Norwegian Cruise Line Holdings will reduce marketing spend: Travel Weekly

First, Norwegian Cruise Line Holdings cut its shoreside staff. It then reduced turndown service on Norwegian Cruise Line sailings and halted production of a Broadway-style show.

Now, as the company tries to turn around its balance sheet, its next target is marketing spend.

In a surprise move for a company with a "market-to-fill" philosophy that was among the few lines that continued marketing during some of the most uncertain days of the pandemic, CEO Frank Del Rio said it's time to pull back.

"If marketing was the cost of maintaining our industry-leading yields, then it was well worth it, and we turned the year in our best position ever," he said during the company's recent earnings call. "Now we believe we've got momentum back" and can pare down NCLH's marketing spend.

The company's momentum is evident in its strong booked position, Del Rio said. At the turn of the year, the company that operates NCL, Oceania Cruises and Regent Seven Seas was 62% booked.

"To be able to say that at the end of '22 we were better booked than at any time in our history -- given what this industry had just gone through, where the full fleet was not in operation until the midyear -- is an incredible statement to make, and at higher prices," Del Rio said.

Cost-cutting and finding efficiencies is a high priority for NCLH as it, along with other cruise companies, work to return to profitability and service the debt it racked up during the pandemic. Del Rio said the company will "leave no stone unturned" as it looks for incremental opportunities to cut costs. Those initiatives could include optimizing itineraries to reduce fuel consumption or looking for savings within the supply chain, said CFO Mark Kempa.

NCLH began cutting in earnest in Q4. Within a month it announced it would cut 9% of its then-current and planned shoreside staff and cut its twice-daily cleanings on NCL to once a day in most cabins (even as it increased gratuities), exempting some suites and all Haven categories. In January, the line also cut entertainment costs by halting production of "Kinky Boots" on the Norwegian Encore.

Asked whether he was worried about impacting the customer experience, Del Rio described the cuts as finding a balance.

"You don't want to kill the goose that lays the golden egg, which is the consumer," he said. "We're trying to balance what the customers actually pay for and what they receive."

November was a record-breaking month for NCL as it celebrated a record day, record week and record month of sales driven by Black Friday and Cyber Monday deals. NCLH brands continued to break booking records in January, with Regent Seven Seas Cruises experiencing a record Wave season launch day with net booking volume above 2019 prepandemic levels.

Thus far, Del Rio said bookings in 2023 are ahead of those from 2019 at higher prices. However, recent occupancy rates are still sluggish, having achieved 87% load factors in Q4, which is about 18 percentage points below levels for Q4 2019.

Del Rio's "market to fill" philosophy is a cornerstone for NCLH. Instead of lowering prices to boost demand, the company has insisted on keeping prices high and using marketing to spur demand. The company continued advertising through much of the pandemic, including in late 2020 when no NCLH ships were sailing.

Travel advisors say that marketing push helped drive sales. But as Alex Sharpe, CEO of Signature Travel Network said, the pressure is on for cruise companies to turn a significantly higher profit to service the debt built up during the pandemic.

NCLH spent on marketing "like no one else during Covid," Sharpe said. "They put the pedal to the metal, especially with Oceania and Regent. Our sales reflect that. My gut says they will be more prudent but still aggressive" with marketing, he said.

One area where the company is adding to its costs is its decision to begin paying qualifying agents commissions on historically noncommissionable fees (NCFs) as of Jan. 1.

But like marketing, it's a tool that drives bookings.

Todd Hamilton, NCL's senior vice president of sales, said the program has translated into "quite a healthy uptick" in business from several key partners. Rachelle Settle, the founder of Wanderlove Travel in South Carolina, is one of them. She said earning commissions on NCFs is making agents like her hustle to book more with the line.

So far this year, Settle has nine NCL bookings for 2023 totaling about $75,000, nearly matching the $76,000 she booked with NCL for all of 2022, she said.

And she's not worried about the reduction in marketing spend, even amid concerns about a possible recession.

"I don't think if they pull back on marketing that it's going to adversely affect travel agents; it may affect their direct sales," she said. "People don't see a Norwegian ad and call me."