

'Huge opportunity to reset pricing'

CFO Mark Kempa also sees a 'huge opportunity for the industry to change the pricing dynamics' following the pandemic shutdown.

'Let's take that jump. Let's reset the index on pricing versus land-based competitors and get the consumer and the broader community used to higher pricing,' he said. 'We're all seeing that across the board. Why shouldn't we participate? It takes marketing to do that.'

Kempa and Del Rio spoke aboard Norwegian Prima in New York less than a week after Carnival Corp. stock sank to a 30-year low when the company reported weaker than expected earnings and revenues.

'What happens to Carnival isn't going to happen to us,' Del Rio asserted, presenting figures showing NCLH substantially outpacing two unnamed competitors, 'blue' and 'red' on net ticket yield, net onboard yield, net yield and EBITDA.

Del Rio argued that competitors have so many brands and ships, 'they sabotage each other,' while NCLH has three brands and plenty of room to grow with many unserved or underserved markets such as Australia, only six ships in Alaska and no year-round presence in places like the UK or Galveston.

New ships have more premium categories and spending opportunities, and NCLH brands will be adding eight ships.

245-day booking window, more bundled pricing

During 2022, 85% of Norwegian Cruise Line customers are choosing NCL's Free At Sea bundled pricing, up from 50% in 2018. This makes for a higher deposit and 'stickier' bookings (fewer cancellations), gives the company more visibility (the average booking window is 245 days) and consumers a 'fresh wallet' mentality to spend when they get onboard, Del Rio said.

Norwegian Prima's just completed trans-Atlantic crossing chalked up double the onboard spending of any prior trans-Atlantic.

Other key points of the investor day presentation:

Inflation/recession

On inflationary pressures and recession, Del Rio noted one of the leading banks in credit card processing just reported a major drop in spending for households with less than $50,000 income. 'We don't fish in that pond,' he said, adding that for more affluent consumers, spending is slightly up.

US customers remain the core focus for NCLH, a philosophy Del Rio joked 'may bite me in the ass,' but 'I'll take an American customer any day over everyone else.'

The US labor market remains strong, wages are up and people earning spend on vacations. Americans tend to spend the most for a cruise and 'Europe may already be in recession.'

Currently NCLH's US versus international sales ratio is 80:20.

If there is a recession, cruising's 'value becomes more important than ever.' In a pricing comparison, a seven-day NCL cruise came out costing 44% less than a week at a four-star hotel in the Caribbean or Miami.

There are still inflationary pressures but Kempa said a recent supply chain report on proteins, vegetables and consummables showed declines: 'Things are starting to get back to the five-year average.'

Direct bookings rise

Direct bookings are up, rising during the pandemic as the number of travel advisors declined and consumers got used to buying online, even big-ticket items. Direct web bookings are the company's fastest growing growth channel.

Itineraries still key

Itineraries still drive the cruise purchase decision and pricing. 'I spend more time with itineraries than anything else,' Del Rio said. 'The right ship at the right time in the right place is key.'

Liquidity, debt, deleveraging

NCLH's liquidity was $2.2b at Sept. 30.

Kempa said the company is talking with lenders to amend and extend facilities coming due 2023. Seventy-five percent of debt is fixed at a weighted average cost of 5%; in 2023, that goes up to 80%. At a time of rising interest rates, this is a positive.

Kempa underscored a message from the company's early August earnings call: 'We believe we can fund our operations based on our existing cash and our organic cash flow ... Our board of directors, our management team has zero appetite to issue equity to reduce debt or to delever.'

He recounted NCLH has delevered before. In 2014, the company was almost 7x levered and in 2017, that was down to 3x, ending 2019 at 3.4.

Now NCLH is at 6x and Kempa's goal is to get that to 5x in 2023, 4x in 2024 and 3x in 2025.

'We know we have to delever, we want to de-risk the stock and we're not going to do it by issuing equity,' he said.

'The pandemic is over'

NCLH invited all shareholders to submit questions and the top one, by vote, asked about the current major revenue obstacle. Is it COVID? Something else?

'Not COVID,' Del Rio said. 'COVID is over. President Biden said so ...'

As for the economy, there are 'strains around the edges' but NCLH focuses on more upscale consumers.

'I'm not any more worried today than usual about the revenue-generating capacity of this company,' he said.  

NCLH shares inched up 7 cents on Thursday, closing at $13.29. This compared to CCL, down 45 cents to $6.98 and RCL, up 55 cents at $44.02.