'Discounting' a dirty word at Norwegian Cruise Line Holdings

Norwegian Cruise Line Holdings (NCLH) said its three brands will not drop prices to raise occupancy, remaining focused on pricing discipline. 

Speaking during the company’s third-quarter financial update, CFO Mark Kempa said, “Pricing discipline is important to us. .. We’ve said time and time again that we want to protect the long-term brand equity. So we’re going to do it in a thoughtful and rational manner rather than chasing that cheap customer just to gain that that point of occupancy.”

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CEO Frank Del Rio echoed those sentiments. 

“You know, we’ve seen time and time again that companies have dropped prices, as we saw back in 2008 and 2009 during the Great Recession. It takes years — there are some who have not yet recovered to their pre-Great Recession yields more than a decade later,” he said. “So we’re fixated on maintaining pricing. We’ll sacrifice short-term load factors in order to preserve long-term pricing.”

Del Rio said that NCLH’s new ships will increase the company’s percentage of premium-priced accommodations, pushing up prices and driving margins. He said the company’s growth between now and 2027 — including Norwegian Cruise Line’s four upcoming Prima-class ships, two new ships for Oceania Cruises and one for Regent Seven Seas Cruises — would help increase its premium accommodations from 60% to 65% of its cabin mix.

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“I think we’re setting ourselves up nicely for margin expansion and [return on invested capital] improvement,” he said. “That’s why it’s important to keep that pricing discipline.” 

Del Rio also said that pricing has held due to what he terms the “pretty” way to describe inflation: “pricing power,” which has offset any negative inflationary impact. 

“Yes, we have inflation pressures on some line items — fuel, commodities, food — but we’ve got that pricing power that is translating into high yield,” he said, adding that while NCLH is not immune to the effects of inflation it helps that cruising is mostly a fixed-cost business.

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