Kevin Sheehan has turned Norwegian Cruise Line around. Not only has the company added new ships but there has been a burst of innovation and confidence since he became chief executive officer.
“What a change a few years have made for our company. When I joined the company six years ago, we didn't have the cash to do anything. We had no respect. We had no credibility with our bankers. Our balance sheet was a mess. Now we can actually sit back and say 'how do we build this brand for the sustainable future?”
“We have gone from last to best in class in ticket revenue, onboard revenue, return on invested capital and operating margins. 21 consecutive quarters of growth year over year. If you compare us to the other players, the other two public companies [Carnival Corporation and Royal Caribbean Cruise Lines Ltd] have been completely flat for seven years. You go back to their cash flow in 2007 and you look at it today, it is the same number. This to me is a spectacular change in a company.”
“We have gone from a company that won nothing to winning so many awards. [Winning awards] is a leading indicator to me that we have got the right proposition and we just need to do a better job of communicating it.”
Mr. Sheehan's strategy for turning Norwegian around has focused on four areas.
First, building a new relationship with travel agents. “You have to understand the importance of the travel agent. They are the lifeblood of the industry. This business does not work without the travel agents.”
“When I came you couldn't figure out how to make a booking it was so complicated. Our technolgy was so antiquated. We moved our ships every 15 minutes. And if you actually managed to make a booking, we didn't pay the travel agent. So it was like why would you do business with us?”
“We have become the leader in the industry. What we said to the travel agents was 'it is incumbent upon us to make you succesful. You also have to do your part in this because the industry is changing. If you continue to run your business the way you did 20 years ago, it isn't going to be our fault if you fail. You have to change with the world. As soon as you do that we are 100 percent in your corner.”
The second part of the strategy was to improve guest satisfaction. “This is an ongoing thing. If you are going to have freedom and flexibity in the dining experience, you have to make sure that people can get in there and enjoy that experience and not have to wait and that it is seemless. Job number one.”
Much guest dissatifaction with Norwegian can be traced back to its NCL America operation in Hawaii and negative experiences that guests had on Pride of America. Mr. Sheehan acknowledges that Norwegian made mistakes here but points out that there has been a marked turnaround since he took the helm. “It was horrible. When I read some of the stuff that they did and when I look at the way assets were held - - [employees] were turning over every week and when they were unhappy, they were doing destructive stuff to the ship - - I mean what is wrong with you guys.”
“[Now] Pride of America is one of the highest performing ships that we have. Guest satisfaction has been extremely high for I would say a good three years now to the point where now people want to have that unbelievable experience and are willing to pay for it because we are the only ones who have that.”
Improving employee satisfaction was the third element of the strategy. “This is a very special company and we have done a lot of things to make sure that they knew we care. When I came here back in 2008, the economy fell apart. Both corporations that we compete with laid off a lot of people. We didn't lay off a single person. We rode through the storm with everybody. [The employees] knew that was not an easy decision so we won a lot of respect. Now with this 40 to 50 percent growth that we have coming, they know that we are not going to look away from them.”
“I have been on a ship every month since I started - - getting out their and listening to the crewmembers. A typical meeting - - 30 crew members, no officers, just them and me. They always call me Sir Kevin and say we love you, we love our job. I say cut the BS, tell me what is really going on. Then they open up their hearts and souls and we get a lot of good data. When we finish, we take that list of questions, we go back, we talk as a team and we get back to them and say this is what we did to improve the situation.”
“We have cut their contract terms down several times. We are building ships now with single accommodations, giving them some place in this world to feel integrity, respect and that they are an individual is a critically important thing to me. They have flat screen TVs, they have refrigerators, cheapest internet rates, discount phone rates, the food that we serve them now is consistent with the food that we have in the Garden Cafe. Treating them with respect, it goes a long way.”
The final element of the strategy was to change the way Norwegian told the public about the cruise experience that it offers on its ships. “We called ourselves Freestyle Cruising but I had to go and get a Phd to understand what that meant. Only one out of 10 people has ever cruised. [We] put out advertisements saying we are freestyle cruising - - who knows what that means? We are different than everybody else - - who knows what that means and then your pitting yourself against the other players in the industry and getting them mad. As opposed to just talking about the strength of what we have - - freedom flexibility, a resort-style vacation. You are on vacation - - you do things the way you want.”
While these elements provided the cornerstones of Mr. Sheehan's approach, flexibility is an overarching theme. “Part of our recipe for success has been to always look at other alternatives. Can you do it a little smarter, can you do it a little more efficiently. We have to get it all right, we can't afford to make mistakes. Every couple of years we have to go back and look are we getting best execution, the best pricing, are we optimizing it well.”
Norwegian today is a company on the move. In the last year, it has brought two new ships into service, Norwegian Breakaway and Norwegian Getaway, that present a new model of cruising, one that offers frredom and flexibility not only in the dining but in the entertainment offerings onboard. Two more ships, Norwegian Bliss and Norwegian Escape will enter service in the next few years.
These new ships reflect a change in Norwegian's approach to creating new ships. Previously, only the very top executives at Norwegian worked on developing the concept and the design for a new ship. “We brought in everybody - - all the guys that work in the revenue management, all the guys who work in the onboard areas, the technical people, we had the officers from the ships, telling us all the things that they had on their minds. They wanted to share them but nobody cared. Just opening up the door and saying 'guys, we want to hear what you have to say.' It was a collaborative effort of all of our team both shoreside and ship side. Everything that we do is actually that way today so it is a big difference from the way the company was.”
So far, Norwegian's new ships have been deployed only to markets where Norwegian is a major presence - - New York (Breakaway) and Miami (Getaway). The company has not sought to develop more exotic cruise markets. “We have not had the pocketbook of the other two corporations. We don't have the big scale of 50 percent of the market as with Carnival or 30 percent of the market with Royal Caribbean. We have under 10 percent if you look at it on a global basis. We have to get it all right, we can't afford to make mistakes. It is a long journey. We are way behind the other two guys as far as destinations.”
This does not mean that Norwegian is not a strong competitor in the markets it does serve. For example, several other cruise lines who have sought to enter the New York market, have reduced their presence or withdrawn altogether. Meanwhile, Norwegian sails year round from New York with not one but two ships based there.
“Maybe some of these guys are moving out of the market because they know we are a fomidible competitor that has finally gotten its act together. You have to do it with hard work, consistency and just sticking to your formula and going on and on.”
Along the same lines, Norwegian is strengthening its position in the Caribbean. It is enhancing its private island in the Eastern Caribbean and building a new private island resort in the Western Caribbean.
“We were the first one in the industry to buy an island. We never spent a penny on it - - it was Gilligan's Island without Gilligan. We have spent about $30 million improving that island. It is a beautiful experience now. The beaches are now about five times the size that they were. And we've invested in all the accommadations on the beaches, the food opportunities, the jet skis and all the other experiences that we have. MSC, one of our competitors, is paying us millions of dollars a year to use the island on some of the days when we don't use it. It is just another affirmation of getting it right.”
“Now, as we get bigger as a brand, we need to invest in an island in the Western Caribbean. We wanted to create what we did in the Eastern Caribbean in the Western Caribbean because it is the thing that people remember from their cruises - - that lazy beach day. This is an undertaking and we are very proud of what we have been able to accomplish here within a couple of years.”
Where does Sheehan see Norwegian going? “We believe we should be in the top of the premium category. That is something I have believed in from the beginning.”
However, Norwegian's ships are designed to serve just one market segment. “We also have the ability with the Haven to [offer] the luxury experience. You have this ship within a ship - - you can still go out and have the big ship experience and you can have that very exclusive experience. So we kind of hit into a couple of different categories. Looking at it from an economic standpoint, I would say the Haven is ultra-luxury and the rest is premium.”
Cruise Interview - - Norwegian Cruise Line - - Kevin Sheehan, CEO