The cruise industry view of Trump’s order to leave China

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With President Trump “ordering” U.S. companies via Twitter to leave China, and suggesting they return home, one wonders what would happen if he turned his attention to the cruise firms headquartered in Miami.

Could he “order” them to bring their Shanghai-based ships back to U.S. waters? Or to stop building their $1 billion ships in Europe?

Of course, the first obstacle is that none of these companies are legally incorporated in the U.S. But set that aside for a minute. They’re certainly American companies in other respects.

Norwegian Cruise Line Holdings CEO Frank Del Rio appears to have beaten Trump to the punch by ordering home the Norwegian Joy to sail in Alaska this summer alongside its doppelganger, the Norwegian Bliss.

Of course, Del Rio acted for business reasons and not out of any animosity towards China or need to chastise Chinese leader Xi Jinping for raising tariffs.

If Royal Caribbean International or Princess Cruises did pull their ships from China, they would probably be rewarded on Wall Street, which has a much easier time analyzing profits in the short term than investments for the long haul, which the China market needs.

But the cruise ship example shows how perverse the strategy of “finding an alternative to China” can be for many industries. Calling home the ships in the China market doesn’t mean they would sail from Seattle to San Diego full of happy Americans.

In fact, American law would prohibit them from being used that way. The ships would go back into the international mix of itineraries that have some ships departing from Miami and New York, but others from Barcelona and Southampton.

The kingly notion of imposing tariffs and directing private business decisions from the throne was losing viability when economist Adam Smith attacked it in the 18th century. It may have some political appeal but in economic terms, the world has passed it by.

For the same reason, building big cruise ships in America – no matter the cost – makes no particular sense either.

As many companies manufacturing in China are finding out, the key in the 21st century to making things reliably and at market prices is an intelligent and at least somewhat skilled workforce and a robust network of proven contractors that can accommodate just in time delivery.

That’s what the European shipyards that make cruise ships have. And by operating within the framework of the European Union they can bring to bear a workforce that while not as large as China’s is larger than the U.S’s.

Yes, China may be cheating on some of the economic terms and conditions that make free trade a win-win proposition. But going back to the idea that each country should manufacture everything on its own makes about as much sense as booking your next cruise on the Nina, the Pinta or the Santa Maria.

Norwegian Cruise Line boss nets $1.3m in the share sale

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Norwegian Cruise Line boss Andy Stuart netted $1.3 million from the sale of shares.

He sold 25,000 shares in parent company Norwegian Cruise Line Holdings in two tranches last week, according to a filing with the US Securities and Exchange Commission.

The sale at $50 per share came after the company reported record second-quarter financial results with earnings of $240.2 million for the three months to June 30.

The lift in profits came despite the impact of the abrupt US government ban on cruise ships calling into Cuba and a technical problem with the ship Norwegian Pearl which forced one cruise to be amended and another to be canceled.

Company president and CEO Frank Del Rio said at the time: “The underlying fundamentals of our business remain strong across all core markets, and we continue to expect record financial results in 2019, despite the impact from the change in federal regulations which resulted in the cessation of premium-priced Cuba sailings.”

NCLH has a market capitalization of $10.88 billion and controls NCL alongside Oceania and Regent Seven Seas Cruises.

Norwegian CEO Del Rio enthused about return to Turkey

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Norwegian Cruise Line Holdings CEO Frank Del Rio said the company’s decision to return to the Eastern Mediterranean in 2019 is working out so far.

After pulling out of the region in 2016 because of terrorism fears and political instability in Turkey, NCLH has scheduled 12 sailings this year and has an additional 20 on the calendar for 2020.

“All 12 sailings in 2019 are better loaded and at higher pricing than the surrounding sailings that do not include Turkey,” Del Rio said.

He told investors on a conference call to discuss fourth quarter and 2018 earnings that Turkey is the key to the itinerary.

“The fact that the North American consumer, who is the one booking most of these Eastern Mediterranean cruises, seem to want to come back to the eastern Med and is willing to pay a premium price bodes very well for 2020,” Del Rio said.

The risk is that itineraries must be developed and sold 18 to 24 months in advance of sailing, he continued.

“So you test the waters, you see what happens, and it takes you a while to really ramp up. So at this point, assuming there are no other disruptions — reasons to not go to the Eastern Med — I expect that we along with the rest of the industry will probably increase the number of deployments to the Eastern Med beginning in 2020 and even more in 2021.”

Del Rio, who has a hand in all itinerary planning at NCLH, said that when the eastern Med is good, “it’s as good as any, if not the best, of all itineraries.”

On the call, Del Rio said NCLH enters 2019 in the best-booked position in its history, giving yield managers more leeway to raise prices.

“We’re pushing prices higher wherever we can,” Del Rio said. “While we still have a lot of cabins to fill, the emphasis will be on raising prices — on all three brands.”

In addition to Norwegian Cruise Line, NCLH operates Oceania Cruises and Regent Seven Seas Cruises.

The company had net income of $954.8 million in 2018, up 25.6% from the $759.9 million recorded a year earlier. Revenue rose 13% to $6.1 billion.

Last year, NCLH decided to redeploy the Norwegian Joy from China to Alaska, where it will cruise starting in April alongside sister ship Norwegian Bliss. That will increase NCLH’s presence in Alaska to 9% of total capacity, up from 7% last year.

Capacity in the Asia Pacific region will drop to 6% from 12% last year. NCLH will have six ships in Europe this summer and capacity there increases to 23% from 20% last year, while year-round capacity in the Caribbean is pegged at 36%.