WEBVTT - Norwegian Cruise Line CEO Harry Sommer Talks Taxes, Middle East

0:00:02.720 --> 0:00:07.240
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

0:00:13.880 --> 0:00:17.479
<v Speaker 2>All right, another stock we're watching today is Norwegian Cruise Lines.

0:00:17.960 --> 0:00:20.000
<v Speaker 3>It is in the red here.

0:00:20.040 --> 0:00:22.680
<v Speaker 2>We can see with the rest of the market Norwegian

0:00:23.440 --> 0:00:25.640
<v Speaker 2>is falling. But it did put out an earnings report

0:00:25.680 --> 0:00:31.880
<v Speaker 2>signaling strong cruise demand despite missing profit outlook expectations. Norwegian

0:00:32.080 --> 0:00:34.880
<v Speaker 2>was one of a few cruise stocks that sank earlier

0:00:34.880 --> 0:00:38.519
<v Speaker 2>this month as well, following comments from Commerce Commerce Secretary

0:00:38.600 --> 0:00:42.879
<v Speaker 2>Howard Lutnik about a potential tax crackdown on ships that

0:00:42.960 --> 0:00:45.600
<v Speaker 2>sail under foreign flags. Joining us now is the CEO

0:00:45.680 --> 0:00:50.800
<v Speaker 2>Harry Summer Norwegian Cruise Lines. Harry, you know, came out

0:00:50.800 --> 0:00:52.880
<v Speaker 2>with some numbers that looked on the one hand good

0:00:52.880 --> 0:00:56.279
<v Speaker 2>but missed maybe outlook expectations. Why do you run us

0:00:56.280 --> 0:00:57.960
<v Speaker 2>through the reasons for that first?

0:00:59.040 --> 0:01:01.920
<v Speaker 1>So thanks for having a sum this morning. Appreciate it.

0:01:02.160 --> 0:01:04.400
<v Speaker 1>So you know, we're really happy with our twenty twenty

0:01:04.440 --> 0:01:08.480
<v Speaker 1>four earning scorecard. We had ten percent yield increases to

0:01:08.600 --> 0:01:12.360
<v Speaker 1>record numbers. It's a record percent increase, our record total yield.

0:01:12.880 --> 0:01:15.920
<v Speaker 1>We had record EBITDA. We kept cost growth down to

0:01:16.000 --> 0:01:18.680
<v Speaker 1>one percent, so like a nine hundred basis point spread

0:01:18.760 --> 0:01:22.840
<v Speaker 1>between revenue growth and cost growth is fantastic. We had

0:01:22.840 --> 0:01:25.840
<v Speaker 1>we something like crippled our net income from twenty three

0:01:25.880 --> 0:01:28.800
<v Speaker 1>to twenty four, we reduced our leverage by two turns,

0:01:29.319 --> 0:01:32.720
<v Speaker 1>increased our return on invested capital by three turns. So

0:01:32.840 --> 0:01:36.000
<v Speaker 1>overall we were really really excited about our twenty four papers,

0:01:36.040 --> 0:01:38.319
<v Speaker 1>so to speak, because in twenty five it's.

0:01:38.200 --> 0:01:39.880
<v Speaker 3>Going to be a little bit different, you know that.

0:01:39.920 --> 0:01:42.560
<v Speaker 1>The but we think it returns back to a normal

0:01:42.600 --> 0:01:45.080
<v Speaker 1>cadence where like in the back three and a half

0:01:45.160 --> 0:01:47.319
<v Speaker 1>percent yield growth on a half on a or three

0:01:47.360 --> 0:01:50.720
<v Speaker 1>percent yield growth on a half point growth in costs,

0:01:50.720 --> 0:01:52.680
<v Speaker 1>so about a three hundred basis point spread there.

0:01:52.960 --> 0:01:54.080
<v Speaker 3>As we're really excited.

0:01:54.280 --> 0:01:56.360
<v Speaker 1>Q One is a couple of technical issues that are

0:01:56.440 --> 0:01:58.600
<v Speaker 1>dragging it down, related to a few of our big

0:01:58.640 --> 0:02:02.320
<v Speaker 1>ships going to for some long dry docks, but abps

0:02:02.360 --> 0:02:04.640
<v Speaker 1>to that, we're really happy about the future as well.

0:02:04.840 --> 0:02:05.000
<v Speaker 3>Well.

0:02:05.040 --> 0:02:08.399
<v Speaker 4>In addition to booking and the momentum that you're seeing

0:02:08.440 --> 0:02:10.600
<v Speaker 4>in bookings, I also want to talk about how much

0:02:10.680 --> 0:02:13.600
<v Speaker 4>people are actually spending when they're on board. Of course,

0:02:13.639 --> 0:02:16.880
<v Speaker 4>that's a big way how cruises such as yourself make money.

0:02:16.880 --> 0:02:19.520
<v Speaker 4>And with this fear that we're seeing over inflation, the

0:02:19.560 --> 0:02:22.959
<v Speaker 4>concerns that are building about the consumer. Do you anticipate

0:02:23.040 --> 0:02:25.639
<v Speaker 4>that people riding aboard your cruises are going to pull

0:02:25.680 --> 0:02:27.880
<v Speaker 4>back on their spending once they're actually on the ship.

0:02:28.200 --> 0:02:30.079
<v Speaker 3>No, no, we don't see that.

0:02:30.160 --> 0:02:33.200
<v Speaker 1>You know, the onboard spend, which we track, as you

0:02:33.240 --> 0:02:35.959
<v Speaker 1>might imagine, on a weekly basis, was strong both for

0:02:36.080 --> 0:02:38.640
<v Speaker 1>Q four and our reported numbers, and continues to be

0:02:38.720 --> 0:02:41.400
<v Speaker 1>strong throughout January and now February as well.

0:02:41.400 --> 0:02:42.680
<v Speaker 3>That's the months almost over.

0:02:42.960 --> 0:02:45.280
<v Speaker 1>We're very very pleased, you know, I think within the

0:02:45.320 --> 0:02:48.280
<v Speaker 1>core demographic that we're getting, which is primarily you know,

0:02:48.360 --> 0:02:50.960
<v Speaker 1>upper middle class and upper class guests for our two

0:02:51.040 --> 0:02:55.080
<v Speaker 1>luxury brands, Oceanic cruises and reaching seven seat cruises, they

0:02:55.160 --> 0:02:59.040
<v Speaker 1>seem to be doing well despite the modest inflationary environment

0:02:59.080 --> 0:03:01.960
<v Speaker 1>we're seeing today, So we are not seeing any cracks

0:03:02.000 --> 0:03:02.840
<v Speaker 1>in on board spend.

0:03:03.720 --> 0:03:07.720
<v Speaker 2>I wonder if you factor in any additional tax bills

0:03:07.800 --> 0:03:11.320
<v Speaker 2>you might receive from the Trump administration. As we noted

0:03:11.360 --> 0:03:17.680
<v Speaker 2>in the intro, Howard Lutnick was I guess unhappy that

0:03:17.760 --> 0:03:23.560
<v Speaker 2>a lot of cruise liners and oil tankers are sailing

0:03:23.600 --> 0:03:28.160
<v Speaker 2>around with you know, low tax Caribbean flags on the back.

0:03:28.400 --> 0:03:32.480
<v Speaker 2>Most of your fleet is out of the Bahamas. What

0:03:33.639 --> 0:03:36.000
<v Speaker 2>do you say about that or what would you do

0:03:36.160 --> 0:03:38.960
<v Speaker 2>about it? Could you imagine putting more American flags on

0:03:39.000 --> 0:03:39.480
<v Speaker 2>your boats?

0:03:40.000 --> 0:03:41.600
<v Speaker 3>So you know, I'll start up.

0:03:41.640 --> 0:03:43.280
<v Speaker 1>I say it's a bit of a misnomer that the

0:03:43.320 --> 0:03:46.160
<v Speaker 1>cruise industry doesn't pay tax you know, as an industry.

0:03:46.920 --> 0:03:49.280
<v Speaker 1>You know, our Trade Association puts out some statistics. I

0:03:49.280 --> 0:03:51.320
<v Speaker 1>think as an industry we played close to two and

0:03:51.360 --> 0:03:54.800
<v Speaker 1>a half billion dollars in taxes on an annual basis

0:03:55.000 --> 0:03:56.760
<v Speaker 1>to various US jurisdictions.

0:03:57.200 --> 0:03:58.480
<v Speaker 3>We just pay them in different forms.

0:03:58.520 --> 0:04:01.360
<v Speaker 1>It's not an income tax, their ports taxes, but essentially

0:04:01.400 --> 0:04:04.400
<v Speaker 1>it gets to the same thing gets the treasury of

0:04:04.480 --> 0:04:08.520
<v Speaker 1>local and state and some federal taxes as well. So

0:04:08.560 --> 0:04:11.960
<v Speaker 1>that's a pretty robust tax bill. Now, of course, you know,

0:04:12.040 --> 0:04:15.280
<v Speaker 1>the administration may choose to pursue additional taxes on the

0:04:15.280 --> 0:04:19.719
<v Speaker 1>industry to a relatively complicated situation as our ships aren't

0:04:19.760 --> 0:04:23.880
<v Speaker 1>based in the United States for long periods of time,

0:04:24.120 --> 0:04:26.480
<v Speaker 1>So a little bit difficult to ascertain exactly what our

0:04:26.520 --> 0:04:28.720
<v Speaker 1>tax bill would be depending on how they may want

0:04:28.760 --> 0:04:30.040
<v Speaker 1>to modify the tax code.

0:04:30.080 --> 0:04:31.000
<v Speaker 3>But I will say, you.

0:04:30.920 --> 0:04:33.880
<v Speaker 1>Know, we're generally pleased with some of the other actions

0:04:33.920 --> 0:04:36.680
<v Speaker 1>of the administration. You know, this pursuit of peace in

0:04:36.720 --> 0:04:39.920
<v Speaker 1>the Middle East and between Russia and Ukraine, which hopefully

0:04:39.960 --> 0:04:42.800
<v Speaker 1>comes to tuition over the next few months, would be

0:04:42.839 --> 0:04:46.120
<v Speaker 1>a major tailwind to us. You know, we have one

0:04:46.120 --> 0:04:50.120
<v Speaker 1>of our highest yielding itineraries. You know, back in the

0:04:50.200 --> 0:04:53.360
<v Speaker 1>day seventeen eighteen to nineteen where cruises that visited Russia,

0:04:53.560 --> 0:04:56.800
<v Speaker 1>most specifically Saint Petersburg with about a third of our

0:04:56.839 --> 0:05:00.520
<v Speaker 1>fleet based in Northern Europe across our three brands summer

0:05:00.800 --> 0:05:02.600
<v Speaker 1>and to the extent that Russia opened up this could

0:05:02.600 --> 0:05:05.560
<v Speaker 1>be a significant tailwind to us in order to start

0:05:05.640 --> 0:05:07.800
<v Speaker 1>visiting Saint Petersburg. It was one of our most lucrative

0:05:08.080 --> 0:05:11.280
<v Speaker 1>and more importantly, highest rateed ports from a guest experience perspective.

0:05:11.600 --> 0:05:13.720
<v Speaker 4>That's really interesting, Harry, to hear you say that. I

0:05:14.320 --> 0:05:16.880
<v Speaker 4>know that your results last year were hurt in particular

0:05:16.960 --> 0:05:20.440
<v Speaker 4>by the conflict in Israel and specifically in the Red Sea.

0:05:20.560 --> 0:05:22.280
<v Speaker 4>So talk to us a little bit more about the

0:05:22.279 --> 0:05:25.680
<v Speaker 4>potential opportunity that you could see though in Russia, because

0:05:26.360 --> 0:05:28.880
<v Speaker 4>I mean, at least listening to your preliminary comments now,

0:05:28.920 --> 0:05:31.680
<v Speaker 4>it seems like you're saying that is a big opportunity.

0:05:32.440 --> 0:05:36.360
<v Speaker 1>Yes, I mean, this industry drives in peaceful environments. As

0:05:36.360 --> 0:05:38.919
<v Speaker 1>you may imagine, guests don't want to take vacations in

0:05:39.040 --> 0:05:41.760
<v Speaker 1>areas of conflict. And I don't mean to state the obvious,

0:05:41.800 --> 0:05:44.200
<v Speaker 1>but I think it's important to note and if we

0:05:44.200 --> 0:05:47.240
<v Speaker 1>can get some relative calm in the situation, especially in Russia,

0:05:47.279 --> 0:05:49.800
<v Speaker 1>like I said, with eleven of our ships about a

0:05:49.839 --> 0:05:52.360
<v Speaker 1>third of our fleet based up there, we can certainly

0:05:52.480 --> 0:05:55.160
<v Speaker 1>make some You know, it starts with the guest experience.

0:05:55.200 --> 0:05:57.839
<v Speaker 1>If we can provide guests with an even better experience

0:05:57.839 --> 0:06:00.120
<v Speaker 1>than they get today, we can generate additional.

0:05:59.800 --> 0:06:01.000
<v Speaker 3>Red and you therefore a profit.

0:06:01.160 --> 0:06:02.920
<v Speaker 1>The Middle East is a little bit more complicated because

0:06:02.960 --> 0:06:04.800
<v Speaker 1>there's a little bit more of a long lee time,

0:06:04.800 --> 0:06:06.480
<v Speaker 1>there's slightly more exotic cruises that.

0:06:06.440 --> 0:06:07.560
<v Speaker 3>Go to that part of the world.

0:06:07.839 --> 0:06:10.719
<v Speaker 1>But assuming things continue to calm down in that region,

0:06:11.040 --> 0:06:12.440
<v Speaker 1>we think there could be a tail wind for our

0:06:12.480 --> 0:06:13.719
<v Speaker 1>twenty twenty seven results.

0:06:13.880 --> 0:06:14.760
<v Speaker 3>So I think both.

0:06:14.560 --> 0:06:18.080
<v Speaker 1>Those areas are key, and we're again very pleased with

0:06:18.160 --> 0:06:20.320
<v Speaker 1>the work that the administration is doing in those areas.

0:06:20.520 --> 0:06:22.360
<v Speaker 4>So I know it's early, and you know you're thinking

0:06:22.400 --> 0:06:24.680
<v Speaker 4>about this as maybe a twenty twenty seven story. But

0:06:25.040 --> 0:06:27.479
<v Speaker 4>is there any range of numbers that you could could

0:06:27.520 --> 0:06:28.720
<v Speaker 4>put to that opportunity.

0:06:29.000 --> 0:06:31.440
<v Speaker 1>You know, it's really hard to tell. You know, it

0:06:31.440 --> 0:06:34.640
<v Speaker 1>depends when it happens, how far in advance. But you know,

0:06:34.800 --> 0:06:37.760
<v Speaker 1>with eleven ships in that Northern Europe region, you know,

0:06:37.839 --> 0:06:41.359
<v Speaker 1>even a ten or twenty dollars per DM impact on

0:06:41.360 --> 0:06:44.440
<v Speaker 1>those cruises could be significant. But I because that was

0:06:44.480 --> 0:06:46.800
<v Speaker 1>a type of impact we got back in seventeen to

0:06:46.880 --> 0:06:50.719
<v Speaker 1>nineteen on a positive basis, so it could be meaningful

0:06:50.760 --> 0:06:51.719
<v Speaker 1>to the bottom line.

0:06:51.839 --> 0:06:54.320
<v Speaker 4>All right, Harry, really appreciate you taking the time to

0:06:54.320 --> 0:06:56.760
<v Speaker 4>speak with us today after what I'm sure is a

0:06:56.839 --> 0:06:59.880
<v Speaker 4>very busy morning. Are thanks to Harry Summer of Norwegian

0:07:00.080 --> 0:07:00.719
<v Speaker 4>Cruise Lines