Del Rio Says Itinerary Diversification Crucial To NCLH Success

Cruise Week

Frank Del Rio

Cruise Week recently asked Norwegian Cruise Line Holdings boss Frank Del Rio if he's as hungry now as back in 2002 when he took the helm of the newly formed Oceania Cruises.

“I'm more hungry now because there is so much more at stake," he replies. “We have 21 ships plus 6 more coming vs. just 1 ship in 2002. We are a public company worth $11 billion vs. a group of private investors who were risking only $14 million," he says, pointing back to the 1 st year of Oceania.

Del Rio has come a long way and indeed the stakes are the highest now in his entire career. But he has the tools and the room to maneuver - all that capacity makes increased itinerary diversity very possible and that is something Del Rio sees as crucial for all the brands. “Diversifying itineraries and deployment is probably the single largest area of opportunity to increase yields," he told investors.

Itinerary diversification will allow Norwegian to move away from the price-challenged western Caribbean. That will likely lead to other changes, including more bookings with an air component linked directly to the cruise line.

“At Prestige," explained Del Rio during a recent Investor and analyst conference for NCLH, “just about every booking included air. We marketed it as free air, but it's felt in the price of the product, whereas... the participation of our guests buying air from Norwegian to take a cruise is below 2%."

“My guess is that as we tinker with the Norwegian itineraries and reposition vessels away from the Western Caribbean... to perhaps higher yielding itineraries, the air participation at Norwegian will tend to increase because customers simply cannot drive to the places that we may put the ships," said Del Rio.

He emphasized that itinerary diversity matters to past passengers. “If every ship has these milk runs and there's no variety in itineraries, there's no reason for a past guest to come back as much if there was some itinerary variety."

Hardware is important, but it's not everything. “New ships are great, I love to build them, I love to go to inaugurals," said Del Rio. “But every ship that comes gets tougher and tougher to fill. So if we can find growth another way, I think we'll all be happy."

He used the Seven Seas Navigator as an example. “It is the smallest, oldest ship in the Regent fleet," said Del Rio. “We took delivery of the vessel in 1998, but she was really a 1960's era Russian spy ship."

Yet that was the ship in Alaska this summer that garnered $975 per day per diems. “So this notion that only the biggest shiniest, newest ships with all the bells and whistles can get double digit premiums on yields is wrong," he concludes.

Del Rio showed some “real examples" that indicate how diversifying itineraries will logically increase per diems, displaying information on one ship per brand with the highest yield and lowest yield actually achieved in 2014.

For NCL, it was Norwegian Pearl . “In Alaska she had a sailing of $208 per diem. That was her high. Her low was $48 in the Bahamas. Same ship, same cost structure, same crew, same entertainment, different itineraries. The high and low [differential] is 332%."

Similar high/low per diems provided for the Oceania Marina (88% differential) and RSSC Navigator (10% differential) were miniscule by comparison.

“The key is seasonality: the right ship the right place, right time, variety, scarcity, etc. etc.," he summed up. “We're not going to get Norwegian to be just like Prestige in itineraries, but I think we can significantly walk towards the Prestige concept of itinerary deployment and see massive improvement in pricing just by moving the ships to the right place at the right time.“

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