Talking with Outgoing Norwegian Cruise Line Holdings CEO, Frank Del Rio

Correct. How you doing? I'm honored to be here. I'm fantastic. I'm glad you're here.

Yeah, sometimes I wonder. But yeah, so maybe that's a good place to start, if it's okay with you.

Yeah, so we left Havana on August 22nd, 1961, a few weeks before my seventh birthday, and moved to New Britain, Connecticut. Why New Britain? It's because my father had a brother and a sister, my uncle and my aunt, who had been living in New Britain, Connecticut way before the Cuban... My parents decided that it was time to move to warmer climate, and we arrived in Miami in time for the start of 10th grade. On my first day in this new high school that I had never visited, had never seen before, I knew no one there. First period, Algebra 2 class, I walk in late because I'm always late in the morning. It was pretty packed and there were only two empty seats: one seat was next to a guy and one was next to a girl, so I sat next to the girl. I went back Tuesday, Wednesday, by Thursday I figured out three things: she wasn't bad looking, she did her homework every night, and most importantly, she let me copy it every morning. So that's sort of the start of my life. Went to the University of Florida on a track scholarship. I wasn't always short and fat; I used to be short and skinny and I used to run the mile, and I was a pretty good miler and half-miler, and that's how I got to college. Graduated from college as an accounting major. Marsha was also an accounting major. She went to class; I hardly ever did because I had to work. We were relatively poor, our families were poor, and by that time I had stopped running because I couldn't be married, I couldn't run track, and I couldn't get good grades. One of them had to give, so I gave up track and I had to work. But we graduated college and finally got my break when I joined a company in Fort Lauderdale called Certified Vacations, that used to be the private label operator for Delta Airlines. When you thought you were calling Delta Airlines to buy a Delta Dream Vacation, you were really calling Certified. And there I met a gentleman named Ed Rutner, who was the CEO of Certified Vacations. He left after a few years of him and I working together, and he bought Renaissance Cruises and he took me with him. So this was 1993, and I learned the cruise business under Ed at Renaissance Cruises. Renaissance went bankrupt. Well, I got fired from Renaissance before the bankruptcy, about six months before the bankruptcy. The brand new ships that Renaissance had ordered, the so-called R-ships of which today Oceania owns four, the French government repossessed. After the dust settled about a year later, the French government reached out to me: would I be interested in starting a new cruise line with their support, using some of the Renaissance ships that were laid up in Marseille, France? Twice I said no to them, and the third time they convinced me to throw my hat in the ring. We won the RFP, if you will. There were other competitors for these ships. On January 3rd, 2003, with a whopping $7 million of capital, we formed Oceania Cruises. Nine months later, to the day, we actually operated our first sailing on board our first vessel, Regatta. Nine months later we took delivery of our second ship, Insignia, all from the French government, who were feeding me these ships a little at a time so that I wouldn't overdose on inventory. The third ship came along in November of 2005. In February of 2007, we sold a majority of the company to one of the largest private equity firms in the world, Apollo Management. We sold 58% of the company for $850 million. So that was a really good payday and an incredible turn of events. Then we bought Regent Seven Seas Cruises from the Carlson Companies of TGIF fame, and so Prestige Cruise Holdings was born. Prestige owned Oceania, Prestige owned Regent. Apollo was now the majority shareholder, I was the second largest shareholder, along with all the other investors who had raised that $7 million a few years earlier. We operated this wonderful company called Prestige Cruise Holdings until November of 2014, when Norwegian Cruise Lines bought 100% of Prestige for $3.3 billion. That was another good day. Then I thought I was done. Typically, when a company is acquired, the management team of the acquired company is let go in one way or another, and that was going to be my fate. In fact, it was my fate for six weeks, until the evening of New Year's Day 2015, about 10 o'clock, I get a phone call from the lead director of Norwegian Cruise Lines, who I knew very well because they were also involved with Prestige Cruise Holdings. He wanted to see me the next day and said, 'You got to come back and run all three companies.' So here I am. People still ask me, 'Frank, tell me again how you pulled that off.' I say, 'I was at the right place at the right time, and I took advantage of the opportunity, and I'm having the time of my life.'

Yeah, really remarkable. The luckiest guy in the world. I insist on that. If people say, 'Oh no, you make your own luck,' yeah, you do make your own luck along the way here and there, but really, I've been blessed. I've been blessed to work with some wonderful people that has allowed us to be as successful as we were when we started Oceania with a whopping $7 million. Most travel agents hated my guts, and I had no money and one old, used vessel — not exactly the winning recipe in the cruise business. But somehow we made it, and I would say that we made it pretty big. One of the most remarkable things is that all 12 of my first 12 employees that I recruited to join me to form this fledgling company called Oceania are still with me. We've become a family, and we don't want to break up that family. We thought we were going to have to when we sold, and that was a great... The fleet with $7 million right now, the tanks on half the fleet, right?

Well, it might say more about accounting. Sure, fair enough. But you know, accounting is a great profession to learn business. I wouldn't have changed a thing in my past and my certain line in my studies. I think accounting prepares you the best of any of the business majors. I always believe the smartest people in the room are the accountants.

No, I wasn't. I was minding my own business one day, working as an internal auditor at Florida Power and Light, and the phone rang. It was a recruiter. This company in Fort Lauderdale was looking for a head of internal audit. Would I be interested? I said yeah, I'd be interested. Little did I know that this company, Certified Vacation, was really looking for a Chief Financial Officer but didn't want to advertise as such so as not to alert the incumbent that his job was in jeopardy. So I got the job and became the CFO of Certified Vacations. Ed Rutner gave me the opportunity to switch from being the financial guy to being the sales and marketing guy. I'm not sure that meant that I was a really bad accountant or that Ed had incredible vision that there was something he saw in me that he thought would be successful in the sales and marketing arena. I think it was a little bit of both, probably.

Yeah, I was 60 years old. I was old enough. I made a lot of money for the investors, I made a lot of money for my management team, and I made some money for myself. So it was a very satisfying time, and I was glad to see Prestige going to a large, reputable, publicly traded cruise line. I knew that it would be a good home for her and her fleet and her customers. So it was good, and it was a holiday season, and it was just happy times.

There was a lot of integration work that needed to take place to bring the two companies, the three brands together. There were two corporate cultures, very different cultures, that had to be melded, and one of the cultures had to win over the other. There were the synergies or the cost savings that Wall Street was promised in this combination of companies that had to be harvested. So it was a very, very busy time, and I don't think there was a whole lot of 'Holy cow, look at what we did.' It was a lot of the... I think a lot of the... it happened.

We had one little ship, and so we all were pitching in to do whatever. We used to do... you never saw a group of people work so hard, work so well together to accomplish a single goal. That will forever be our fondest memories we can have in the business. If you pulled these people I'm referring to, they will all tell you it was the best time of their lives, the most stressful time of their lives. We had all this work to do, very little money, very little time to get it done, and so it was terrific. But things evolve, and to be a good... about every way you can think of. But as things evolve, the company grows, you've got to become more specialized as opposed to being a generalist where you're all over the place. So over time, I have focused on building the ships, refurbishing the ships, because at the end of the day, I don't care how creative your marketing is, how slick your sales people are, you have to deliver on the product. That's what is sustainable. So I focus on the product, I focus on the ships, I focus on the cuisine, the service on the ships. I focus on how to market that product. To clean the bathrooms or purchase the art, I said, 'How hard can it be? I'll do it.' It turns out it's a lot harder than I thought, but it's a lot of fun. The passion just keeps on, and I think that's one of the proudest accomplishments that we've been able to achieve here: we've instilled that passion throughout the organization. I was reading an article just last week in the Wall Street Journal where two-thirds of workers in the country are unengaged or disengaged from their job. They go through the motions or their heart's not in it. That's why... than the national average, so we're very, very proud of that.

The art of management really is an art. What works for one person doesn't work for another. For me, I'm just myself. I treat the lowest person on the totem pole with the same level of... We pay people very well. We don't have any turnover here. I guess that's the best indication that people are happy. No one ever leaves Norwegian Cruise Line Holdings, whether you work at Oceania, Regent, or Norwegian Cruise Lines. So to me, that's very gratifying, that people enjoy their jobs here, they want to bring their friends and family members to work here. One of the reasons I think we have a competitive advantage and why we beat much bigger competitors in the more important financial metrics, and we do it year after year, is that our employees are engaged, they're happy. You can't be your best if you're unhappy, and I like to think that our employees are happy. Care if it's osmosis or magic, I don't. So we treat people with respect, we give them flexibility, we realize that life happens, family always comes first. We pay well. We give people a lot of responsibility and, more importantly, the authority to act on that responsibility. That makes everybody happy, they feel fulfilled, and it makes our customers happy because you don't have to go through a lot of red tape to get an answer on something, especially when it comes to shipboard life. I've seen it too many times where something happens on the ship and you're told by ship personnel, 'Well, when you get back home, you can call the office.' That's no... all these financial metrics. Over 60% of our guests on any Regent cruise are repeaters, over 55% on Oceania, and 40% on Norwegian. Those are incredible statistics and the best indication to me that the product and service we're delivering is of excellent quality and of excellent value, because if that wasn't, all these folks wouldn't be coming back time and time again.

And the same can be said for those folks on board. I have great respect for the 33,000 men and women who work on board our 26 ships worldwide. They're away from their families, they can't go home at six o'clock every night, the ship is their home. We want them to feel at home on board our ship, so we do everything we can to treat them with respect, with dignity, pay them well, pay them above average so they can move up in the world. Nothing thrills me more than a housekeeper moving into a... love to. We have one of those core values: we want to promote from within. This is the family, and we want to take care of the family before we bring in a new family member.

It's the least I can do to show our gratitude. It's not stamped, it's not pre-printed, it's my signature on it. That's very neat. On the... yeah, you can keep as happy and of a house as possible, keep everything as well-oiled as possible. There are, of course, outside things: the direction of consumer demands, guest demands, and what's happening in the world.

Well, you know, technology is becoming a greater and greater force in our lives. I'm one of those who don't want technology for the sake of... race track atop the ship, double-decker, 12 turns, two turns are banked and can't deliver it over the side of the vessel, and 10 electric race cars can speed up to 40 miles an hour. That is the funnest — I mean, these are not your grandfather's cruise ships. The lines are long and deep, and everybody wants to go on these race tracks. We now have Galaxy Pavilion on three vessels. Imagine a gymnasium-sized room with every virtual reality or enhanced reality game, the best of the world, whether it comes from the US, Germany, Canada... the latest technologies, whether it's voice, AI, more virtual reality. So technology is important. Cuisine is important. Used to be you'd go on a cruise ship and you'd get off a week later 10 pounds heavier. That's not what people want today. So you have all these restaurants on board. Some of our bigger ships have over 25 restaurants. Even on Oceania Regent vessels that carry 700 passengers, there's five, six, seven restaurants on board, all very, very high quality. I'm convinced that if Michelin rated our restaurants on board Oceania and... industry, and people expect flawless service, attentive service, and that's what we aim to provide with the hard work of our 33,000 crew members.

It's a different market segment. The general rule of thumb is that the higher-end brands, the luxury brands, appeal to an older and certainly more affluent market than a more mass-market line like Norwegian Cruise Lines. The customers who are in their 60s and 70s, as opposed to 40s and 50s on average at Norwegian, they're not necessarily looking for the racetrack or the rock climbing wall. They're looking for enrichment. They want to learn. They want to see the world. So itineraries are very, very important to them. They want to see the world, and one of the best ways to see the world, one of the most efficient ways, safest way, most comfortable way to see the world is on a cruise ship. That's why on Oceania we have a 180-day around-the-world cruise. 180 days, six months on board a cruise ship, and you go around the world and see everything. I look forward to my invitation. It's always sold out. So itineraries are very important to these folks. These folks, for the most part, enjoy and demand top-notch cuisine, and that's why I said the restaurants on these ships were Michelin... and one of the things that's often overlooked is that they enjoy the company of like-minded people who are on board that vessel. So when you have a 700-passenger vessel or a 1,200-passenger vessel compared to four or five thousand at the other extreme, there's a sense of community, camaraderie. Friendships have blossomed. I remember my parents' two best friends today met on a cruise, two decades ago. So it's a slightly different emphasis. Oceania Regent, and I now qualify as one of them because I'm 64. The internet became a thing what, 20 years ago, more or less into mainstream culture? 20 years ago, I was 44 back then. I had to adopt it. So today's 60-year-old is not the 60-year-old of yesteryear who was abducted by technology and many of them turned away from it because they were too old to learn. They're not. Today, 60-70 year old folks are very, very well versed in technology, and they demand it because it makes things... groceries get delivered through drones or something. So mature Americans, mature people worldwide, use technology as much as younger folks, but perhaps slightly different.

Well, it's talking to the ships themselves. These ships are just pristine. We baby them. We spend whatever monies are necessary to make sure that there are no soiled carpets, there are no torn upholstery. They are in perfect condition, and they have to be in perfect condition every day. The itineraries that they go on are really, really exciting itineraries. We go to all seven continents. They're longer, not three, four, five, or seven day cruises. They're typically on average 10 to 12 day cruises, so you spend more time on board, you get to relax, you only unpack once. And so... you want a burger, you want pizza, you want a milkshake for lunch, it's there as well. So the cuisine variety is incredible. One of the benefits of joining forces with a company like Norwegian, where we have for example the Prestige brands, we're always known to have great cuisine. The Norwegian brand, not so much. Well, guess what? We have elevated the Norwegian cuisine working in conjunction with their sister brands. By the same token, the entertainment on board Oceania and Regent wasn't very good, but Norwegian was always known to have the greatest, the best entertainment, and so that has been elevated at the Norwegian brands. We have truly... brands.

We spent over $50 million on each one of these vessels. To spend that kind of money on a 350-cabin ship is almost unheard of. But that's why she sold out so far in advance. Today, the company that Brian has sold nearly a third of the inventory for 2020. People crave these ships. It's part of the aura, mystique, the lure of Oceania Cruises. You're going to be guaranteed to go on a ship that has that new ship smell. Cruise is incredibly affordable given the quality standards that we stand for. I think a cruise vacation in general is incredible value. The Norwegian brand for what it offers its guests at the price that it offers it at is an incredible value. You can't duplicate what we offer on a cruise at certain quality levels doing it yourself or doing it by land. It's impossible. The per diems, if you were to compare to all-inclusives or other land-based vacations, you're not going to get anything comparable. $50,000 for 180 days. People have told me that they couldn't live at home for $180,000, including lodging, entertainment, all your meals, most of your beverages — not the alcoholic ones, but most of your beverages — medical care. It's a bargain. Imagine if you had to go around the world. I think on our 180-day cruise we visit around 110 different ports. Having to hop from one of those ports to another 110 times, what your airline bill would be. So that just showcases and illustrates... vessels, and every year without exception, dating back as far as we keep records, at least 20 years, every year more people cruise than the year before, no matter what happens in the world. In 2002, following the events of 9/11 in 2001, more people cruised than in 2001. In 2009, following the financial meltdown of 2008, more people cruised in '09. So it's one of those 'build them and they will come' because people recognize the value. It's not just Americans anymore. Cruising used to be an American sport. It's no longer just an American sport. Roughly a quarter of all people who... it's become a global business, a global industry, and it's just going to continue growing. That's why we have 11 ships on order. We have 26 in the water today, 11 more coming.

I think China has been identified as the second largest... redeployed to Alaska simply because we believe that we can make a lot more money in Alaska than in China. So China has its challenges, but certainly there's a lot of coastline, a lot of people in China, the economy keeps growing, there's a growing middle class. China someday, in my view, will be a profitable source market. India is perhaps the next one. The established cruise lines do very little business in India. America is an under-penetrated source market that is close to the Caribbean. The Caribbean is by far the world's largest destination. So there's a source market in the destination market. But my money is still in the good old USA. The USA is the richest country in the world, growing, Boomer population growing, Millennial population growing, more leisure time is available to the American consumer. They are sophisticated consumers. To me, the US consumer is the most profitable consumer one you can... the US economy is the strongest in the world, the most stable in the world, the one that I think over the long run will grow more on a sustainable basis. Therefore, the people who live in this economy, in this society, are great targets for the cruise industry.

Thank you.