Riding It Out

It’s been a tough two years – no, a brutal two years – for the beleaguered cruise industry, but Norwegian’s done a better job than most in surviving the deluge. When will it get better?

File image courtesy NCL

Published Mar 25, 2022 9:37 PM by Tony Munoz

(Article originally published in Jan/Feb 2022 edition.)

"Look, Humpty Dumpty broke. There’s thousands of pieces on the floor, and it’s going to take time and all the king’s horses and all the king’s men to put Humpty Dumpty back together again. But I’m confident we can do it,” says Frank Del Rio, President & CEO of Norwegian Cruise Line Holdings, unyieldingly.

Del Rio has confronted the COVID crisis since early 2020 when the virus impeded human activity on a global scale. He demanded his employees be vaccinated and passengers sailing on board his ships provide proof of vaccination, which Florida Governor Ron DeSantis challenged in court. An appeal from the state is in process.

To help ensure liquidity, the company launched a series of capital market transactions beginning in March of 2020 totaling over $8 billion. The Norwegian management team also initiated SailSAFE, a health and safety program for guests and crew, and hired Dr. Scott Gottlieb, former Commissioner of the U.S. Food and Drug Administration, to oversee the company’s Global Health and Wellness Council.

They’ve made it clear that the company will spare no expense in protecting the well-being of its guests and crew. “In light of the past two years, we continue to expect the unexpected and adapt accordingly,” Del Rio says. Gottlieb adds that the cruise industry can tightly control the environment on vessels and notes that NCLH has invested heavily in onboard therapeutics and testing protocols to enhance safety.

Road to the Top

After graduating from the University of Florida, Del Rio went to work at an accounting firm in Miami, a job he deemed boring. “I was a lousy accountant,” he likes to say, and so he jumped at the opportunity to work with Ed Rudner, one of the founders of Alamo Rent a Car, at Certified Vacations, which handled personal vacation dreams for clients of Delta Airlines. The company was a huge success.

Rudner left Certified to buy a small, bankrupt cruise line in Norway named Renaissance Cruises. Del Rio soon followed as CFO and learned the financials of a cruise company. He was promoted to head of sales and marketing, and the line was successful, ordering eight new vessels.

But Renaissance grew too fast and began losing money. The Board of Directors ousted Rudner, and Del Rio became co-CEO. The French investment group that had financed the new ships then fired Del Rio as well in April 2001. A few months later the chaos of 9/11 hit, impeding global travel and putting Renaissance back into bankruptcy. The French repossessed the eight ships and anchored them in Marseille.

Del Rio was just forty-seven and unemployed. After the dust settled, one of the French bankers began calling him to see if he would be interested in submitting a business plan for a new cruise line (to be called Oceania) to charter some of the ships. After a long due diligence process, Del Rio won the bid to charter three of the ships. But it was 2002 – right after 9/11 – and a tough time to raise capital on Wall Street.

So he cobbled together the $7 million start-up funding for Oceania by mortgaging his home and borrowing money from family, friends and whoever else would listen. Not a single bank or financial institution was interested.

In January 2003, Oceania Cruises opened its doors with twenty people and nothing else – no computers, not even a paperclip, Del Rio recalls. The new cruise line announced its first cruise would be six months later, on July 5th, and it was. He remembers it as the busiest and happiest time of his career.

By the end of 2005, Oceania was profitable. The French investment group contacted Del Rio in mid-2006 and said they wanted to end the charter agreement. He was bewildered and asked how he was supposed to raise $350 million to buy the ships. “I don’t know, but try” was the reply.

Wall Street is a jungle of high-roller investors and international interests, but it was a world of opportunity to Del Rio. He admits being a bit wide-eyed at the first meeting with the former Lehman Brothers firm. He laid out the business plan and said he needed $375 million to buy three ships. Lehman said fine, no problem, and offered 100 percent financing at LIBOR plus a couple of points. Del Rio had to remind them that Oceania was a startup without much capital or profits, but the results were the same at Bear Stearns and UBS. So he went with Lehman while UBS took a secondary position.

Along the way he also met with Apollo Management, a private equity group founded by Leon Black. Unbeknownst to him, Apollo was looking for an entry point into the fast-growing cruise industry. Two years later, in 2007, at the height of easy money, Apollo swooped in and made Del Rio an offer he couldn’t refuse.

Apollo and Oceania joined forces and soon purchased Regent Seven Seas Cruises – a luxury brand – from the Carlson Companies and formed Prestige Cruise Holdings to run the two companies with Del Rio as CEO.

Seven years later Apollo sold Prestige to Norwegian for $3.3 billion and Del Rio thought he was done. “Generally, in corporate takeovers, the buying CEO is a genius and the selling CEO is an idiot,” he says. “So I was playing the idiot and the Norwegian CEO knew it all and that was fine with me.” He was sixty years old and had just collected another big paycheck.   

Then on New Year’s Day of 2015, about six weeks into his retirement, a Norwegian board member called Del Rio at his home with some urgency. His wife teased him about the company desperately needing him back. Soon he learned that not only was he going back, he was going back as President & CEO of the entire operation – not just the two brands he had previously sold.

Pitching a Perfect Game

Since taking the helm in 2015, Del Rio and his team more than doubled revenues from $3.1 billion in 2014 to $6.4 billion in 2019, the last full year before the pandemic set in. The company’s three distinct cruise offerings – contemporary (Norwegian), premium (Oceania) and luxury (Regent Seven Seas) – were hitting on all cylinders.

“We were pitching a perfect game,” Del Rio says. “I remember watching Sandy Koufax throw his perfect game back in 1965 and I always thought that was the epitome of flawless execution – to pitch a perfect game in baseball – and that’s where we were on March 13, 2020 when the virus changed everything. So my goal is to get back to where we were then.”

With 28 ships, another nine on order and a focus on upscale cruising, the company is in a strong position to do so. Unlike its competitors, Norwegian didn’t sell or scrap any ships during the pandemic. Its fleet is the youngest of cruising’s “Big Three” – Carnival, Royal Caribbean and Norwegian. And while it may be the smallest, it’s number one in most of the categories that count – net yield, onboard revenue yield, customer satisfaction and repeat business.

“Do I want to be the biggest?” he asks. “Not really. It’s quality over quantity with us.”

He points to his management team as being the best in the business: “I wouldn’t trade any of my top guys for anybody else’s top guys. You know, mano a mano, we win every time. We win all the important areas, and we’ve been together for a long time. They’re like family to me.”

That team includes Harry Sommer, a 30-year cruise industry veteran who runs the contemporary Norwegian brand. Its Project Leonardo newbuild program is expected to add six new ships from 2022 to 2027 to Norwegian’s existing fleet of 16.

Howard Sherman runs premium operator Oceania Cruises, which he helped found along with Del Rio in 2003. Its six vessels will be supplemented by two new Allura Class ships by 2025.

Regent Seven Seas, marketed as “luxury perfected,” is led by President & CEO Jason Montague, another veteran of the Oceania days. In 2016, Montague oversaw delivery of Regent’s first new vessel in 13 years, the Seven Seas Explorer. The all-suite, all-balcony Seven Seas Splendor was delivered in 2020. Reflecting its position as the epitome of luxury cruising, Regent’s 2023, 143-night World Cruise sold out in one day. The Regent brand will add a new ship to its Explorer Class in 2023.

Riding It Out

It’s all part of Del Rio’s “secret sauce” – the youngest fleet in the industry, three incredibly strong brands and a management team that marches in the same direction and trusts one another.

Echoing Ronald Reagan’s famous question, “Are you better off now than you were four years ago?,” Del Rio’s answer is no. “Are we better off now than we were one year ago?” he adds, “Yes, because at least we’re beginning to operate. We have half the fleet operating. A year ago we had zero.”

He knows it’s going to be a marathon, not a sprint. All that pent-up customer demand keeps getting kicked down the road by cruise-hesitant passengers. But Del Rio and his team have been through tough times before. And while it’s not going to be over tomorrow, it will be over soon. “And then we’ll start winning again,” he says, “and go back to pitching a perfect game.”

Tony Munoz is Founder, Publisher and Editor-in-Chief of The Maritime Executive.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.