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Norwegian Cruise Line Finds Ways to Boost On-Board Spending

Stocks in this article: NCLH CCL RCL

NEW YORK (TheStreet) -- Norwegian Cruise Line (NCLH) CEO Kevin Sheehan said the cruise ship operator has boosted on-board revenue by offering different eating, entertainment, and lodging experiences than its competitors.

In an interview aboard the "Norwegian Breakaway," Norwegian's 145,645 gross tonnage ship, Sheehan said his company "reworked a lot of our processes and procedures, and have gone from being last in the industry in on-board revenue to by far being the first in the industry."

Norwegian's first-quarter on-board revenue skyrocketed 21.8% from a year earlier to $205.5 million, the fastest rate of growth among its peer group.

Royal Caribbean's  (RCL) on-board revenue increased 4.25% in the first quarter, following a 7.34% gain in the same period a year earlier. Royal Caribbean said it continued to see benefits from "fleet upgrades and on-board revenue management initiatives." Carnival's (CCL) on-board revenue rose 4.27% for the six months ended May 31.

Boosting on-board revenue is paramount for a cruise line operator such as Norwegian because ticket pricing is competitive and because of the ships' big fuel bill.

Sheehan said "it's a tough time right now," with regards to ticket pricing, but added that "we are starting to see some relief in the future." Back in April, on Norwegian's first-quarter earnings call, Sheehan said the company was "starting to feel little better about the landscape."

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In March, Norwegian introduced Carlo's Bake Shop bakeries from celebrity baker and TLC channel star, Buddy Valastro, across all its ships. The company also began serving vodka endorsed by well-known music artist Pit Bull.

"I think what you find is that people, they see the brands they know, and then are more comfortable, then they engage, and hopefully while they are having a good time, spend a little more," Sheehan said. The CEO said Norwegian has been bringing land-based experiences that customers easily identify with on board its ships.

From a lodging perspective, Norwegian's super premium option "The Haven," offers vacationers to what amounts to a private island on a floating vessel. "There is a separate pool, concierge, butler, gym facilities, spa facilities, you're treated like a superstar, even though in everyday life some of us aren't superstars," Sheehan said when asked to describe the experience in this secluded portion of the ship.

Because of the competitive ticket pricing, Norwegian has sought creative ways to maximize fuel efficiency -- fuel represents about 13% of the company's operating expenses. To minimize fuel usage, Sheehan said the company is using alternative energy, and has "something now that we're talking about bubble technology, it lifts the boat a little bit under the water, making it glide a little bit." The company has also looked at the "way the hull is set" to maximize fuel efficiency.

To boost sales and profit, Norwegian is using data to more consistently reach prospective and repeat customers. Considering that 24% of U.S. households and 1% of European households have never been on a cruise-based vacation, the leveraging of information could unlock added earnings power for Norwegian.

"We spent tens of millions of dollars on exactly that," the CEO said. "We call it the book guest experience. We try to entice you to come to our site and make it very inviting.".

Net revenue for Norwegian increased 25.9% in the first quarter to $664 million, with adjusted EBITDA up 39.6%, driven by a combination of strong passenger ticket and on-board revenue growth. The stock has gained 10.4% in the past three months. On Tuesday, shares fell 1% to $32.39.

Norwegian recently announced two new ships with expected delivery dates in the second quarter of 2018 and the fourth quarter of 2019. They join two previously disclosed ship deliveries in 2015 and 2017. 

-- By Brian Sozzi CEO of Belus Capital Advisors, analyst to TheStreet. This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff. Brian Sozzi is the CEO and Chief Equities Strategist of Belus Capital Advisors. He is responsible for developing and managing an equities portfolio of mid- and large-cap positions, in addition to leading the firm's digital content initiatives. He is also a personal finance columnist for Men's Health magazine.

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