Frank Del Rio: " . . . the emphasis will continue to be push prices up . . .

Excerpt from today's investor conference call. I wonder how long until FDR prices me out. I love NCL Freestyle, not what I wanted to hear from FDR. See complete excerpt below:

Question from Steven Wieczynski - Stifel, Nicolaus & Co., Inc.

"Okay. Great. And then second question will be on the booking curve, I think you talked about how it's 12% longer at this point. But when you look at the industry in general, it seems like all you guys have essentially – have gotten consumers to book a little bit further out. I guess, I'm just wondering how much – what else can you do at this point to get people to book even further out? And how much more do you think you can get that booking window to expand at this point?"

Frank J. Del Rio - President & Chief Executive Officer

"Well, I don't think necessarily you want to extend the booking window to infinity. I'd rather raise prices to infinity. And so, I'm very comfortable with the booking window the way it is now. Much more than that you'd probably be leaving yield on the table. So you're never sure what the perfect balance of bookings are, but we'll finish the year, as I said earlier, occupancy in the mid-50s for next year. That's very, very strong, up significantly from where we were this time last year where we will be – at year-end versus 2014 year-end. So I think that the emphasis will continue to be push prices up, not just ticket pricing, but take advantage of the on board revenue.

We've seen very, very strong on board revenue, especially at the Norwegian brand, over the last quarter. And we hope and believe that will continue. It's part of what we learn in the integration and synergy review that we put into place, and we think that's got sustainability."

Investors always want to hear about increasing revenue. So it's what the CEO talks about. Consumers always want to hear about value for their dollar (sales, promotions, new services) so the CEO directs marketing to talk to consumers about that stuff. Wash, rinse, repeat.

Every time an "evil FDR" thread is started, the suggestion is always that Del Rio is a monster for increasing shareholder value. I'm far more concerned about his use of weasel words like "integration" and "synergy".

If NCL (or any business) starts pricing its customers out of its product, the market will adjust and someone will swoop in with a way to capture those customers with an attractive product in which the customer finds value.

Del Rio said he "thinks" the emphasis will be to push prices up. He said this to investors on an investor call... just the sort of things they like to hear. As for the market, NCLH is down 5% today.

Del Rio says they have seen "very strong onboard revenue" -- to investors. Well, investor news sites sing a different tune: "NCLH posted better-than-expected third-quarter earnings early Tuesday and kept up its streak of at least double-digit profit growth, but it ran into rough seas with revenue falling short of forecasts, sending its shares down in morning trades."

It's a little premature to believe Del Rio's statements mean you'll be vacationing at your local Holiday Inn next year.

There's nothing alarming in his comments. He is saying there needs to be a balance between selling every cruise from now to 2025 versus letting the market decide on pricing with booking opening up later.

Many on here have fretted about the promos that people snatched up for 2016 earlier this year; people were booking far in advance in order to take advantage of special pricing. That's one pricing model. The other is to open booking up on a few months before the cruise and creating scarcity (anyone who has stood in line for an iPhone participated in this kind of marketing). The purpose either way is to get the maximum price possible for your product.

It's basic supply and demand. Either you want to cruise and are ok with the price or not. They are running a business and if they don't make money then there wouldn't be a cruise industry. Simple as that.

Sent from my iPhone using Tapatalk

I'm in the financial services industry and yes, those sounded like our CEO and CFO when talking to investors and bankers. The message from the same people is different when addressing customers.

Agreed. If the consumer no longer sees value for the price, they will go elsewhere. We're about to take our first NCL cruise on 11/14. With the Freestyle Dining packages, beverage packages, Dinner Theater, etc., I'll have to wait until the end of the cruise to decide if I'm ok with the pricing.

Investors always want to hear about increasing revenue. So it's what the CEO talks about. Consumers always want to hear about value for their dollar (sales, promotions, new services) so the CEO directs marketing to talk to consumers about that stuff. Wash, rinse, repeat.

 

Every time an "evil FDR" thread is started, the suggestion is always that Del Rio is a monster for increasing shareholder value. I'm far more concerned about his use of weasel words like "integration" and "synergy".

 

If NCL (or any business) starts pricing its customers out of its product, the market will adjust and someone will swoop in with a way to capture those customers with an attractive product in which the customer finds value.

 

Del Rio said he "thinks" the emphasis will be to push prices up. He said this to investors on an investor call... just the sort of things they like to hear. As for the market, NCLH is down 5% today.

 

Del Rio says they have seen "very strong onboard revenue" -- to investors. Well, investor news sites sing a different tune: "NCLH posted better-than-expected third-quarter earnings early Tuesday and kept up its streak of at least double-digit profit growth, but it ran into rough seas with revenue falling short of forecasts, sending its shares down in morning trades."

 

It's a little premature to believe Del Rio's statements mean you'll be vacationing at your local Holiday Inn next year.

True, but don’t forget he is talking to savvy institutional investors so he will not lie or embellish. They want to hear his business model. I do agree with you, he is going to speak to profit and revenue. With the upcoming investments in dry docks for five NCL ships, net profits will take a hit in the short-run as the dry dock improvements will be much more extensive that was planned under the previous leadership. Thus the drop in stock price.

I always enjoy listening to these conference calls as I get the real scoop inasmuch as Del Rio is speaking himself, not filtered through a PR marketing department. He explained his business model in a nutshell later in the conference call:

“And so far we're very pleased with our ability to raise prices, our ability to generate incremental on board revenue and we believe that if the fleet were to be in tip-top condition that will continue.”

Translation: Brand the ships more upscale, raise prices while slipping in additional fees and voila, increased profits!

WOW, this is exactly why when you are not feeling well, never look up your symptoms online. You will come to find out you have the same symptoms of many severe illnesses. Things said by FDR are being taken out of context. An interpretation of what you believe to be true.

When I'm not feeling well, I'll let my Dr. Tell me what's wrong, Instead of fishing for answers in water that is way over my head.

Simply, he is no different than any other CEO at an investors call.

So if he is just speaking to placate the investors that translates into he doesn't mean what he is saying? I don't believe that for one second. Del Rio has a vision to make NCL the gateway cruise line for Oceania and to do that he needs to transform NCL away from what it has been into something different. Yes, that's just business and he may be able to pull it off, but I have no interest in sailing on Oceania lite.

...so he will not lie or embellish.

That's one HELL of an assumption!

Translation: Brand the ships more upscale, raise prices while slipping in additional fees and voila, increased profits!

I don't believe generating additional revenue is that simple. Simply putting lipstick on the pig and raising prices is not sustainable in the long term.

I'm not an NCL apologist. Indeed, the Del Rio changes caused me to jettison any emotional loyalty to NCL. Emotional attachment to a curse line is irrational. Either the product makes financial sense or it doesn't.

Regardless of what NCL says in its marketing and twitter posts, the ships are NOT smiling back at you. It's just hull art!

If Del Rio raises prices to "infinity" the other lines will step in and fill the gap this will ultimately create. It's already happening.

Excerpt from today's investor conference call. I wonder how long until FDR prices me out. I love NCL Freestyle, not what I wanted to hear from FDR. See complete excerpt below:

 

Question from Steven Wieczynski - Stifel, Nicolaus & Co., Inc.

 

"Okay. Great. And then second question will be on the booking curve, I think you talked about how it's 12% longer at this point. But when you look at the industry in general, it seems like all you guys have essentially – have gotten consumers to book a little bit further out. I guess, I'm just wondering how much – what else can you do at this point to get people to book even further out? And how much more do you think you can get that booking window to expand at this point?"

 

Frank J. Del Rio - President & Chief Executive Officer

 

"Well, I don't think necessarily you want to extend the booking window to infinity. I'd rather raise prices to infinity. And so, I'm very comfortable with the booking window the way it is now. Much more than that you'd probably be leaving yield on the table. So you're never sure what the perfect balance of bookings are, but we'll finish the year, as I said earlier, occupancy in the mid-50s for next year. That's very, very strong, up significantly from where we were this time last year where we will be – at year-end versus 2014 year-end. So I think that the emphasis will continue to be push prices up, not just ticket pricing, but take advantage of the on board revenue.

 

We've seen very, very strong on board revenue, especially at the Norwegian brand, over the last quarter. And we hope and believe that will continue. It's part of what we learn in the integration and synergy review that we put into place, and we think that's got sustainability."

We've already experienced, and are still experiencing, the "race To The Bottom". How many threads have been started about services, food choices, food quality, etc, etc, that have been cut over the years?

The competition to see who could be more like Carnival, in my opinion, was a failure.

We may have just about reached the happy medium that will level out the market.

Investors always want to hear about increasing revenue. So it's what the CEO talks about. Consumers always want to hear about value for their dollar (sales, promotions, new services) so the CEO directs marketing to talk to consumers about that stuff. Wash, rinse, repeat.

 

Every time an "evil FDR" thread is started, the suggestion is always that Del Rio is a monster for increasing shareholder value. I'm far more concerned about his use of weasel words like "integration" and "synergy".

 

If NCL (or any business) starts pricing its customers out of its product, the market will adjust and someone will swoop in with a way to capture those customers with an attractive product in which the customer finds value.

 

Del Rio said he "thinks" the emphasis will be to push prices up. He said this to investors on an investor call... just the sort of things they like to hear. As for the market, NCLH is down 5% today.

 

Del Rio says they have seen "very strong onboard revenue" -- to investors. Well, investor news sites sing a different tune: "NCLH posted better-than-expected third-quarter earnings early Tuesday and kept up its streak of at least double-digit profit growth, but it ran into rough seas with revenue falling short of forecasts, sending its shares down in morning trades."

 

It's a little premature to believe Del Rio's statements mean you'll be vacationing at your local Holiday Inn next year.

Excellent post and pretty spot on. Of course he is going to paint a rosey picture, why can't the negative people on here understand this? Obviously investers are looking for positives and the past couple of years NCL stock holders have done very well. Will this continue? Who knows? Is FDR a genious or a disaster? Let's see how things look in 6 months or so. He is still new to the company and to most of us.

So if he is just speaking to placate the investors that translates into he doesn't mean what he is saying? I don't believe that for one second. Del Rio has a vision to make NCL the gateway cruise line for Oceania and to do that he needs to transform NCL away from what it has been into something different. Yes, that's just business and he may be able to pull it off, but I have no interest in sailing on Oceania lite.

A very good and objective outlook. I see him as trying to make NCL a choice, for those, like you and I who want something a litte special but not the Oceania experience.

Excellent post and pretty spot on. Of course he is going to paint a rosey picture, why can't the negative people on here understand this? Obviously investers are looking for positives and the past couple of years NCL stock holders have done very well. Will this continue? Who knows? Is FDR a genious or a disaster? Let's see how things look in 6 months or so. He is still new to the company and to most of us.

I think most of us do get that he is going to paint a rosey picture but that picture has to have some basis in fact, does it not? I don't think 6 months is long enough to see how things look since it will take much longer than that to change the perception of NCL in the eyes of Del Rio's new target audience. The question is can NCL hold on long enough to make the transition.

A very good and objective outlook. I see him as trying to make NCL a choice, for those, like you and I who want something a litte special but not the Oceania experience.

Sorry Nita but that's not a choice that I am looking for, not at the current price points nor at the future ones. I guess you could say I'm the financial demographic Del Rio is trying to attract but not the psychological demographic:).

Simply, he is no different than any other CEO at an investors call.

This is the only useful thing in your post.

He is a CEO, profit is what I expect him to pursue. The market will react to changes, one way or another.

Plenty of CEO's get canned for bad choices, some get promoted for bad choices.

The business of America is business.

I liked the NCL onboard experience very much, but I've already been priced out. No amount of fake "promotions" shilling unnecessary (to me) fancy food and drink will change that. There are lots of cruise lines; I can wait it out until the pendulum swings the other way. It's bound to happen sooner or later.

This is the only useful thing in your post.

 

 

 

He is a CEO, profit is what I expect him to pursue. The market will react to changes, one way or another.

 

 

 

Plenty of CEO's get canned for bad choices, some get promoted for bad choices.

 

 

 

The business of America is business.

Sorry I put you through the misery of reading it. Please, feel free to have me stoned to death next time.

I posted this on the other thread...but maybe would add more to the conversation here.

This is a simplified overview...

When you operate a transportation business the most money you an make is when the seats are full. But that is it. If its 100 seats at 10$ a seat its a 1000.00 a run. Transportation is a flatline invesment. Now..while limited, there are few ways to increase revenue -

1. Increase the cost of the seat.

2. Sell trinkets or other amenities...nicer seats, food, drinks

3. Reduce operating costs

4. Increase the number of run hours per vehicle (not going to happen on a cruise)

5. For overall corporate revenue increase as opposed to per vehicle then you would just add more vehicles. 300 seats make more money than 100 seats.

Being a publicly traded company, FDR's sole job it to increase revenue for NCL.

So far he has -

1. Increased cost of the seat

2. Increased the number of trinkets and costs of those trinkets including DSC becoming a company managed item (we will take the tips and distribute) as opposed to a personnel managed item (Employee receives an envelope and keeps it)

3. Reduced operating costs (fewer personnel per ship)

4. Cant do on a cruise line.

5. Buy more ships.

But in the end, you can only make so much money per ship. You are not creating something that can be bought and sold as a commodity. It has no more value than the experience of the cruise itself.

FDR's goal is to increase the experience of the cruise, justifying the cost of the cruise, increasing percentage of seats filled thereby increasing revenue.

The downside that every investor knows of transportation is that if you have a perfect year (100% seats full, operating costs lean and all trinkets are sold) then that is the best you will do. You can't increase revenue any further than that. Its flatline - This is the most we can possibly make from a single ship.

Investors want to see the numbers go up every year. To that end the only way is to add more ships...but what number of ships is too many? How many people really want to cruise? And the more ships, the more competition, costs go down to get people on them...

-Sean

This is the only useful thing in your post.

 

He is a CEO, profit is what I expect him to pursue. The market will react to changes, one way or another.

 

Plenty of CEO's get canned for bad choices, some get promoted for bad choices.

 

The business of America is business.

Quoting Calvin Coolidge, OK

Some CEO's get canned and run for president.

If you think NCL will fail, stay off the ships and wait for price reductions.

If you think NCL will succeed, buy stock now.

Sorry Nita but that's not a choice that I am looking for, not at the current price points nor at the future ones. I guess you could say I'm the financial demographic Del Rio is trying to attract but not the psychological demographic:).

Exactly, I don't want to pay to dress up and act stuffy. Young adults today are more active and demand more entertainment. Oceania sounds like a bore, let's hope he doesn't go for O-lite.

That's one HELL of an assumption!

Yes, it’s an assumption. But I disagree it’s “one HELL of an assumption.” One could argue I’m sticking my neck out making the assumption that given Del Rio is an experienced CEO he should know lying or exaggerating to his institutional investors is a recipe for lawsuits, visits from the SEC and lost CEO compensation and possibly his job.

Institutional investors will not continue to invest where the CEO is giving false or overly rosy information during investor quarterly conference calls. Like most all CEOs a significant portion of Frank Del Rio’s compensation comes from stock options. The higher the stock price, the more his compensation. Del Rio needs the investors to trust him enough that they will continue to invest in his company. Example: On December 3rd of last year Del Rio sold 114,474 shares resulting in $4,781,578 and then on August 20 of this year Del Rio sold 17,455 shares resulting in $1,042,412. (Nothing wrong with this as this how most companies compensate their CEOs)

It is illegal to give insider material information to select investors. All material information must be shared publicly. If a company provides false information they are subject to SEC sanctions and lawsuits.

In my estimation Del Rio was not giving a false or overly rosy narrative to the investors. I believe he is savvy enough to understand the importance of his institutional investors. I take him at his word. He plans to invest heavily in ship improvements during dry dock which will re-brand NCL from an affordable Freestyle cruise line into a more upscale line which will justify price increases. Whether this business model of upgrading ships and food along with incremental onboard fees and rising cruise fares will succeed remains to be seen. For all I know he’s a genius and people will flock to the higher prices on his renovated ships and upgraded food.

I hope Mr. Del Rio keeps doing what he is doing. As not only a guest of NCL but also an investor, my stock is paying for my cruises. Life is good as a Norwegian. :D

I take him at his word. He plans to invest heavily in ship improvements during dry dock which will re-brand NCL from an affordable Freestyle cruise line into a more upscale line which will justify price increases. Whether this business model of upgrading ships and food along with incremental onboard fees and rising cruise fares will succeed remains to be seen. For all I know he’s a genius and people will flock to the higher prices on his renovated ships and upgraded food.

Based on what I have read, Del Rio plans to spend a lot of money during the dry dock by updating all of the older ships. However, how much can you really update an older ship to make it more upscale? You can change the venues, but what about the quality of the food and the service provided? What about entertainment? While it is nice to sail in a "newer" ship, the truth is that one of the main reasons why new ships are so popular is because the new ships have amenities that the older ships do not have. For example, are the "updated" ships going to have a Waterfront area? What about entertainment - are the updated ships going to have Broadway-style shows?

A business is a business, and typically - operate to make money, fine. What I have read/heard is - the corporate plan to transform the whole creature comfort experience while trying to push prices up, for the "kettle" class - that is, going far beyond fancy speciality dining w. upcharges, new carpeting & more lounges. Some of the basics or fundamentals aren't going to be changed or retrofitted during a typical 2 week drydock, as in enlarging the size of the basic bathroom & square footage of those new balconies, oceanviews & insides - unless I'm missing out.

When we into our upgraded "club" level hotel rooms or suites, we come to expect and see more square footage, complimentary welcome drinks & happy hours, free WiFi, hot buffet breakfast, etc. etc. (granted, the hospitality industry is trying to redefine that too) - sometimes it's paid, others are complimentary or automatic upon availability. Alas, the model is - of course - different & not to be expected on cruises.

For about the same price points, the other popular mass lines that we've sailed on personally, are giving us more square footage, whether it's an inside or oceanview ... not even talking about the balconies & up - with plenty of room to stretch & move around. NCL's freestyle cruising came before Sheehan's stewardship as CEO and now, FDR is spinning more & more into a feestyle experience - the love isn't the same as before and making it that much more difficult to stick with the old and not explore the new & different - factoring in the packaged total costs. More choices to make on our next vacation, as cruising isn't the only option.

Let's face it - it's mostly the same ports, same itinerary (less time ashore, sometimes) and more-or-less milky runs. As for launching 1 brand new ship in Asia in 2017 ... yeah, quite a few years behind other mass lines - good luck & hope NCLH will succeed - competition is good as is sailing the ship full for that market.

Use it - the Ignore list - easy to skip reading & not respond to nonsense, there is a difference on an open forum, on agreeing to disagree.

I hope Mr. Del Rio keeps doing what he is doing. As not only a guest of NCL but also an investor, my stock is paying for my cruises. Life is good as a Norwegian. :D

But since they are giving away the Ultimate Beverage Package, if you chose to take it, you can't get your Shareholder OBC.