Norwegian Cruise Line’s Pride of America, the top financial performer in the company’s fleet and the only home-ported ship in Hawaii, is going into dry dock as part of an aggressive schedule of upgrades planned for eight of NCL’s vessels.
Pride of America, which sails the Hawaiian Islands year-round, is scheduled for an overhaul early next year. It will go to San Francisco for the work, a round-trip journey of 10 days, plus two weeks in dry dock.
Norwegian, which merged last year with the upscale brands Regent Seven Seas and Oceania, plans to put eight NCL ships into dry dock next year and a half-dozen more in 2017. The spending is meant to elevate the fleet to tiptop condition with items such as new carpets, better linens, cutlery and plates, and “a lot of soap and water,” Chief Financial Officer Wendy Beck said Tuesday on an earnings conference call. That schedule will see almost the entire fleet, excluding Regent and Oceania, upgraded.
Dry dock costs Norwegian an average of $7 million to $8 million a ship, Beck said. That amount could be higher, depending on how much work a particular ship needs.
The idling of Pride of America will put a temporary crimp in Hawaii’s cruise ship industry, which saw total cruise visitors increase 0.6 percent through the first nine months of the year, according to the most recent data from the Hawaii Tourism Authority.
There were 86,631 visitors on 49 out-of-state ships that came to Hawaii year to date through September, a decline of 4.9 percent from 91,142 visitors in the year-earlier period. However, the number of cruise ship visitors who arrived by air and then boarded a ship rose 6.3 percent to 95,608 from 89,958 in the first nine months.
“A good portion of the arrivals by air are likely Norwegian Cruise Line’s passengers,” said Chris Kam, senior director of market insights for the Hawaii Visitors and Convention Bureau.
Norwegian said Tuesday its earnings increased in the third quarter to $251.8 million, or $1.09 a share, compared with $201.1 million, or 97 cents a share, in the year-earlier quarter. Revenue rose 41.7 percent to $1.28 billion.
But the company has a goal of charging higher fares for its cruises and bolstering cruisers’ onboard spending, and driving earnings to $5 per share in 2017. Norwegian expects to earn at least $2.85 per share in 2015.
“At the end of the day, the consumer is not stupid,” Norwegian CEO Frank Del Rio said on the conference call. “The consumer has choices. And we think the (return) on these kinds of investments (upgrading ships) outpaces the (return) and the payback of new vessels.”
Del Rio has spent the 11 months since he became CEO integrating the two high-end brands he helped to create with Norwegian, a mass-market cruise line long known for its affordability. In a review, the new management team found some areas of Norwegian’s operation that were not up to the standard they wanted to promote.
“I will tell you there was underspending in prior years,” Del Rio said on the call, with the company “playing a little catch-up.”
Kevin Sheehan, who left the company as CEO in January, declined to comment Tuesday on Norwegian’s fleet plans.
A cruise ship that isn’t in tiptop shape will have trouble commanding the same prices as those that are, especially among cruisers who know the difference. “We have the youngest fleet in the industry, but some of these vessels are a little more seasoned than others,” Del Rio said.
So Norwegian is using the familiar but not risk-free strategy of spending money to make money to reach its ambitious financial goals.
“We’ve got billions of dollars invested in these ships,” Del Rio said. “You have to maintain them at the highest standards if you expect to achieve these higher yields.”
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Star-Advertiser reporter Dave Segal and Bloomberg News contributed to this story.
