Del Rio sees cruise demand but return to 'good old days' may be years

Bookings have continued since the travel shutdown and through a period of 'horrific news,' and are increasing, NCLH management said during Thursday's earnings call.

'Good old cash'

Del Rio asserted new money, 'good old cash' — not future cruise credits —makes up 'the vast majority of those bookings.'

'Consumers are smart,' CFO Mark Kempa added. 'They understand there will be solutions [to COVID-19]. We are seeing customers come back. They are booking, obviously not to the volumes we like ... Consumers know this product is going to be there and they have confidence in it.'

Del Rio believes there's pent-up demand: 'People only talk about the negative, but the fact that the industry has been shut down now over four months, there will be pent-up demand. People will want to cruise again.'

Other factors more challenging than demand

As he sees it, when the US and other governments around the world allow ships to sail and if ports accept them are much bigger unknowns than if people want to cruise again. He even cited evidence the NCLH market is willing to fly: Currently, the top selling itineraries for Oceania Cruises and Regent Seven Seas Cruises feature Japan and Dubai, world cruise segments in early 2021.

'This notion that people aren't going to want to cruise to far-away or destinations, what we're seeing is defying that,' Del Rio said. Otherwise, no particular destination is performing especially well or especially badly.

But being 'back in the game could be different than it was before,' the NCLH chief cautioned analysts wanting to know things like if ships will go out at full occupancy? Governments may require them not to.

Timeline for return to full loads, pricing recovery

Pressed for his take on when the business could return to some type of financial normalcy, Del Rio called 2020 a 'wasted year' and said, at a minimum, lines will go through Q2 without a penny of income.

If NCLH could start sailing Oct. 1 — for argument's sake — the fleet wouldn't be fully operational until the end of Q1 2021 (should it be able to return five ships a month to service, the projected plan). Meanwhile, marketing would be ramping up and travel agents hopefully would be selling.

Given the traditional seven- to eight-month booking curve, 'You end up with a very challenging period of time through Q1, getting better in Q2, every sequential quarter is better,' Del Rio said. 'Whether you get back to full operation, full load factor, full pricing sometime in '22, I personally don't believe. I think the runway will be longer.

'Whether you get back to 2019 levels in late '22 or in '23 or, if you're really pessimistic, in '24 — there are so many details involved,' he continued.

Like relaunching a company from scratch

Del Rio talked analysts through the daunting task ahead.

'It's almost like relaunching a company from scratch when you have the entire fleet shut down and you don't know when you'll be able to restart because it's not up to you. It's up to public health officials and governments around the world. It's very difficult to predict with certainty revenue and EBITDA.

'It's a building block and the building block starts when we can start to operate.' That will trigger marketing, then cash comes in. Six, seven, eight months later that cash can be recognized as revenue and, therefore, EBITDA.

'We've got to have patience,' he said. 'It took decades to build this industry and in a matter of weeks, we dismantled it. And it's going to take not decades to build it up again, but it's going to take a little time ... This is going to be a recovery effort that is going to take multiple quarters, perhaps multiple years, to get back to the good old days of 2019.'

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