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Coronavirus: Updated Cruise Ship Policies and Cancellations Because of COVID-19 (2021)
Coronavirus: Updated Cruise Ship Policies and Cancellations Because of COVID-19 (2021)
Ship Exterior on Norwegian Sun
Ship Exterior on Norwegian Sun

Norwegian Cruise Line Holdings Has No Plans to Sell Its Ships

Ship Exterior on Norwegian Sun
Ship Exterior on Norwegian Sun

August 06, 2020

Aaron Saunders
Senior Editor, News and Features

(1:05 p.m. EDT) -- Norwegian Cruise Line Holdings (NCLH) President and CEO Frank Del Rio announced it has no plans to sell any of its ships from its three cruise brands, as a result of the COVID-19 coronavirus pandemic.

"We absolutely have no plans to divest of any of our vessels," Del Rio said during NCLH's second quarter earnings call with investors and media Thursday morning.

The corporation, which counts Norwegian Cruise Line, Oceania and Regent Seven Seas as its brands, reported an adjusted net loss of $666.4 million in its second quarter. Due to the complete suspension of sailings during the quarter, revenue decreased to just $16.9 million across all brands, compared with $1.7 billion in the same quarter last year.

Despite the decrease in revenue, Del Rio remained confident that NCLH had secured the required liquidity to weather the ongoing global health crisis that has seen cruise operations largely suspended across the world.

"It's a tough environment but we have a good liquidity runway to see this through," he told investors.

"Proud of Our Fleet"

Norwegian Spirit
Norwegian Spirit

One of the first questions posed to Del Rio from investors was whether NCLH had planned to divest itself of any of its cruise vessels. In recent weeks, the sale of ships from Carnival Corporation brands has been strong, with over a dozen vessels either being sold off or scrapped outright. Royal Caribbean has also sent two vessels from its collapsed Pullmantur subsidiary, Monarch and Sovereign, to the breakers.

Del Rio states that isn't in the cards for NCLH brands at this time.

"We have a young fleet," he remarked, commenting on the fact that the company had just injected a massive amount of capital into the 1998-built Norwegian Spirit prior to the pandemic as part of a sweeping refurbishment plan.  "We love our capacity. We're the smallest of the big three cruise brands, we're always wanting more. We not only have the youngest fleet, but we have nine incredible vessels on order."

Majority of Fleet Entering Cold Layup

Exterior on Norwegian Getaway
Exterior on Norwegian Getaway

Asked about the status of the NCLH fleet, Del Rio noted that the majority of the corporation's vessels will be entering cold layup, also known as "minimum manning", within the next 30 to 45 days. A total of seven vessels, which were not named, will be kept in warm-layup status due to port regulations.

"The layup of a vessel is a complicated endeavor," Del Rio remarked. "Port location is important, as areas prone to tropical storms like the East Coast and Hawaii must crew vessels to a minimum standard. Port authorities also have different requirements regarding minimum manning and tying up ships together. "

Del Rio noted that the goal is to staff vessels with the minimum level of manning needed to bring ships back online quickly. The corporation estimates it currently has a cash burn of $160 million per month on operational costs even after significant reductions in expenditures.

Operational costs per vessel work out to $5.6 million per vessel, per month, at this time. In a typical operating year, NCLH EVP and CFO Mark Kempa noted the company spent 40 percent of all revenue on costs related to fleet operations.

Asked about the resumption of cruise, Del Rio stated that while the final two months of 2020 could see a limited return to operations, NCLH does not expect the majority of its fleet to re-enter service until the second quarter of 2021. The restart of the entire fleet would take approximately six months once the green-light is given.

Bookings for 2021 Are Still Strong

Photograph of the main pool on Norwegian Joy - Photography courtesy of Norwegian Cruise Line)
The main pool on Norwegian Joy (Photo: Norwegian Cruise Line)

Pent-up consumer demand is still driving bookings for 2021, according to NCLH, which notes that the corporation had $1.2 billion in advance ticket sales as of June 30. Approximately $0.8 billion of that is future cruise credits.

While noting that roughly 60 percent of people on cancelled cruises are now electing to take full refunds, NCLH notes that cumulative bookings for 2021 remained within historical ranges, something Del Rio credits the company's diverse itineraries with.

"We've not seen any major shift in consumer behaviour," Del Rio told investors with regard to booking patterns. "We've not altered our itineraries. The same itineraries that were available for purchase before the pandemic for 2021 are still available today.

"If they're (consumers) showing favoritism for close-to-home-cruising, we're not seeing it. Our bookings are still relatively strong, and we believe our itineraries are still attractive to our customers."

On the subject of using Future Cruise Credits (FCC) to entire consumers on cancelled voyages to move their sailing rather than request a refund, NCLH's Kempa notes that having consistency in already-marketed itineraries is key.

"It's relatively easy to move people from an itinerary in a region to another ship," said Kempa. "Over time, we've seen customers are willing to make those kinds of changes. You may have to sweeten the pot with a shipboard credit or a cabin upgrade, but overall (it's) not an overwhelming obstacle."

"It's more complicated if you're asking someone who booked a four-day cruise to the Bahamas to book a 12-day cruise to Europe," concluded Kempa.

An Uncertain Restart

Ship Exterior on Norwegian Sky
Ship Exterior on Norwegian Sky

Del Rio noted the next 30 to 90 days would be critical for the cruise industry, pointing out that the Healthy Sail panel that NCLH entered into with Royal Caribbean Group was set to deliver its preliminary findings to the U.S. Centers for Disease Control and Prevention (CDC) by the end of August.

Those findings would coincide with the CDC's public Request for Information, or RFI, that requests information from cruisers on how to best restart and regulate the industry. The public can submit comments to the CDC until September 21.

Comments left by the public, together with the findings issued by the Health Sail panel put together by NCLH and Royal Caribbean Group, would then be analyzed by the CDC to form a framework for the resumption of cruise.

Asked about the recent outbreaks on smaller vessels that had attempted to restart, Del Rio was blunt.

"There's no way to spin the initial re-emergence of COVID onboard vessels," he said. "It's an opportunity to learn from them. This virus teaches us something every day. While it's disappointing, I'm glad that these cruise companies have handled the situation very well."

De Rio noted again that NCLH has secured the liquidity and reduced operating expenses to the point where it feels it can successfully weather the COVID storm. He admitted, however, that an exact restart date is still elusive.

"People are confident we're going to be coming back," noted Del Rio. "They miss it (cruising). This is temporary. The question is, how temporary is temporary?"

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