April 30, 2025 • 7 mins
Norwegian Cruise Line CEO Harry Sommer says mid and high income consumers are still doing well despite economic uncertainty. Sommer spoke with Bloomberg's Matt Miller, Katie Greifeld and Sonali Basak.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. I'm pleased to say
that we're joined now by Norwegian Cruise Line CEO Harry Summer. Harry,
it's great to have you with us again. So you
stand apart from some of your peers, because we heard
from Royal Caribbean, we heard from Carnival with pretty upbeat outlooks.
Talk us through what you specifically see in the year ahead.
Speaker 2 (00:25):
So first soft good morning, and thank you for having
me on today. Listen.
Speaker 3 (00:29):
We're still seeing very good booking activity for Q four
and twenty twenty six. I think the softness that we
talked about just was on one specific product Europe in.
Speaker 2 (00:40):
Twenty twenty three. For Q three. I'm sorry for Q
three of twenty twenty five.
Speaker 3 (00:44):
Mypologies, but if you looked at our book position on
a twelve month basis, we're well within our optimal range,
we're above historical averages, and our twenty twenty six book
position is actually well ahead of historical averages. So yeah,
one soft spot in Q three for Europe. For the
rest of the book curve looks really really good.
Speaker 4 (01:01):
So you cater to a higher income consumer, do you
think that's the issue or are people with higher incomes
watching there while it's more closely or are people who
are new to cruises that really decided to.
Speaker 2 (01:17):
Try it out after the pandemic.
Speaker 4 (01:18):
Is that demand waning or what's going on exactly?
Speaker 3 (01:22):
No, I don't think any of those things are happening.
I think the higher income consumer is doing well. I
think the middle income consumer is doing well. We don't
really cater to the lower income consumer. I think it's
specific to one ear Europe. In Q three, I think
Americans are looking to look a little bit closer to home,
and we're happy because our deployment in Q four and
Q one even to next year favors those closer to
(01:43):
home my generaries, which is why we're seeing.
Speaker 2 (01:45):
A good book position for those future periods.
Speaker 5 (01:48):
But even with the closer to home kind of strategy here,
how many issues are being created because you have a
few things going on. You have consumers potentially worried about inflation,
maybe has it in to spend more. Largely, you also
have a dynamic where a lot of people are seeing
that international consumers are really slowing down when it comes
(02:08):
to the United States. How are you grappling with those
trends that might continue for months.
Speaker 3 (02:15):
You know, I think this is where the cruise industry's
unique position really acts as as a tailwind, if you will,
a benefit, because we represent such a good value compared
to hotels and other vacation alternatives. So I mean you
think about everything that you get on a cruise, from food, entertainment, spas, casinos,
the whole nine yards and a great consistent product. It
(02:37):
really represents a great experienced and value gap versus hotels,
which is why we tend to do better as an industry.
I mean, you look at our yields compared to what
Hilton just announced yesterday, We're still well ahead of them,
and I think that's going to continue into the future.
People liked vacation, and if there are going to be
modern secessionary challenges out there, I think value which cruise
(03:00):
lines provide in earnest really should win out.
Speaker 1 (03:03):
So there's a lot of uncertainty among consumers, which you
know well right now, I want to talk about uncertainty
that you might be feeling. I was listening to Bloomberg
Surveillance this morning, and I forget who said it, but
someone made the great point that you have to have
stable policies to encourage companies across the supply chain to invest.
And when you think about where you stand right now
looking at twenty twenty six, for example, how do you
(03:25):
feel versus at the start of twenty twenty five. Are
you thinking about things a little bit more conservatively than
you were maybe at the start of the year.
Speaker 3 (03:34):
Listen, you know clearly we're not immune to macroeconomic conditions.
We saw the economic news that came out this morning,
and so we're redoubling our effort not just to maximize
every dollar of revenue and emphasize the points that I
mentioned before about cruising being such an incredible.
Speaker 2 (03:48):
Value, but we're also looking at cost control.
Speaker 3 (03:50):
You know, we would be foolish not to see that
there's a potential for weakness going forward, and we're doubling down.
We set up a transformation office to sort of reb
imagine the way we deliver services and buy things, not
at the expensive consumers. We're super passionate about delivering a
great onboard product, but we think that we can buy
things better, and we announced a three hundred million dollars
(04:11):
cost savings program last year. We're going to accelerate those
cost savings, but again, never at the expense of the
guest experience, and we believe that if we can accelerate
those cost savings initiatives, we'll be able to offset any
potential challenges on the top line.
Speaker 4 (04:28):
What are the you know, if I look at your
stock performance versus and Caribbean as well, versus Royal Caribbean,
I'm sorry, Carnival versus Royal Caribbean, I see real underperformance.
What is the bigger the biggest competitor in the market,
Royal Caribbean cruise lines doing that investors love so much,
(04:49):
Like what can.
Speaker 2 (04:50):
You look at them and learn? You know, I think
there's really two critical components.
Speaker 3 (04:55):
You know, they started their closer to home and private
island strategy a little bit before us. It's obviously they
have first mover advantage and they've had the benefit of
having that for the last couple of years, where we're
really just getting into our closer home private island strategy now.
So they've built up this benefit over a year and
a half, which we think we can now rapidly catch
up on during twenty twenty six. I think also it's
(05:16):
a challenge of leverage, you know, on an enterprise value basis,
our valuations haven't changed that much, but because we are
higher leveraged than them, we don't have the same equity return.
But we're super focused on reducing our leverage. We're going
to get it down to five times at the end
of the year and in the mid forest by the
end of next year, and obviously that will help with
our equity valuation as well.
Speaker 5 (05:37):
I'm very glad you brought that up. If you pull
up DDIS on a Bloomberg terminal, you can see your
kind of entire capital stack here, and how quickly do
you think you could pay down that debt given the
focus that the industry really has on doing so.
Speaker 3 (05:56):
So, you know, we already decreased our leverage two turns.
You know, we went for the mid sevens the mid
fives last year, which we think two turns of leverage
is great. We're going to decrease it another turn this
year to get to around five or close to a turn,
to get to a round five another apaturn next year.
I think by the time we get into early twenty
seven and we're going to be in the four range.
I think that's a very competitive position and should unlock
(06:17):
value on the equity side of our evaluation, and.
Speaker 1 (06:20):
Harry, before we let you go, we spoke to you
at the end of February, and one of the points
that you made was if we saw relations restored with Russia,
if Russia opened back up, that would be a major
tailwind for your company, given that Saint Petersburg, that cruise
line was very, very profitable for you. Now we're at
the pretty much the start of May, the end of April.
(06:40):
Do you think that we're any closer to that point?
Speaker 3 (06:44):
You know, it's really hard to tell, you know, I'm
not an expert in geopolitics. Listen, we hear some positive noise,
we hear some constructive commons out of Russia that they're
willing to start talks, but really difficult to read the
future on that. I just want to be clear though,
that could be a tailwind. We're very happy with our deployment,
you know, where we are in the Caribbean, Alaska. Deployment
(07:06):
for next year is doing very well as well, So
we're happy with what we have today. That could just
seed incremental tailwind to us if things move forward.
Speaker 2 (07:15):
All right, Harry, thanks so much.
Speaker 4 (07:16):
Harry Summer there talking to us from Norwegian Cruise Lines
Bloomberg Audio Studios, Podcasts, radio News. I'm pleased to say
that we're joined now by Norwegian Cruise Line CEO Harry Summer. Harry,
it's great to have you with us again. So you
stand apart from some of your peers, because we heard
from Royal Caribbean, we heard from Carnival with pretty upbeat outlooks.
Talk us through what you specifically see in the year ahead.
Speaker 2 (00:25):
So first soft good morning, and thank you for having
me on today. Listen.
Speaker 3 (00:29):
We're still seeing very good booking activity for Q four
and twenty twenty six. I think the softness that we
talked about just was on one specific product Europe in.
Speaker 2 (00:40):
Twenty twenty three. For Q three. I'm sorry for Q
three of twenty twenty five.
Speaker 3 (00:44):
Mypologies, but if you looked at our book position on
a twelve month basis, we're well within our optimal range,
we're above historical averages, and our twenty twenty six book
position is actually well ahead of historical averages. So yeah,
one soft spot in Q three for Europe. For the
rest of the book curve looks really really good.
Speaker 4 (01:01):
So you cater to a higher income consumer, do you
think that's the issue or are people with higher incomes
watching there while it's more closely or are people who
are new to cruises that really decided to.
Speaker 2 (01:17):
Try it out after the pandemic.
Speaker 4 (01:18):
Is that demand waning or what's going on exactly?
Speaker 3 (01:22):
No, I don't think any of those things are happening.
I think the higher income consumer is doing well. I
think the middle income consumer is doing well. We don't
really cater to the lower income consumer. I think it's
specific to one ear Europe. In Q three, I think
Americans are looking to look a little bit closer to home,
and we're happy because our deployment in Q four and
Q one even to next year favors those closer to
(01:43):
home my generaries, which is why we're seeing.
Speaker 2 (01:45):
A good book position for those future periods.
Speaker 5 (01:48):
But even with the closer to home kind of strategy here,
how many issues are being created because you have a
few things going on. You have consumers potentially worried about inflation,
maybe has it in to spend more. Largely, you also
have a dynamic where a lot of people are seeing
that international consumers are really slowing down when it comes
(02:08):
to the United States. How are you grappling with those
trends that might continue for months.
Speaker 3 (02:15):
You know, I think this is where the cruise industry's
unique position really acts as as a tailwind, if you will,
a benefit, because we represent such a good value compared
to hotels and other vacation alternatives. So I mean you
think about everything that you get on a cruise, from food, entertainment, spas, casinos,
the whole nine yards and a great consistent product. It
(02:37):
really represents a great experienced and value gap versus hotels,
which is why we tend to do better as an industry.
I mean, you look at our yields compared to what
Hilton just announced yesterday, We're still well ahead of them,
and I think that's going to continue into the future.
People liked vacation, and if there are going to be
modern secessionary challenges out there, I think value which cruise
(03:00):
lines provide in earnest really should win out.
Speaker 1 (03:03):
So there's a lot of uncertainty among consumers, which you
know well right now, I want to talk about uncertainty
that you might be feeling. I was listening to Bloomberg
Surveillance this morning, and I forget who said it, but
someone made the great point that you have to have
stable policies to encourage companies across the supply chain to invest.
And when you think about where you stand right now
looking at twenty twenty six, for example, how do you
(03:25):
feel versus at the start of twenty twenty five. Are
you thinking about things a little bit more conservatively than
you were maybe at the start of the year.
Speaker 3 (03:34):
Listen, you know clearly we're not immune to macroeconomic conditions.
We saw the economic news that came out this morning,
and so we're redoubling our effort not just to maximize
every dollar of revenue and emphasize the points that I
mentioned before about cruising being such an incredible.
Speaker 2 (03:48):
Value, but we're also looking at cost control.
Speaker 3 (03:50):
You know, we would be foolish not to see that
there's a potential for weakness going forward, and we're doubling down.
We set up a transformation office to sort of reb
imagine the way we deliver services and buy things, not
at the expensive consumers. We're super passionate about delivering a
great onboard product, but we think that we can buy
things better, and we announced a three hundred million dollars
(04:11):
cost savings program last year. We're going to accelerate those
cost savings, but again, never at the expense of the
guest experience, and we believe that if we can accelerate
those cost savings initiatives, we'll be able to offset any
potential challenges on the top line.
Speaker 4 (04:28):
What are the you know, if I look at your
stock performance versus and Caribbean as well, versus Royal Caribbean,
I'm sorry, Carnival versus Royal Caribbean, I see real underperformance.
What is the bigger the biggest competitor in the market,
Royal Caribbean cruise lines doing that investors love so much,
(04:49):
Like what can.
Speaker 2 (04:50):
You look at them and learn? You know, I think
there's really two critical components.
Speaker 3 (04:55):
You know, they started their closer to home and private
island strategy a little bit before us. It's obviously they
have first mover advantage and they've had the benefit of
having that for the last couple of years, where we're
really just getting into our closer home private island strategy now.
So they've built up this benefit over a year and
a half, which we think we can now rapidly catch
up on during twenty twenty six. I think also it's
(05:16):
a challenge of leverage, you know, on an enterprise value basis,
our valuations haven't changed that much, but because we are
higher leveraged than them, we don't have the same equity return.
But we're super focused on reducing our leverage. We're going
to get it down to five times at the end
of the year and in the mid forest by the
end of next year, and obviously that will help with
our equity valuation as well.
Speaker 5 (05:37):
I'm very glad you brought that up. If you pull
up DDIS on a Bloomberg terminal, you can see your
kind of entire capital stack here, and how quickly do
you think you could pay down that debt given the
focus that the industry really has on doing so.
Speaker 3 (05:56):
So, you know, we already decreased our leverage two turns.
You know, we went for the mid sevens the mid
fives last year, which we think two turns of leverage
is great. We're going to decrease it another turn this
year to get to around five or close to a turn,
to get to a round five another apaturn next year.
I think by the time we get into early twenty
seven and we're going to be in the four range.
I think that's a very competitive position and should unlock
(06:17):
value on the equity side of our evaluation, and.
Speaker 1 (06:20):
Harry, before we let you go, we spoke to you
at the end of February, and one of the points
that you made was if we saw relations restored with Russia,
if Russia opened back up, that would be a major
tailwind for your company, given that Saint Petersburg, that cruise
line was very, very profitable for you. Now we're at
the pretty much the start of May, the end of April.
(06:40):
Do you think that we're any closer to that point?
Speaker 3 (06:44):
You know, it's really hard to tell, you know, I'm
not an expert in geopolitics. Listen, we hear some positive noise,
we hear some constructive commons out of Russia that they're
willing to start talks, but really difficult to read the
future on that. I just want to be clear though,
that could be a tailwind. We're very happy with our deployment,
you know, where we are in the Caribbean, Alaska. Deployment
(07:06):
for next year is doing very well as well, So
we're happy with what we have today. That could just
seed incremental tailwind to us if things move forward.
Speaker 2 (07:15):
All right, Harry, thanks so much.
Speaker 4 (07:16):
Harry Summer there talking to us from Norwegian Cruise Lines
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