Norwegian Cruise Line: Creating Shareholder Value

Getaway in MiamiHis focus is on creating shareholder value, Kevin Sheehan, CEO of Norwegian Cruise Line, told Cruise Industry News. He said that everything else flows from there.

“I am also preparing how we are going to integrate the new ships in our fleet,” he continued. “After the Breakaway and Getaway, the next ships will feature some nuances, but are all designed to offer the best guest experience we can.”

Other efforts are targeted internally, making sure the crew is happy. “I visit a different ship every month,” Sheehan said. “I want to demonstrate that we care about them (crew); we value them. Our crew areas have been enhanced and crew cabins have flat–screen TVs and refrigerators. We will be unveiling some new crew programs in the near future that will include new contract lengths and their flights to and from the ships.”

For the first six months of 2014, Norwegian’s earnings were driven by more capacity, higher occupancy and higher onboard revenues, in addition to lower total operating expenses, and what Sheehan called smarter ways to run the business, including process improvements.

With 13 ships and 38,530 berths, Norwegian is projected to carry approximately 1.9 million passengers this year, according to the 2014–2015 Cruise Industry News Annual Report.

Norwegian’s newest ships, the 144,000-ton, 4,000-passenger Norwegian Breakaway and the Getaway entered service in 2013 and 2014, respectively, taking the brand’s freestyle cruising concept to a new level with multiple dining venues and at the same time upping the bar on entertainment for the industry.

Four more ships have been ordered: the 163,000-ton, 4,200-passenger Escape is slated to enter service in 2015, followed by a sister ship, the Bliss, in 2016, and two yet unnamed ships for 2018 and 2019.

The new ships are putting the brand on a strong growth trajectory with an estimated 19 percent capacity increase year-over-year for 2014, followed by just 2 percent in 2015, as the Escape enters service late in the year; 11 percent in 2017; 10 percent in 2018; and 9 percent in 2019.

Sheehan noted that the new ships for Norwegian were financed at a fixed interest rate of 2.98 percent (for 12 years) and that the payback on each ship would be five years (that is, the annual cash flow from each ship will equal its purchase cost over five years).

With $4 to $5 billion committed to new ships, he also pointed out that interest costs have come down, and that with the Breakaway and the Getaway, interest expenses for the first six months of 2014 were less than for the same period in 2013.

As for moving into new markets, Sheehan said: “We are following our game book at this point. We have fewer ships than some of the other major brands, so we still have opportunities in markets we are already in.”

Last May, Norwegian introduced a $250 million investment program, called NEXT, New Enhancements, Experiences and Transformations, with the aim of enhancing its existing ships by rolling out some of the features from the new ships.,

“We are moving the brand up the pecking order,” Sheehan said. “There is no reason why we should not be considered a premium product.”

Excerpt from Cruise Industry News Quarterly Magazine: Fall 2014

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