Norwegian Cruise Line Holdings has lacked cohesive business operations and is now working with a sense of urgency to improve performance, said new CEO John Chidsey on Monday.
John Chidsey
During the company's Q4 earnings call, less than three weeks into his tenure as CEO, Chidsey described a company with a siloed culture that "lacks a one-team mentality."
Chidsey replaced Harry Sommer as CEO on Feb. 12. Days later, activist hedge fund Elliott Investment Management announced that it was seeking a strategic overhaul at NCLH because it was falling behind competitors and not fulfilling its potential.
After an evaluation during his first two weeks on the job, Chidsey said the company's strategy has been sound but "execution and coordination have not been."
Chidsey said NCLH needs to "optimize the organization and eliminate bureaucracy." He indicated there was a lack of coordination between departments.
"The culture was very siloed with the lack of a one-team mentality, which fed into this lack of cohesion. And I found that while there was work being done, the alignment and focus was not where it needed to be," Chidsey said.
CFO Mark Kempa got into a specific example, when the company increased Caribbean capacity 40% in this year's first quarter "without the necessary enterprise-wide coordination."
"The capacity increase was premature, as the supporting infrastructure and commercial initiatives around Great Stirrup Cay were not yet ready to support and accommodate the additional capacity," Kempa said.
While NCLH opened a pier and resort pool before the new year its private Bahamian island, the Great Tides Waterpark won't open until the summer.
"We did not sufficiently align revenue management, sales, marketing, itinerary planning and on-island monetization strategies to support the Caribbean deployment shift," Kempa said. "The individual components were moving forward, but they were not integrated under a single, cohesive operating plan designed to absorb the capacity at the right yield. As a result, the headwinds we are experiencing in the first quarter are more pronounced than we anticipated last quarter."
He added that "certain itineraries did not receive the coordinated commercial support required to maximize performance and yields, which is weighing on our expected performance for the full year."
Further, Kempa said the NCL brand has "pricing headwinds in select markets as a result of certain execution missteps, including sailings in the Caribbean and Bahamas and itineraries out of our new homeport of Philadelphia."
In Europe, tailwinds that had been expected to occur in Q3 are "not as strong as previously anticipated given the aforementioned execution missteps."
In Alaska, heightened capacity industrywide has put pressure on yields, said Kempa. MSC and Virgin Voyages are lines that will sail in Alaska for the first time this summer.
Luxury brands performing well
Besides improving companywide coordination, Chidsey wants to increase investments in technology, revenue management and customer-facing systems, areas where he said the company is underinvested.
He expressed optimism that the recently installed new leadership at the company can effect change. That includes Norwegian Cruise Line CEO Marc Kazlauskas.
"Marc has a strong track record of driving commercial performance and enhancing the guest experience, and his leadership will be instrumental at the brand level," Chidsey said.
Kempa praised the performance of luxury lines Oceania Cruises and Regent Seven Seas Cruises, which operate under chief luxury officer Jason Montague. Norwegian Cruise Line is where the company needs to be "much sharper on our execution," he said.
Kempa said the Oceania Sonata, a ship coming in 2027, had a record-breaking opening day with bookings surpassing the launch of Oceania Allura by 45%.
"Strength in our luxury portfolio was also evident at Regent Seven Seas, where January bookings were up 20% year-over-year, he said.