Cruise Execs Offer Straight Talk On Issues – Part 1


Perhaps it was all of the disappointing earnings news. Whatever the motivation, industry leaders have been unusually blunt in commenting on issues during recent earning calls Q & A sessions. Among other topics, cruise execs are no longer skirting around the broader-based implications of terrorism on Europe.

Here’s part one of a report and analysis on key issues raised during recent earning calls, paraphrased from CruiseWeek.      

Europe Expectations

Frank Del Rio, Norwegian Cruise Line Holdings“Given the magnitude and the number of events that have shaped the environment today, it is difficult to be very optimistic that things will turn around.
Analysis: This represents a deviation from what we’ve heard before. Del Rio is dealing honestly with the realities of the situation and being open about it. The challenge is publicly traded cruise lines don’t know what’s going to happen and are being pushed to make predictions based on geopolitical events unlike anything we’ve ever seen before.
Robin Farley, UBS: “Is your guidance for European pricing down in the sort of 20% to 30% range [for 2017]?”
Del Rio: 
We do expect European 2017 yields to drop from where they are in 2016 but not to that magnitude.

Analysis: Given Europe results for this summer, analysts are pressing more than usual to find true indicators regarding future business.
Degree of Reliance on Europe

Del Rio: “The main driver of yield growth in 2017 will not be Europe. It’ll be other destinations.”
Analysis: According to our retail spot checks, Princess and Holland America have experienced a stronger summer than some competitors. A high percentage of their fleet is in Alaska during this period. Brands with a high percentage of capacity in Europe are arguably more negatively impacted by the course of recent events.
So are agents. Retailers report that they typically make more money per sale on European cruise business than Alaskan business

Europe Booking Behaviour

Greg Badishkanian, Citi Investment Research: “Related to the behaviour of North American passengers booking in Europe, let’s say for near-term sailings versus sailings in second, third quarter of next year, are they unwilling to book far out in advance? Is it more that they’re concerned about the near-term?”
Del Rio: “
I haven’t yet seen the North American customer make that call. The peak booking window for North Americans to go to Europe is late Q3, certainly Q4. So it’s a little bit early.”

Conclusion: The reality is that cruise execs simply don’t know yet how 2017 Europe is going to pan out.
Shifting Sourcing?

Badishkanian: “Typically, about two-thirds of your passengers [on NCLH brands] for European sailings are sourced from North America, one-third from Europe. When do you expect that mix to be closer to a 50/50?”

Del Rio: “It takes time -- unless you want to just buy the business -- and one of the things we don’t want to do is to drop prices unnaturally. But remember that Europeans tend to book lower cabin categories. You tend to have to price the product lower to them, and then once on board, they spend a lot less on board.”

Analysis: It’s not an easy thing to shift sourcing. A lot of lines have told us that they find it difficult to increase European numbers on lines that are not European-specific brands. Plus, Europeans spend less on board than others.

Tomorrow: Part 2: Caribbean capacity, China and the new ship pricing premium.

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