NCL explains how cruise industry came back from being dead in the water

With one giant exception, the cruise industry is booming, with high-end round-the-world cruises selling out and occupancy climbing.

Norwegian Cruise Line (NCL) has its 17-strong fleet in the water again, is preparing to take delivery of its most advanced ship within weeks and in six months will return to New Zealand waters.

The company is the world's third-biggest cruise line and, like most of the industry, its operations were halted for much of 2020 and into 2021 as the sector reeled from the pandemic's fallout. But now NCL - which restructured and recapitalised its balance sheet during 2020/21 - has all its Norwegian-brand ships back with occupancy rapidly climbing.

"Overall, we are seeing demand at about 90 per cent of where we need to operate full ships, which we think is outstanding considering how things have transpired over the last few quarters," said Harry Sommer, president and chief executive of Norwegian Cruise Line.

He said the rebound's strength wasn't all that surprising given the pent-up demand. Worldwide, the ocean cruise industry had an annual passenger compound growth rate of 6.6 per cent from 1990-2019, but for about 18 months most cruises were suspended, meaning close to 30 million journeys weren't taken.

"All the cruise lines started up in a phased approach and none of us had all of our ships in operation last year, nor are we operating them at full so you had almost had two full years of this pent-up demand," said Sommer. "That's now ready to go."

This is reflected in the latest full-year figures from Cruise Market Watch, which show that 2021 total worldwide ocean cruise industry spending was $US23.8 billion ($37b) - an 81.8 per cent increase over 2020 but a 52.9 per cent decline from 2019.

Global cruise industry trade group Cruise Lines International Association (CLIA) said that more than 75 per cent of its member ships had returned to service, with almost all forecast to be sailing by the end of the year.

CLIA forecasts that passenger numbers will exceed pre-pandemic levels by the end of 2023.

Covid-19 accelerated the retirement of dozens of ships. Between 2019 and 2021, 31 ships were beached or scrapped. The fallout continues: one very large exception to the buoyant trend is an unfinished mega-liner that was to be one of the world's biggest cruise ships. Reports say the vessel is now at a German shipyard waiting to be scrapped, because bankruptcy administrators can't find a buyer.

Cruise industry magazine An Bord reported the lower hull of a liner known as Global Dream II, commissioned by Hong Kong-based Dream Cruises, is to be disposed of at scrap prices.

Harry Sommer, president and chief executive of Norwegian Cruise Line. Photo / Supplied

But according to Cruise Industry News' order book for ocean-going vessels, nearly 40 new ships are lined up to debut this year alone, with more than 75 on order through 2027.

Sommer said NCL's latest ship, Norwegian Prima, is on schedule to be delivered in about six weeks. The 142,500 gross tonne vessel has a space-to-guest ratio higher than the industry average and is undergoing final fitout in Italy before its christening voyage from Iceland in late August. It is the first of NCL's six-vessel Prima-class programme, which was last year priced at $US5.5b, with the ships to be delivered each year to 2027.

When tickets first went on sale for the ship, in the depths of the pandemic, NCL enjoyed the strongest booking day in its 55-year history.

"We still have six weeks left until delivery. There's thousands of workers on board - she is absolutely beautiful," Sommer told the Herald from Miami.

He took on his current role just before the pandemic hit in early 2020 and has 30 years of cruise industry experience.

Sommer has worked for other cruise lines and before his current role was president, international for the company's portfolio of brands including Norwegian, Oceania Cruises and Regent Seven Seas Cruises at a time of rapid international expansion.

Plainer sailing

Sommer said the wide removal of pre-testing requirements and more consistent Covid rules around the world were most important for the recovery now underway.

"People can travel freely to most of the world except for China and certain Asian countries, and I think they really want to go. This gets solved when two things happen: that friction has to go away and there has to be a certain level of consistency."

Covid aboard cruise ships was big news early in the pandemic.

Sommer said the industry, and NCL specifically, had some of the strongest health protocols, putting ships among the safest places to be.

Passengers above 12 years of age and all crew needed to be vaccinated.

"I think makes a big difference because around the world right now people go into the airplane with a mix of vaccinated and unvaccinated people. They visit hotels or resorts in a mix of vaccinated or unvaccinated - but people don't when they're on a cruise ship," he said.

"Adult passengers are vaccinated and 100 per cent of our crew is vaccinated, nearly 100 per cent of our crew is s boosted so you've created a sort of a public health environment that that's among the safest in the world."

Ships now had increased sanitation and filtration equipment on board.

"We still have Covid on board but in much smaller numbers than in the general population. When you have less Covid on a ship than you have on land, there's no new story for people to cover - that's the way we like it."

The discount game

Sommer said NCL was not going to get into the discount game, which had seen some cruises drop to as little as $US199 a week on some ships from other companies on voyages departing the US.

"We have a very strong strategy that we do not discount our product as we see in some of the competitors that do. We would rather spend money on marketing to drive consumer demand. If we have to shout it a little bit louder in times like this we're happy to do so."

The company was experiencing record guest satisfaction scores despite operating at increasing occupancy levels.

It offers 35 per cent off fares and a range of services - meaning a 12-day voyage aboard Norwegian Spirit in summer starts at $2710. But these were standard promotions, he said.

Cruising represented good value, especially when there was uncertainty about how high inflation could climb.

Aboard the Norwegian Spirit cruise ship which is heading to NZ in 2023. Photo / Supplied

"You might lock in a hotel or an air ticket for a land vacation but meals and things like that are constantly subject to fluctuation, whereas on a cruise you can lock in all those things on the day of booking."

That meant locking in 2022 prices for 2023 or even 2024 holidays.

Dealing with speed bumps

Travel is rebuilding fast at a time when global supply chain problems are hitting and inflation is soaring.

Sommer said the NCL group was used to operating with difficult and challenging logistics.

"We visit 500 ports across our three brands on an annual basis so we're used to the complications of getting goods from A to place B on a weekly basis."

So far, there had been only isolated problems of shortages on ships.

"Has this required a little bit more effort? Absolutely. Is it a little bit more expensive? For sure."

Labour shortages, which are hitting the entire travel sector, are not a big problem for NCL now.

The company's 2021 Environmental, Social and Governance report says it has more than 31,000 staff on ships and 3500 full-time employees on land.

A snapshot of the workforce shows 48 per cent are from the Philippines, 12 per cent from Indonesia, 6 per cent each from India and the US and the rest from a range of countries.

"Most of the labour shortages that are out there are not places where we typically crew our vessels from," said Sommer.

The one ship where it was acute was the Pride of America in Hawaii, because of the requirement to crew it with mainly US employees.

"The ship is at about 60 per cent of staff to serve 40 per cent of guests, which we think allows us to provide a great experience for our for our customers. And as we staff more, we'll be able to raise the occupancy."

The Spinnaker Lounge aboard the the Norwegian Spirit cruise ship which is heading to NZ in 2023. Photo / Supplied

Cruising back to New Zealand

After more than two years of closed maritime borders, the Government announced in May that cruise ships can return to New Zealand waters without restrictions from July 31. Tourism Minister Stuart Nash has praised the way the industry responded to the Covid crisis.

Norwegian Spirit will sail 10 local itineraries between December this year and March 2023, including a selection of eight 12-day sailings between her dual home-ports of Sydney and Auckland, visiting regional and metropolitan destinations such as Hobart, Burnie, Melbourne and Eden in Australia, as well as Napier, Tauranga, Wellington and Akaroa in New Zealand.

The ship had undergone a $160 million bow-to-stern refit and carries about 2000 passengers. They would come from around the world. Booking was picking up now there was certainty about New Zealand's border status.

"We got off to a little late start because we didn't really know whether we could run her or not in New Zealand," said Sommer. "Fingers crossed, she'll be 75 per cent to 80 per cent [capacity] but that's okay."

Ben Angell, managing director and vice president of Norwegian Cruise Line, Asia Pacific, said consumer demand and sentiment from this region was strengthening by the week.

There was strong demand for Europe - where Prima and sister ship Viva would sail next northern summer - and Hawaii, where air links are being restored from New Zealand next month.

Angell emphasises the "book early" mantra that's coming from across the travel industry.

"I think we've seen prices gradually increase whether it's cruise, whether it's air, whether it's land [travel]. So I would absolutely encourage our guests to get in early and book while prices are as good as they are now."