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How NCLH reined in costs for dining, shows, housekeeping, purchasing

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Capt. Patrik Dahlgren details some successes in NCLH's cost-cutting efforts
From menus to housekeeping, entertainment to purchasing, Norwegian Cruise Line Holdings is achieving cost savings in what the company said is a cultural shift.

CFO Mark Kempa committed to lower than inflationary cost growth and targeted more than $300m in savings over the next three years during NCLH's Investor Day.

Patrik Dahlgen on cost initiatives

Capt. Patrik Dahlgren, EVP vessel operations, took the stage to detail some successes springing from the company's new transformation office, what Kempa's likened to a 'continuous improvement' office to drive ongoing cost reductions. 

Dahlgren said this involves things passengers don't care about, tackles inefficiencies and trims waste.

Sourcing strategy and bunkering

For example, purchasing. NCLH's prior sourcing strategy was inefficient. The company's now diversifying suppliers and shifting more to direct sourcing from manufacturers.

Concerning fuel, a hefty 15% of overall expense, NCLH used to buy from one vendor. Now it uses 40 around the globe and annual bidding to 'significantly' lower cost. The bunkering plan was optimized, and data-assisted decision-making helped crew adopt better operating practices. 

In some cases, ship engines were started two hours before departure from port. The new model is 15 minutes, giving fuel savings.

Housekeeping

When it comes to housekeeping on turnaround days, a time and motion study tracked all the steps needed to clean and set up a cabin, including going back and forth to the laundry. This helped create a more efficient procedure using labor from other departments with lower workloads at that time.

Guest satisfaction scores stayed the same, cabin attendants have more time to interact with guests and the headcount was reduced by 500 crew.

Entertainment shift

NCL's always been known for big Broadway productions. But Dahlgren said the top rated shows in the fleet were the smallest ones produced at the company's Tampa studios. These have fewer cast members and avoid high licensing fees. An added bonus is that passenger cabins formerly needed to house cast were returned to revenue generation.

NCL menus

In Norwegian Cruise Line's main dining rooms a data analysis weeded out items that were ordered only 4% of the time and accounted for 20% of the waste. The menu selection was reduced by 30%, keeping the popular dishes, allowing for better galley execution and cutting waste.

Dahlgren said the transformation office currently has a workstream of more than 100 items and efforts will continue, all aiming toward sub-inflation cost increase.

Optimizing ROI on existing vessels

In the past, NCLH has talked about reining in dry dock costs by a careful analysis to focus on the highest value areas.

During his Investor Day presentation, Dahlgren also described optimizing ROI during dockings. Recently, on Norwegian Joy, for example, an analysis of underutilized areas made it possible to add 24 cabins, a new spa thermal area, redesigned owner's suites and a Vibe Beach Club — all revenue-generators.

According to Dahlgren, 2024 dry docks will add a total of 200 cabins to existing vessels and each provides $150,000 in incremental revenue annually.