Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: All right, another stock we're watching today is Norwegian Cruise Lines.
Speaker 3: It is in the red here.
Speaker 2: We can see with the rest of the market Norwegian
Speaker 2: is falling. But it did put out an earnings report
Speaker 2: signaling strong cruise demand despite missing profit outlook expectations. Norwegian
Speaker 2: was one of a few cruise stocks that sank earlier
Speaker 2: this month as well, following comments from Commerce Commerce Secretary
Speaker 2: Howard Lutnik about a potential tax crackdown on ships that
Speaker 2: sail under foreign flags. Joining us now is the CEO
Speaker 2: Harry Summer Norwegian Cruise Lines. Harry, you know, came out
Speaker 2: with some numbers that looked on the one hand good
Speaker 2: but missed maybe outlook expectations. Why do you run us
Speaker 2: through the reasons for that first?
Speaker 1: So thanks for having a sum this morning. Appreciate it.
Speaker 1: So you know, we're really happy with our twenty twenty
Speaker 1: four earning scorecard. We had ten percent yield increases to
Speaker 1: record numbers. It's a record percent increase, our record total yield.
Speaker 1: We had record EBITDA. We kept cost growth down to
Speaker 1: one percent, so like a nine hundred basis point spread
Speaker 1: between revenue growth and cost growth is fantastic. We had
Speaker 1: we something like crippled our net income from twenty three
Speaker 1: to twenty four, we reduced our leverage by two turns,
Speaker 1: increased our return on invested capital by three turns. So
Speaker 1: overall we were really really excited about our twenty four papers,
Speaker 1: so to speak, because in twenty five it's.
Speaker 3: Going to be a little bit different, you know that.
Speaker 1: The but we think it returns back to a normal
Speaker 1: cadence where like in the back three and a half
Speaker 1: percent yield growth on a half on a or three
Speaker 1: percent yield growth on a half point growth in costs,
Speaker 1: so about a three hundred basis point spread there.
Speaker 3: As we're really excited.
Speaker 1: Q One is a couple of technical issues that are
Speaker 1: dragging it down, related to a few of our big
Speaker 1: ships going to for some long dry docks, but abps
Speaker 1: to that, we're really happy about the future as well.
Speaker 3: Well.
Speaker 4: In addition to booking and the momentum that you're seeing
Speaker 4: in bookings, I also want to talk about how much
Speaker 4: people are actually spending when they're on board. Of course,
Speaker 4: that's a big way how cruises such as yourself make money.
Speaker 4: And with this fear that we're seeing over inflation, the
Speaker 4: concerns that are building about the consumer. Do you anticipate
Speaker 4: that people riding aboard your cruises are going to pull
Speaker 4: back on their spending once they're actually on the ship.
Speaker 3: No, no, we don't see that.
Speaker 1: You know, the onboard spend, which we track, as you
Speaker 1: might imagine, on a weekly basis, was strong both for
Speaker 1: Q four and our reported numbers, and continues to be
Speaker 1: strong throughout January and now February as well.
Speaker 3: That's the months almost over.
Speaker 1: We're very very pleased, you know, I think within the
Speaker 1: core demographic that we're getting, which is primarily you know,
Speaker 1: upper middle class and upper class guests for our two
Speaker 1: luxury brands, Oceanic cruises and reaching seven seat cruises, they
Speaker 1: seem to be doing well despite the modest inflationary environment
Speaker 1: we're seeing today, So we are not seeing any cracks
Speaker 1: in on board spend.
Speaker 2: I wonder if you factor in any additional tax bills
Speaker 2: you might receive from the Trump administration. As we noted
Speaker 2: in the intro, Howard Lutnick was I guess unhappy that
Speaker 2: a lot of cruise liners and oil tankers are sailing
Speaker 2: around with you know, low tax Caribbean flags on the back.
Speaker 2: Most of your fleet is out of the Bahamas. What
Speaker 2: do you say about that or what would you do
Speaker 2: about it? Could you imagine putting more American flags on
Speaker 2: your boats?
Speaker 3: So you know, I'll start up.
Speaker 1: I say it's a bit of a misnomer that the
Speaker 1: cruise industry doesn't pay tax you know, as an industry.
Speaker 1: You know, our Trade Association puts out some statistics. I
Speaker 1: think as an industry we played close to two and
Speaker 1: a half billion dollars in taxes on an annual basis
Speaker 1: to various US jurisdictions.
Speaker 3: We just pay them in different forms.
Speaker 1: It's not an income tax, their ports taxes, but essentially
Speaker 1: it gets to the same thing gets the treasury of
Speaker 1: local and state and some federal taxes as well. So
Speaker 1: that's a pretty robust tax bill. Now, of course, you know,
Speaker 1: the administration may choose to pursue additional taxes on the
Speaker 1: industry to a relatively complicated situation as our ships aren't
Speaker 1: based in the United States for long periods of time,
Speaker 1: So a little bit difficult to ascertain exactly what our
Speaker 1: tax bill would be depending on how they may want
Speaker 1: to modify the tax code.
Speaker 3: But I will say, you.
Speaker 1: Know, we're generally pleased with some of the other actions
Speaker 1: of the administration. You know, this pursuit of peace in
Speaker 1: the Middle East and between Russia and Ukraine, which hopefully
Speaker 1: comes to tuition over the next few months, would be
Speaker 1: a major tailwind to us. You know, we have one
Speaker 1: of our highest yielding itineraries. You know, back in the
Speaker 1: day seventeen eighteen to nineteen where cruises that visited Russia,
Speaker 1: most specifically Saint Petersburg with about a third of our
Speaker 1: fleet based in Northern Europe across our three brands summer
Speaker 1: and to the extent that Russia opened up this could
Speaker 1: be a significant tailwind to us in order to start
Speaker 1: visiting Saint Petersburg. It was one of our most lucrative
Speaker 1: and more importantly, highest rateed ports from a guest experience perspective.
Speaker 4: That's really interesting, Harry, to hear you say that. I
Speaker 4: know that your results last year were hurt in particular
Speaker 4: by the conflict in Israel and specifically in the Red Sea.
Speaker 4: So talk to us a little bit more about the
Speaker 4: potential opportunity that you could see though in Russia, because
Speaker 4: I mean, at least listening to your preliminary comments now,
Speaker 4: it seems like you're saying that is a big opportunity.
Speaker 1: Yes, I mean, this industry drives in peaceful environments. As
Speaker 1: you may imagine, guests don't want to take vacations in
Speaker 1: areas of conflict. And I don't mean to state the obvious,
Speaker 1: but I think it's important to note and if we
Speaker 1: can get some relative calm in the situation, especially in Russia,
Speaker 1: like I said, with eleven of our ships about a
Speaker 1: third of our fleet based up there, we can certainly
Speaker 1: make some You know, it starts with the guest experience.
Speaker 1: If we can provide guests with an even better experience
Speaker 1: than they get today, we can generate additional.
Speaker 3: Red and you therefore a profit.
Speaker 1: The Middle East is a little bit more complicated because
Speaker 1: there's a little bit more of a long lee time,
Speaker 1: there's slightly more exotic cruises that.
Speaker 3: Go to that part of the world.
Speaker 1: But assuming things continue to calm down in that region,
Speaker 1: we think there could be a tail wind for our
Speaker 1: twenty twenty seven results.
Speaker 3: So I think both.
Speaker 1: Those areas are key, and we're again very pleased with
Speaker 1: the work that the administration is doing in those areas.
Speaker 4: So I know it's early, and you know you're thinking
Speaker 4: about this as maybe a twenty twenty seven story. But
Speaker 4: is there any range of numbers that you could could
Speaker 4: put to that opportunity.
Speaker 1: You know, it's really hard to tell. You know, it
Speaker 1: depends when it happens, how far in advance. But you know,
Speaker 1: with eleven ships in that Northern Europe region, you know,
Speaker 1: even a ten or twenty dollars per DM impact on
Speaker 1: those cruises could be significant. But I because that was
Speaker 1: a type of impact we got back in seventeen to
Speaker 1: nineteen on a positive basis, so it could be meaningful
Speaker 1: to the bottom line.
Speaker 4: All right, Harry, really appreciate you taking the time to
Speaker 4: speak with us today after what I'm sure is a
Speaker 4: very busy morning. Are thanks to Harry Summer of Norwegian
Speaker 4: Cruise Lines