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Frank Del Rio has never used the word in public to describe the condition of Norwegian Cruise Lines’ fleet. But the aggressive schedule of dry-dock upgrades planned for the ships suggests it can’t have been far from the CEO’s thoughts.
The line, which merged last year with the upscale brands Regent Seven Seas and Oceania, plans to put eight Norwegian 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,” CFO Wendy Beck said. That schedule will see almost the entire fleet, excluding Regent and Oceania, upgraded.
“At the end of the day, the consumer is not stupid,” Del Rio said Tuesday on a quarterly call with analysts. “The consumer has choices. And we think the [return] on these kinds of investments outpaces the [return] and the payback of new vessels.”
It’s part of Norwegian’s goal of charging higher fares for its cruises, bolstering cruisers’ onboard spending, and driving revenue to $5 billion annually and earnings of $5 per share in 2017.
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 today 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.
Among the first ships scheduled for an overhaul, in early 2016, will be the top financial performer in Norwegian’s fleet, Pride of America, which sails the Hawaiian islands year- round. It will go to San Francisco for the work, a round-trip journey of 10 days, plus two weeks in dock.
What might be welcome news to a cruiser can be frustrating to a cruise industry analyst. Dry dock costs Norwegian an average of $7 million to $8 million a ship, CFO Beck said. That amount could be higher, depending on how much work a particular ship needs.
This article was written by Justin Bachman from Bloomberg and was legally licensed through the NewsCred publisher network.