Norwegian Cruise Line CEO shares his plan for a cruising comeback — and it isn’t what you think

May 8, 2020

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How long will it be until cruising resumes?

The short answer, says Frank Del Rio, the president and CEO of Norwegian Cruise Line Holdings, is maybe in a few months — maybe longer. Nothing is for sure.

“I believe it’s going to be soon,” Del Rio told TPG on Thursday in one of his first one-on-one interviews since the coronavirus crisis began. “I just don’t know what soon is. The determinant factor is not when we want to go, or when we are ready to go. It’s when the government … is ready to let us go.”

Del Rio said the restart of cruising now is mostly in the hands of the U.S. Centers for Disease Control and Prevention (CDC), which has issued a “no-sail” order for cruise ships operating in U.S. waters, citing the risk of coronavirus outbreaks at sea. The agency will have to lift that order before cruise vessels can resume operating.

Visit TPG’s guide to all coronavirus news and updates

When pressed on when that might happen, Del Rio said his “best answer” is that the company, which operates three brands — Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises — would be in a position to resume sailing “sometime in the third quarter, more likely than not the back end of the third quarter.”

That suggests a comeback sometime in late August or September.

The CDC only has jurisdiction over cruise ships sailing in U.S. waters, of course, which prompted TPG to ask about the possibility of Norwegian’s brands starting up earlier overseas.

“We could,” Del Rio said. “But realize that the CDC has a long arm. It’s not certain how far their jurisdiction goes. It may affect American citizens traveling to far-flung places.”

Related: 2 of the world’s biggest cruise lines just canceled nearly all summer sailings  

Del Rio has been one of the leaders of the cruise industry for more than 25 years. He founded Oceania in 2002 and built it into a dominant player in the upscale cruise market, and he oversaw the acquisition of Regent in 2008. His company eventually merged with Norwegian’s parent.

During his talk with TPG, Del Rio was optimistic about the future of cruising — a surprise, perhaps, given the beating the industry has taken financially and in the media in recent months. The company’s stock is down nearly 80% since the start of the year. None of its ships have sailed since March, and it’s had to furlough or send home many of its 33,000 employees.

Here’s what else Del Rio had to say about the future of cruising.

A measured comeback

Whenever Norwegian gets the go-ahead to resume sailing, it’ll restart operations at a measured pace, Del Rio said. The company might initially start with just five or six of its 28 vessels.

He offers a scenario where just three Norwegian Cruise Line ships resume operations initially along with a single vessel from the Oceania and Regent brands. From there, the company would add another four to six ships into operation each month.

It’ll depend a lot on when ports around the world reopen, but Del Rio envisions a six-month process to get every vessel back into service.

One thing Del Rio doesn’t envision is ship retirements, at least for his company’s brands.

“We have the youngest fleet in the industry by far,” he noted. “The average age of our ships is 10 years, so we are far from retiring any vessels.”

Norwegian Encore at sea
Norwegian Cruise Line operates some of the newest ships in the cruise business, including the just unveiled, 4,004-passenger Norwegian Encore. (Photo courtesy of Norwegian Cruise Line)

 

Still, Norwegian may be the exception in this regard. Demand for cruising will be reduced, at least initially, and bringing back some of the industry’s older vessels won’t make sense.

“There will be other companies that will have to retire vessels in a reduced demand environment, especially those ships that are older and more marginal performers,” he said.

In addition, coronavirus-related shipyard shutdowns will likely lead to delays to new ship deliveries across the industry, including at Norwegian. The company has nine vessels on order from shipyards in Europe for delivery starting in 2022.

Noting that 2022 was far off, Del Rio said the company wasn’t doing anything to push back those ship deliveries any more than they are likely to be pushed back by the shipyards. Nor is the company seeking to cancel some of the orders.

“My guess is that those ships may be delayed six months, maybe a year, because of closures of shipyards in Europe,” Del Rio said. “As of right now, we’re not doing anything to delay those vessels.”

Related: Could cruising return in August? That’s the plan at Carnival 

Changes on board

Several things must happen before cruising can really come back. Key ports around the world will need to reopen, for starters, and travel restrictions hampering cross-border movement will need to be eased. But perhaps the biggest issue cruise lines face is figuring out a way to keep the new coronavirus off ships.

The CDC essentially has said it won’t allow cruising to resume until it’s satisfied that cruise vessels won’t be spreaders of the illness. The agency doesn’t want a repeat of the Diamond Princess situation in Japan, where COVID-19 caused a multiweek crisis.

Del Rio said the industry is developing new procedures to keep ship-goers healthy, in consultation with the CDC. The measures will include such things as more intense cleaning and disinfecting on ships. Ships also will be staffed with more doctors and nurses and equipped with additional medical equipment to handle any severe situations. But the key, Del Rio said, will be monitoring passengers and crew in a more intensive way for any signs of illness.

When ships resume service, every crew member on a Norwegian ship will be tested regularly for COVID-19, “so that we know without a shadow of a doubt that they are 100% safe,” Del Rio said. And, eventually, passengers may be required to undergo a test, too.

Del Rio said the company’s medical advisors are telling him a rapid test for COVID-19 that’s as easy and quick as a home pregnancy test could be available very shortly.

“If that’s true, then people can certainly do the test at home [just before sailing] and attest that they have taken the test,” he said. “And certainly, if we had to, if it’s that quick, we could do it while they’re checking in.”

If testing could show that all passengers and crew on a ship were negative for the illness, cruise ships could become one of the safest places to be on vacation, he suggested.

“If the cruise lines do a good job, [a cruise ship] could be among the safest places to be anywhere,” he said.

The industry, he said, is very engaged in getting this right.

“No one wants a healthier and safer environment than the cruise operators,” he said. “Nobody wants a repeat of what happened on some of the other brands earlier in this pandemic crisis.”

Related: 9 ways cruising will be different when it starts up again 

Social distancing on ships

There’s been a lot of speculation in recent weeks over what it’ll look like on ships when cruising resumes. Will passengers be required to follow social distancing rules? Will they be required to wear masks?

Del Rio said passengers should expect the same sort of procedures that they find on land — whatever that is at the time they cruise.

“Early on as we open our doors again, assuming that we are still working with the same general guidelines that society is working with today — social distancing, wearing masks and so forth — that will translate into shipboard life itself.”

Norwegian’s brands may not impose social distancing rules per se, or purposely limit occupancy levels on ships to reduce crowding. But less-crowded ships are likely to be the de facto situation in the early months of the industry’s comeback due to reduced bookings.

“When we first open up sailings, I don’t think the ships will sail full even if we wanted them to,” he said. “Remember, there’s been a lot of cancellations.”

Even with just a handful of ships sailing initially, Del Rio is expecting occupancy rates of just 50% to 60% on vessels for a few months as demand ramps back up.

“Social distancing will be a natural phenomena by definition,” he said.

Restrictions on older travelers

Several cruise lines in recent weeks have said new rules that would have restricted access to ships for some older travelers are now off the table, but Del Rio was hesitant to confirm this.

“I don’t want to say anything is off the table until we have full agreement with the authorities,” he said. “I don’t want to front-run it.”

Still, Del Rio said he saw no reason older travelers should be kept away from ships.

“The idea that if you are 70 years old, you cannot go on a cruise ship — I think that is being greatly debunked.”

Del Rio points to recent estimates that COVID-19 infection rates have been vastly undercounted, resulting in an overstatement of mortality rates among all age groups.

Norwegian Cruise Line Holdings’ Regent Seven Seas Cruises brand draws many older travelers. (Photo courtesy of Regent Seven Seas Cruises)

“We’ve learned so much over the last eight or 10 weeks,” he said. “Some of the conclusions that we all made are not proving to be as true or as profound as they first appeared.”

Two of Norwegian’s three brands — Oceania and Regent — draw a considerable number of older travelers (they are popular lines with retirees), and these people are raring to get back to cruising, Del Rio added.

“I don’t believe for a minute that the mature audience is not going to cruise anymore,” he said. “These are the most loyal customers. They’ve got the time to cruise. They’ve got the money to cruise and, quite frankly, they’re pissed off that they can’t cruise right now. They’ve got a bucket list. They’ve got a short time left on this planet, and they want to make the most of it.”

Related: Finally, some good news for cruisers worried about strict new boarding rules 

Itinerary changes

As of now, the three Norwegian brands aren’t planning major changes to itineraries, Del Rio said. But that doesn’t mean that there won’t be at least a few tweaks to routings.

“As we plot our comeback, we are assuming that we can still operate the itineraries that we want to operate,” Del Rio said. “But as we get closer, and as we know more information, we may have to modify some itineraries.”

Del Rio said the company may have to change some itineraries due to port closures. Some sailings could see new ports or extra sea days. Some could be shortened.

But in a perfect world, Del Rio says the company would hope to stick with the itineraries that it has on the books, including voyages across the globe from Europe to Asia.

That’s a different outlook than many industry watchers have been expecting. There’s been a consensus building that the coming year would be a time for “close-to-home” travel, and cruise lines would alter itineraries significantly to make them easier to reach and shorter in duration.

But Del Rio doesn’t seem to be thinking that way.

“Based on the booking patterns we’re seeing, people like the itineraries that we have,” he said, though he cautions that these still are early days. “It’s just too early to tell yet. The number one determinant will be what ports are open.”

No crazy discounting

Waiting for crazy discounts from Norwegian’s brands? Don’t count on it.

Even if demand is down, Del Rio said the line would stick to its time-tested strategy of holding price, even if that means ships sail less full.

“Our strategy has always been not to be the deepest discounter,” he said. “We believe in our product. We believe in the value proposition of cruising, the value proposition that our three brands offer and our customers obviously believe in it because we have [had] the highest yields.”

For the most part, cruise lines have not been offering radically low pricing for future cruises since the coronavirus crisis began. But Del Rio said recent price slashing in the industry — he didn’t mention any line by name, but cruise giant Carnival recently began selling fall cruises for under $30 a day — was a flawed strategy.

“It’s crazy. It’s absurd. It’s wrong. And we’re not going to be doing that at all,” he said.

For starters, travel agents have no incentive to sell a $30-a-day cruise, Del Rio noted. The commission would work out to just dollars.

But Del Rio also suggested that deep discounting isn’t what is going to bring people back to cruising in the wake of the coronavirus outbreak.

“All the research that we’ve seen, and we’ve done quite a bit, is that customers’ number one criteria for coming back to cruising is they want to feel safe,” he said. “There is no amount of discounting, no amount of giveaways, that brings them back. They need to feel confident that they will be healthy.”

Norwegian is “here to stay”

There’s been a lot of concern about the viability of cruise lines in recent weeks as the shutdown of the industry drags on. Many TPG readers are worried about whether Norwegian and other cruise companies can make it through the crisis.

Del Rio’s message on the topic: “People across the ecosystem — customers, travel agents, vendors — should feel very, very comfortable that we are here to stay.”

Earlier this week, the company raised more than $2 billion through debt and equity sales, which gives it enough liquidity to survive a complete shutdown of cruising for more than 18 months.

Related: Why Norwegian Cruise Line isn’t going out of business anytime soon 

Such a prolonged shutdown, he said, isn’t going to happen. It would only happen if the world itself remains shut down for the next year and a half. And that’s an unthinkable prospect.

“If the economy of the world is shut down for anywhere near 18 months, we are facing almost human extinction,” he said.

Del Rio said customers should feel confident making future bookings on Norwegian ships and taking future cruise credits for canceled sailings.

“We’ll be back to work, and the ships sailing, way before the 18 months,” he said. TPG readers and others “should feel very comfortable [making a booking or taking a credit].”

If any company can withstand a complete shutdown of business, it is Norwegian, Del Rio added.

“I don’t know of any other company in any other industry — and I challenge you to come up with one — that can withstand 18 months of zero revenue and still come out on the other side raring to go.”

Additional resources for cruisers during the coronavirus outbreak:

Feature image courtesy of Norwegian Cruise Line.

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