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