Like other cruise lines, Norwegian is thinking far into the future when it comes to China. Will the fledgling market keep up with the supply growth?
With early indications looking positive for Norwegian Cruise Line’s debut in China this year, the company is planning to send a second brand new ship to the superheated market in 2019.
Frank Del Rio, president and CEO of parent company Norwegian Cruise Line Holdings, revealed during a quarterly earnings call Wednesday that more capacity would head to China in two years.
Norwegian Joy, a 3,900-passenger ship designed from the start with China in mind, launches in June. It is part of the “Breakaway Plus” class of ships that include multiple restaurants, entertainment venues, bars, and outdoor space. Joy will have one-of-a-kind features such as a go-kart racetrack, laser tag, ride simulators, an open space park, and concierge-level staterooms.
Del Rio said the ship’s occupancy, based on signed charters and group contracts with travel agents in China, is “significantly ahead of the rest of the Norwegian brand fleet for the second half of the year at contracted prices that are consistent with our prior expectations.”
Norwegian expects the ship to command pricing at a 20 percent premium to the rest of the brand’s fleet.
“Based on what we know about the Chinese market today, the highest and best use for the fourth Breakaway Plus class ship would be to deploy her in China,” Del Rio said in a statement after the call. “As a result of the aforementioned strength of charter contracts and related pricing, as well as the resounding feedback and popularity of Norwegian Joy’s many unique and first-at-sea guest facing features, we have chosen to design the fourth Breakaway Plus class vessel as a sister ship to Norwegian Joy.”
Norwegian is fairly late to the China market, where competitors including Royal Caribbean International, Costa Cruises, and MSC Cruises have been sailing in some cases for years. Capacity in Shanghai, where Norwegian Joy will be based, shot up nearly 100 percent last year. That kept prices lower than they had been in previous years.
But this year, Del Rio said supply is only increasing 9 percent.
“So the factors of supply and demand are well in place in China, like everywhere else in the world,” he said. “We believe that the market this year in China is more stable, it’s one more year of maturity.”
One market that is still in its early days is Cuba, where Norwegian and other cruise lines finally have permission to sail. All of the brands under Norwegian Cruise Line Holdings — Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises — will visit the island this year.
Del Rio said that while the ability to go to Cuba is “an exciting development,” sailings to the island represent less than 2 percent of capacity for the company and will not result in a material financial benefit.
“While we have realized meaningful pricing premiums on these first 10 sailings to Cuba across all three brands, it is too early to determine how much of this premium is sustainable over the long run, given the additional capacity that has been approved not only for our three brands but for other industry participants,” he said.
Norwegian reported fourth-quarter revenues of $1.1 billion, an increase of 8.5 percent. Profits increased from $38.3 million in 2015 to $72.2 million last year. Full-year revenues jumped 12.2 percent to $4.9 billion, while net income increased from $427 million to $633 million in 2016.
Del Rio said the company is better booked for 2017 than it was at the same time last year. Pricing for the first half of 2017 is higher than at the same time a year ago but lower for the second half. Pricing on new bookings, however, has been strong over the past couple of months.
“In the last eight-week period, or since the beginning of the year, business has really taken off and has been the most robust since the financial crisis some 10 years ago,” Del Rio said.
Photo credit: Norwegian Cruise Line is preparing to launch its first ship in China this year and already plans to send a second. The funnel of a Norwegian ship is pictured here. Norwegian Cruise Line