Norwegian Cruise Is Trying to Luxe Up Its Mass-Market Line

Big-ship operator Norwegian Cruise Line is finding success in floating the kind of offers that are typically reserved for pricey luxury lines.

First came the "Free at Sea" promotion, which lets passengers in certain room categories choose options like unlimited open bar, Wi-Fi, or high-end dining at no extra charge. As an expansion of that, the cruise line recently added free or discounted airfare for some new reservations on cruises that include the Caribbean, Alaska, Hawaii, Canada, and the Mexican Riviera.

"It overcomes a  major hurdle of what high-yielding, long-haul customers need and want: easy-to-book and affordable air transportation," Frank Del Rio, president and CEO of parent company Norwegian Cruise Line Holdings, said during an earnings call Thursday. "The success of Free at Sea has demonstrated that there is a overwhelming demand for an inclusive contemporary cruise product."

The company's other brands, the upscale Oceania Cruises and luxury Regent Seven Seas Cruises, also offer airfare as part of a package or cruise fare. Del Rio oversaw those lines before Norwegian acquired them and before he took over the parent company. He sought to create value-added packages rather than slash prices at the more entry-level Norwegian brand — which, to be clear, is far from a luxury brand.

"It's a great differentiator in the marketplace. Just about everybody else focuses only on price, price, price," he said. "Early on in my tenure here, we brought a different philosophy to the table: a bundling strategy, the go-to-market strategy. And we are continuing to evolve and extend that strategy that proved so successful first at Oceania and at Regent and now at Norwegian."

Norwegian Cruise Line announced the promotions in September for one ship's Alaska sailings and in October for more ships and itineraries, but executives gave more details during a call with analysts Thursday.

Revenue leapt 12.5 percent to $1.9 billion during the three months that ended Sept. 30, while profit rose from $400 million last year to $470 million this year. Net cruise costs excluding fuel were up 2 percent.

Norwegian raised its full-year guidance to about $4.85 a share, up from its earlier estimate of $4.70 to $4.80.

Results beat expectations on all fronts; shares closed at $49.27, up more than 2.6 percent.

Del Rio said the "go-to-market bundling strategy," which includes the free airfare offer, helped drive demand during a record quarter.

Stifel analyst Steve Wieczynski said investors have lobbed "a ton of questions" about the air promotion, wondering if it was a result of weak demand.

"It's pretty clear from your prepared remarks that doesn't seem to be the case," he said. "But the question is can you help us understand how bookings have trended since that promotion was announced?"

Andy Stuart, president and CEO of Norwegian Cruise Line, called the promotion a "runaway success." The initial officer, for future Alaska itineraries on Norwegian Joy, resulted in more bookings and higher prices, he said. And web traffic has also increased.

"You can really expect us to expand it a little bit as we move forward," Stuart said.