Senior Advisor, Norwegian Cruise Line Holdings Ltd
Norwegian Cruise Line CEO discusses new ship, future of industry
"Things are looking up for the cruise industry."
CNN's Alison Kosik talks to Norwegian Cruise Line CEO Frank Del Rio as the line drops Covid restrictions and rolls out its newest ship.
About Frank Rio
Frank Del Rio, who served as President and CEO of Norwegian Cruise Line Holdings until his retirement on June 30, 2023, was succeeded by Harry Sommer, the former president and CEO of Norwegian Cruise Line. During his tenure, Del Rio advocated for the cruise industry's return to service during the COVID-19 pandemic. In 2021, he announced that the company would mandate 100% vaccination for all crew and passengers, and he criticized the CDC's guidelines, calling mask requirements "absurd" and "un-American." He also launched the "Safe to Sail" campaign to encourage past guests and industry stakeholders to contact government officials to allow cruising to resume from U.S. ports. Del Rio frequently emphasized the company's financial resilience and pricing power. In 2022, he stated that the company's debt was fixed over a 12-year period and that pricing strength would overcome inflationary pressures. He expressed confidence that pre-COVID occupancy levels would return in 2023, leading to a potential record financial year. Del Rio also highlighted the company's commitment to environmental initiatives, such as eliminating single-use plastics, and noted the diversity of the company's workforce and board. He described his career trajectory, including his role in founding Oceania Cruises in 2003 after being approached by the French government to use repossessed Renaissance ships.
Transcript (13 segments)
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Host0:01
Welcome back, I'm Alison. Wall Street is trying to extend its two-day winning streak. The major averages have just turned after opening the day lower. It hasn't been a great day for Norwegian Cruise Lines. It is down just under 1%. The stock has been pummeled this year. It's losing 40% of its value. That reflects a broad decline for the cruise line as the industry tries to bounce back from the pandemic. Norwegian Cruise Line is trying to turn that around. This week, it ended its covid rules for passengers. It is also expanding. In August — the first of six vessels of this class. These are live pictures now of the ship docked in New York harbor. It is right in their Hudson yard. The company reported a 65% occupancy rate in the second quarter. That is up from 48% in the first quarter. Frank Del Rio is the president and CEO of Norwegian Cruise Lines. He joins me from aboard the new ship. So glad you can join us today.
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Frank Del Rio1:06
Thank you for having me, Alison. How are you?
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Host1:10
I am doing well. I bet you're doing better sitting on a beautiful cruise ship. I want to hear more about it. I know it was christened last month. It made its transatlantic journey to dock right here in New York. Talk us through why the ship is such a standout for you.
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Frank Del Rio1:25
I wish you were here to see it for yourself. We are very excited to have Prima here in the U.S. today making her American debut in New York City of all places. This is a special vessel given her size. No vessel of this size has ever been built to this high standard. It is part of the strategy of Norwegian Cruise Lines to elevate the product to be in a class of its own. If you are on board and you walked around and you saw the suites and the public spaces, the bars, the restaurants, and all the fun things to do on board — think of a three deck racetrack. The Galaxy Pavilion has every virtual reality and AI assisted game that you could think of. You will get the idea of why this is so special, and frankly, why it's selling out in a rapid way.
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Host2:18
You need that. I know the cruise industry as a whole was hit hard because of the pandemic. Ships stopped sailing. Is Norwegian Cruise Line still working to recover?
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Frank Del Rio2:28
I think the whole industry is — look, we were shut down not a little bit, but for 500 days. Zero revenue. It takes quite a while to put Humpty Dumpty back together again, if you will. We were the first major cruise company to bring back our entire fleet of all 29 vessels. We are operating now with full capacity. You mentioned earlier 65% load factor in Q2. We will do a lot better than that in Q3. As we look forward, each successive quarter is getting better and better. We think we will get back to pre-covid levels of occupancy in 2023. We think we have a very good opportunity to have a record financial year in terms of profitability. Things are looking up for the cruise industry. It has been a long haul. We are resilient. We are a resilient company. With new assets, new ships like Norwegian Prima and three additional vessels coming online next year, one for each of our brands, we feel highly confident that we will be back soon.
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Host3:31
Just like other cruise lines, they are dealing with carrying a lot of debt because of the pandemic. Billions of dollars in debt. How much debt is Norwegian Cruise Line carrying? How much of a concern is that, as the Fed aggressively raises rates, that to carry it is becoming more expensive? Investors are certainly concerned. We did see the stock drop a bit after the Fed made its most recent rate hike.
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Frank Del Rio3:56
Look, we did add a lot of debt. We also floated shares, and our shareholder base came through. We think we will be able to delever by about a point per year for the next three years to get back to where we were, which was near investment grade. Our cash flow is strong. As long as we continue to fill our vessels at the highest prices in the industry, we have a very wide margin. We are going to generate that cash flow needed to delever the balance sheet.
By the way, you mentioned — the vast majority of our debt is fixed. We are not suffering from the additional high interest rates that we're seeing today. Our rates are fixed over a 12-year period.
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Host4:47
There is also inflation to contend with, along with higher diesel prices. Talk me through how those rising costs are cutting into Norwegian's bottom line.
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Frank Del Rio4:55
Rising costs are a double edged sword. Inflation is a dirty word. The positive word is pricing strength. We have pricing strength. As I mentioned earlier, we have the highest prices in the industry. We continue to raise prices. We command a premium, like Norwegian Prima. Yes, there is pressure on the cost side. Fuel is up. I hear your prior guest was talking about fuel. The cost of every commodity you can think of is up. We think that our pricing strength will overcome those pressures, and I think those cost pressures — I don't think they're forever. I've already seen, as we look into the horizon, how costs are coming down, especially in commodities. While we think there might be some near term deterioration of margins, we feel very confident that over the next year or two, the pre-covid margins will return.
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Host5:58
Frank Del Rio, CEO and president of Norwegian Cruise Lines. The ship looks beautiful.
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Frank Del Rio6:07
I heard you're cruise aficionados. You will have to come cruise, too.