Norwegian Cruise Line (NYSE:NCLH) held its first-quarter earnings conference call on Monday. Below is the complete transcript from the call.
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The full earnings call is available at https://event.choruscall.com/mediaframe/webcast.html?webcastid=nrlnZej1
Summary
Norwegian Cruise Line reported a mixed financial performance for Q1 2026, with net yield down 1% but adjusted EBITDA exceeding guidance at $533 million.
The company is undertaking significant strategic initiatives, including cost reductions in SG&A by $125 million annually and optimizing its revenue management and marketing systems.
Future outlook includes challenges due to geopolitical tensions and internal missteps, particularly in Europe, leading to a reduced full-year guidance with net yields expected to decline by 3 to 5%.
Operational highlights include the christening of Norwegian Luna and the upcoming opening of Great Tides Water Park, expected to drive demand in 2027.
Management emphasized the focus on internal improvements, leveraging strong brand assets, and reducing leverage as top priorities, despite a challenging macroeconomic environment.
Full Transcript
OPERATOR
Good morning. Welcome to the Norwegian Cruise Line holdings first quarter 2026 earnings conference call. My name is Rob and I’ll be your operator at this time. All participants are in listen only mode. Later, we’ll conduct a question and answer session and instructions for the session will follow at that time. If anyone should require operator assistance during the conference, please press Star zero on your touchstone telephone. As a reminder to all participants, this conference call is being recorded. I’ll now turn the conference over to your host, Sarah Inman. Ms. Inman, please proceed.
Sarah Inman
Thank you and good morning everyone. Thanks for joining us for our first quarter 2026 earnings call. I’m joined today by John Chidze, Chairperson and CEO of Norwegian Cruise Line holdings and Mark Kempa, Executive Vice President and Chief Financial Officer. As a reminder, this conference call is being simultaneously webcast on the company’s investor relations website. We will be referring to a slide presentation during this call which can also be found on our website. Both the conference call and presentation will be available for replay for 30 days following today’s call. Before we begin, I would like to cover a few items. Our Press release with first quarter 2026 results was issued this morning and is also available on our investor relations site. This call includes forward looking statements that involve risks and uncertainties that could cause our actual results to differ materially from such statements. These statements should be considered in conjunction with the cautionary statement contained in our earnings release. Our comments may also reference non GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and presentation. Unless otherwise noted, all references to 25 and 26 net yield and adjusted net cruise cost, excluding fuel per capacity day are on a constant currency basis and comparisons are to the same period in the prior year. With that, I’d like to turn the call over to John.
John Chidze (Chairperson and CEO)
Thanks everyone for joining the call. It’s my pleasure to be joined by Mark today as we discuss our first quarter results. I’ve now been in the seat for roughly three months. I’m going to start the call by spending a few minutes covering what I’m seeing so far across the business and then we’ll update you on the actions we are taking to position the business for long term success. It has been a very active start. I have spent a meaningful amount of time meeting with various stakeholders including shareholders, travel partners, guests and team members, listening carefully to their perspectives on the business. Our proactive work this quarter is setting the tone for the remainder of 2026. My key focus is on driving sustainable improvement at NCLH and that starts with disciplined execution, operational rigor and a clear focus on the fundamentals. I continue to believe that NCLH is a special company with strong brands, world class assets and dedicated guests. This was especially evident at the christening of Norwegian Luna that was held about a month ago. The excitement on board from travel partners and guests was palpable at Great Stirrup Cay. We witnessed the significant progress being made on the island, particularly at the Great Tides Water park which remains on track to open later this summer. This water park will be a demand driver moving into 2027. It will elevate the island’s offerings and enhance the guest experience. Experiencing our newest ship and upgraded private island amenities firsthand brought to light the strength of our brands and the size of the opportunity ahead of us. It also reinforced my view that cruising remains one of the most attractive propositions in travel. Day in and day out, we offer a differentiated vacation experience across multiple destination, focusing on convenience and quality to deliver enhanced value for our guests. As cruising continues to benefit from healthy industry fundamentals, including record passenger volumes and encouraging indicators of both repeat and first time cruise demand, I am confident in the industry’s long term trajectory. We are focused now more than ever on where we need to enhance operations so that NCLH can capitalize on these broader industry trends from a position of strength. To that end, I now have a good sense of the core areas where we will be dedicating the most focus to drive the most meaningful impact in the near term. Since stepping into the CEO role in February, one of my top priorities has been strengthening our internal culture across the organization. This includes building a greater sense of urgency, sharpening accountability in fostering a one team mindset across our operational segments. Of course strategy matters, but my turnaround experience has reinforced that culture is essential to improving how we operate, how we make decisions, how we deliver results and the speed at which we do it. We are already taking steps to build and enhance a cohesive culture, including our recently completed search for a new Chief People Officer whom we expect to officially welcome to the team soon. On the cost side, we are working efficiently and effectively to optimize our SGA structure, streamline the organization and better align resources with the areas that matter most to drive performance and long term value creation. While ship operating costs have remained relatively consistent over the past several years, we see a meaningful opportunity to reduce shoreside cost. As part of that effort, we are streamlining the shoreside organization and making targeted role and position adjustments to improve efficiency and better align resources. As a result, we expect our salary and benefits costs to decrease by approximately 15% on an annualized basis. Actions like these are never easy, but are intended to better align resources, improve productivity and strengthen execution across the business. As part of these efforts, we are also exploring additional opportunities to improve efficiency in our operating model and drive incremental savings over time. For example, we have started to pilot select offshoring initiatives across different areas of the company. These efforts are in their early stages and we are testing and learning as we go. We plan to utilize this lever as we move ahead, expanding upon and scaling our efforts where and when appropriate and most beneficial to the business. We are also taking a hard look at other spend across the business, including marketing and advertising, and we see an opportunity to not only improve effectiveness but also efficiency from a marketing perspective. Our focus is on correcting missteps we have made in recent years as we enhance our ability to target the right consumer with the right message through the right channels, while ensuring that our spend is translating into demand returns. In line with this focus, we are planning to reduce our marketing spend in 2026 while sharpening the effectiveness of that spend. As a result of the marketing spend reductions as well as organizational optimizations, we expect to reduce our SGA by $125 million on an annualized basis. These are long term structural actions that we believe will help offset near term pressures and position the business for stronger performance over time. Beyond this, we have been evaluating our bundled AIR program through the same lens of discipline and return on investment, and we have continued to make targeted changes to improve economics. In many cases, this program has effectively served as a promotional tool but hasn’t always delivered returns commensurate with its cost. We will continue to assess these offerings to ensure they remain commercially sound while offering convenience to our guests. I am confident in the efforts underway to capitalize on opportunities we are identifying on the cost side, and while the revenue side of the equation is more complex, I recognize that it undoubtedly represents our greatest opportunity from a revenue management perspective. As you know, this is not a function that changes overnight, but we are actively taking steps to strengthen it. To that end, we recently implemented Phase one of a new revenue management system, and while its capabilities are meaningfully stronger than our prior tools, its effectiveness will depend on correctly calibrating the underlying data, refining and turning it to better align with our deployment. A system like this is also only as strong as the people using it, and we are continuing to build out the team and capabilities needed to fully leverage it. We are also continuing to refine and tune the system to better align with our deployment. Additionally, for revenue management to be effective, we need to generate stronger demand at the top of the funnel. As clearly evidenced by our shortfall in occupancy for this year. Our marketing function has not been operating as effectively as it needs to and we have to get those fundamentals right in order to drive demand more consistently and and put ourselves in a better position to optimize pricing. As I mentioned earlier, we have had missteps over the last few years where we were not consistently and effectively speaking to our core customer. We were not always putting the right commercial support behind the itineraries we were trying to fill and our marketing was not as demand generative as it needed to be. To address that, we are looking to bring in new leadership and marketing at NCL and better align that function with revenue management, deployment and sales. This work is critical and will strengthen the business over time, but it may result in some near term variability in top line performance as we work through these initiatives. While we’ve identified key internal priorities and are making progress addressing areas of underperformance, the external operating environment has turned more challenging. We entered the year behind our ideal booking curve in certain areas and recent geopolitical developments have added pressure to an already challenged backdrop, particularly in our European market this summer and demand for close in bookings. Rest assured, we are monitoring this closely and making adjustments to our business model when and where needed. I want to be clear, while the macro environment continues to rapidly shift and evolve beyond our control, many of the issues we are addressing are internal and fixable. They come back to execution, alignment and discipline. As I noted at the outset of this call, Mark will go into our guidance for the year, but we recognize that our 2026 outlook is below expectations. We are not satisfied with that and I know our shareholders aren’t either. I stepped into this role to address these issues and we are here to do just that with the support of our talented team. We have the assets, we have the brands and now we have the focus. Our job is to execute better, operate with more discipline and build a stronger, more cohesive organization. While progress will take time, I am confident we are moving in the right direction to deliver stronger, more sustainable performance over time. With that, let me turn it over to Mark.
Mark Kempa (Executive Vice President and Chief Financial Officer)
Thank you John and good morning everyone. I’ll begin with our first quarter results on Slide 6 which were in line with our expectations. Net Yield in the first quarter was down 1% which is above our guidance adjusted Net cruise cost ex fuel of $168 was slightly better than guidance, declining 1% driven by strong cost controls which ultimately drove adjusted EBITDA of 533 million exceeding our guidance. Lastly, adjusted net income for the quarter benefited from below the line foreign currency exchange and was 108 million or an adjusted EPS of 23 cents. Turning to slide 8, you can see our second quarter and full year guidance. Our outlook reflects an extremely challenging backdrop for the balance of the year. Keep in mind our prior guidance did not include any impacts from the disruptions in the Middle east which is creating incremental headwinds including pressure on the top line and higher fuel expense. These external pressures are occurring as we continue to calibrate our revenue management system, improve commercial execution including marketing and demand generation, and work through the impact of entering the year behind our targeted booking curve. As a result, we are reducing our full year guidance for net yield, adjusted EBITDA and adjusted earnings per share. Starting with net Yield in the second quarter, we expect a decline of 3.6%. This reflects pressure mainly on our European sailings, which represent approximately 26% of our deployment in the quarter as well as weaker than anticipated domestic demand as consumers reevaluate travel plans. In the current macroeconomic environment. Looking to the full year, we expect net yields to decline 3 to 5%. This updated guidance reflects both the impact of the macroeconomic environment and the extent to which those pressures have compounded the execution and commercial challenges already facing our business. In terms of pacing through the quarters, we currently expect the third quarter to be significantly weaker than the second quarter, reflecting our greater exposure to Europe, which represents approximately 38% of our deployment in the quarter and as well as continued softness in markets such as Alaska, which we discussed last quarter. Looking to the fourth quarter, we are assuming the consumer environment remains pressured, although net yields should improve from Q3, supported in part by the opening of Great Tides Water park at Great Stirrup Cay by the end of the third quarter. Moving to Cost John discussed earlier in the prepared remarks, we have made great strides to take quick and decisive action on the cost management side of the equation. I will go into this in a bit more detail, but we now expect our adjusted NCCX fuel to be approximately flat for the full year and up 1% in the second quarter due to the timing of certain costs. Moving to fuel, we now expect fuel expense to be approximately 800 million based on the current spot prices. However, fuel expense would be approximately 6% lower if rates were based on the forward curve as a result of softer than expected top line performance and higher fuel costs partially offset by better cost performance. We are reducing our full year adjusted EBITDA guidance to between 2.48 and 2.64 billion and our adjusted EPS guidance to between $1.45 and $1.79. We recognize these results are significantly below expectations. That said, we have moved quickly to focus on what we can control, particularly on the cost side which I will detail on slide 9. We have taken swift action within SGA to drive efficiencies and identify savings. To start, we are taking steps to optimize our organization and reduce our marketing spend which combined are expected to generate annualized run rate savings of 125 million in 2026. These efforts will result in an expected approximate 2 percentage point reduction in adjusted net cruise cost ex fuel. Unfortunately, a meaningful portion of these savings is being offset by incremental direct costs related to the conflict in the Middle east, including higher crew airfare and increased logistics costs. Together, these impacts represent an approximate 1% increase in adjusted net cruise cost ex fuel. As a result, we now expect full year adjusted net cruise cost ex fuel to be approximately flat for the year. The important point to keep in mind is that while these savings are being partially offset by war related impacts in 2026, the actions we have taken are structural in nature. On a run rate basis, we expect to carry these savings forward and see a benefit in adjusted net cruise cost ex fuel as we move into 2027. As shown on slide 10. These actions position us to keep adjusted net cruise cost ex fuel sub inflationary and in fact 1% or lower in 2026 for a third straight year despite the current macroeconomic headwinds while also meaningfully exceeding our cumulative three year savings target of 300 million. We are now approaching 400 million in savings between our shipboard efforts over the last three years. Combined with our recent shoreside cost savings. We expect these actions to continue to benefit the business over time, supporting margin expansion as top line performance begins to recover in 2027. It’s also important to note that our work here is not done. We continue to see additional savings opportunities across the business both within SGA and on the shipboard side and we expect to build on these efforts going forward. The reduction in our 2026 adjusted EBITDA outlook has also impacted our expected year end net leverage. Reducing net leverage remains our top financial priority and we remain confident that leverage will improve over the coming years as earnings grow, capital spending moderates and cash flow strengthens as we turn around the business turning to Slide 11 our gross new build and growth CapEx detail highlights that we are beginning to move beyond a period of elevated capital spending. Over the last several years, we have invested heavily in our fleet, adding two to three ships annually and driving strong capacity growth, with capacity days expected to increase 7% in 2026. We will continue to take delivery of new ships over the next two years with two ships in 2026 and another two in 2027 beginning in 2028 and 2029, however, that pace moderates meaningfully with only one ship scheduled for delivery in each of those years. As a result, we expect Gross New build and growth capex to decline by nearly 1 billion per year, which should materially improve free cash flow generation. We view this as an important inflection point for the business and a meaningful opportunity to accelerate deleveraging. Also important to note, as shown on Slide 12, our debt maturity profile remains manageable with no significant debt maturities until 2030. That gives us added financial flexibility and supports our ability to focus on deleveraging over the next several years. With that, I’ll turn it back to John for closing remarks.
John Chidze (Chairperson and CEO)
Thanks, Mark. Before we open the line for questions, let me leave you with a few closing thoughts. First, as Mark noted, the operating environment has become more challenging since our last call, and that is clearly weighing on the business. But I also want to be very clear. Many of the issues we are actively addressing are internal, operational and fixable. This is a company with strong brands, attractive assets, and a product that continues to resonate with guests. Our focus today is on executing better, operating with greater urgency, and aligning the organization more effectively around revenue, cost discipline and returns. Second, we are swiftly taking action to address any issues that were within our control. We have already moved decisively to streamline the organization, reduce cost, and strengthen accountability, but we know our work does not stop there. The actions we have taken to date and those we are continuing to pursue will support a healthier cost profile this year. More importantly, they are beginning to build a stronger operating foundation for the future. On the revenue side, improvement will take more time, given booking, lead times and the work currently underway in revenue management and marketing. But we are focused on making the right changes now so that the business is better positioned as we head into 2027 and beyond. Third, reducing leverage remains a top priority. While leverage is not improving during 2026, we do have a path to improving free cash FL strengthening the balance sheet as capital spending moderates and earnings recover over time. As we turn around the business. As I said on our last call, we have the assets, we have the brands, and we now have the focus. Our job is to execute with greater discipline, restore credibility through consistent delivery, and unlock the earnings potential of this business over time. That work is underway and while progress will take some time, I am confident we are moving in the right direction with that operator. Please open the line for questions.
OPERATOR
Thank you. At this time, we’ll be conducting a question and answer session. If you’d like to ask a question, you may press Star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you’d like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. And our first question is from the line of Matthew Boss with JP Morgan.
Matthew Boss (Equity Analyst at JP Morgan)
Please proceed with your question. Great. Thanks and appreciate all the color. So, John, could you elaborate on the roughly 400 basis point revision to your full year net yield outlook now calls for a 3 to 5% decline. Just how much of this you see as macro versus company specific and any breakdown of the impact across regions would be helpful.
John Chidze (Chairperson and CEO)
Sure, Matthew. Yeah, so I’m not going to break it out exactly because I think that’s very difficult to parse all that out. But you know, clearly, as Mark noted, we didn’t have any impact whatsoever from the Iran conflict in our last earnings call. So this was sort of our first attempt at trying to assess what’s going on, particularly given the amount of capacity that we have in Europe coming up in the second and third quarter, and particularly as we noted in our earlier call, that we were already behind the booking curve. So I think it has sort of an outsized impact on us compared to our competitors given how we came into the year. But I think most of it really is, I think the situation in revenue management and marketing, and I know you guys asked me that on our last earnings call, but it was day four. Now that I’ve had a chance to dig in a lot deeper, I think our opportunities are much greater than I thought. But on the flip side, I think what we need to fix in those areas is also greater in terms of, you know, building out the team, getting the team to work better. And I think, you know, that just takes time. So part of that reduction is just a reflection of while I have confidence in the people that are building it, I just think it’s going to take some time. And I wanted to make sure that we sort of adequately addressed, really sort of the complexity of what we have to accomplish in the coming quarters as we build out those two functions. And again, I think the revenue upside far outstrips the cost. So I think I still feel really good about that, feel really good about the industry. But that really in my mind explains sort of the change, if you will, in the guidance around yield.
Matthew Boss (Equity Analyst at JP Morgan)
Great. And then, Mark, could you walk through on the bottom line, just the puts and takes embedded in this year’s EBITDA margin forecast, maybe specifically flow through of the 125 million identified cost savings versus costs you see as transitory this year. And then if we just take a step back, is there any structural change in your view to the roughly 39% margin target for the business that you had that you had quoted prior?
Mark Kempa (Executive Vice President and Chief Financial Officer)
Hi, good morning, Matt. So, you know, to address your latter part of the question, you know, no, I don’t think there’s anything structural in front of us that would preclude us from getting back to 39 plus percent. I think when you step back and you look at the EBITDA reduction primarily that’s coming in as a result of revenue, our revised revenue guidance. That said, we have made significant and quick actions on the cost side of the equation. We noted in our prepared remarks that we’ve reduced costs by about 125 million on a run rate basis and probably about two thirds of that or so are coming to fruition in 2026. That said, we are seeing some elevated cost directly as a result of the war. As you can imagine, it’s really around transportation, both logistics and crew movement. But we think those are transitory, assuming the conflict resolves itself in the near future. So between the additional run rate savings from our initial, you know, first 60 to 90 days with John in the seat, plus some of the transitory costs, we certainly think that should be a tailwind for us going into 2027.
Matthew Boss (Equity Analyst at JP Morgan)
Helpful color. Best of luck.
Steve Wozczynski (Equity Analyst at Stifel)
The next questions are from the line of Steve Wozczynski with Stifel.
OPERATOR
Please review your questions.
Steve Wozczynski (Equity Analyst at Stifel)
Hey, guys. Good morning. So, Mark, another yield question here. As we kind of think about the revised yield guidance, I think a lot of us were obviously expecting a pretty significant yield cut given the headwinds from Europe this summer. But look, I’m not sure a lot of folks were expecting a negative 5% on the low end. Look, if we think about the midpoint now, so call it down 400. Can you help us think what would get you to the down 5 versus the down 3%? I’m just trying to figure out that, you know, what that delta would be between getting from negative three to negative five.
Mark Kempa (Executive Vice President and Chief Financial Officer)
Yeah. Good morning, Steve. Look, you know, I think in our revised guidance, as John said in his prior answer, you know, we do have some more structural issues both in our marketing and demand issue structures versus and that’s resulting in some issues in our revenue management system. You have to have the right marketing at the top of the funnel to generate the demand and we’re seeing that that’s just not functioning as it should be. You know, when I think about the 3 to 5% range, Steve, I think it’s important to note that, you know, roughly about a point and a half of that is as a result of the load reduction, you know, from our prior guidance. So yes, it is a wide range, but again, it’s based on what we’re seeing today. And you know, most importantly, I think this is very, you know, not necessarily appreciated. It takes time for teams to gel and get that opportunity, that engine going. You know, as we’ve said over the last four to five months, this is a completely new team and we’ve recently announced the change in our marketing leadership as well at the Norwegian brand. So that will take time to turn around and of course as we get that going, we’ll continue to see green shoots going forward.
Steve Wozczynski (Equity Analyst at Stifel)
Okay, got you. Thanks Mark. And then second question. You know, look, your booking commentary or demand commentary, I would say is a good bit different than what we’re hearing from, you know, some of your peers right now, especially in the, you know, around the North American deployments. So am I thinking about the right way that the, you know, maybe the Norwegian brand itself is kind of getting lost at this point with, with agents and consumers. Meaning, you know, the brand really now needs to kind of show what the brand really is. I’m not sure if I’m asking this the right way, but does that make sense?
John Chidze (Chairperson and CEO)
Yes, it does, Steve. It’s John. I mean, let’s face it, we’re not comparable to our, I mean, I said this is a turnaround. I think, you know, we’ve been very clear, that’s why the change was made. That’s what, that’s why I’m sitting here now. So, so when you’re making comments about why we look different from our peers, I would say yes, we do. But again, as I said, I have confidence in the industry, I have confidence in all the growth trends. So to me these are self inflicted wounds that we need to go fix or missteps. And so I wouldn’t say that we’ve completely lost our way by any sense with agents and consumers, but I wouldn’t say we’re hitting on all cylinders by any stretch. So I think again, we sound like a broken record but getting the right team in place and getting them to work well together and is how you’re going to optimize or maximize the optimization in those areas. So I’d rather just say we’re not firing in all cylinders but structurally nothing wrong. Great industry. It’s just we need to execute with better discipline.
Steve Wozczynski (Equity Analyst at Stifel)
Great. Thanks guys. Appreciate it.
Ben Chaikin (Equity Analyst at Mizuho)
The next questions are from the line of Ben Chaikin with Mizuho.
OPERATOR
Pleased to see your questions.
Ben Chaikin (Equity Analyst at Mizuho)
Hey, good morning. Thanks for taking my questions to the extent maybe 1 on 27. To the extent that our bookings taking place today for 27 in Europe, what color can you give us? I think the concern being, as we’ve seen in the past, these type of disruptions at times have had a tail to them in part because of your booking curve and customer exposure. Any color there or ask maybe differently. What are you doing today to make sure this isn’t something that sticks with you for the next six to 12 months? Thanks.
John Chidze (Chairperson and CEO)
So Ben, first of all, I’d say when you look at the luxury brands, I’d say they’re in pretty good shape just like they have been this year. I’d say they’re performing to expectations. So again, I think that’s another proof point that the industry is fine and the industry is growing. I think what we said about ncl, you know, when you said how can we make sure it doesn’t happen, you know, going forward, I would say again, let’s get a great marketing team built, let’s get a great revenue management team built. Let’s make sure they work as a cohesive group between, you know, sales, revenue management, itineraries, deployments, et cetera. So I think that is if we can get all that in place, which is not, you know, a short term thing, it’s a couple of quarters at least to build out that that’s what’s going to ensure your 27 and your 28 look differently on the NCL side. On the luxury side, I think things are pretty good.
Ben Chaikin (Equity Analyst at Mizuho)
Got it. Just to be clear, I was coming from a Europe perspective, just given the disruption we’ve seen and the fact that you guys book, you know, North American guests there just to see nowhere else coming from, maybe it’s the same answer.
John Chidze (Chairperson and CEO)
Well, I. Ben, I think it goes back to fundamentals. It’s making sure we’re getting back on the right booking curve well in advance. And I think that’s where we entered 2026 suboptimally. And you know, with the exacerbation of the war that’s just, that’s hurt us more. So we’re very focused on 2027 across all itineraries to ensure that we have the right booking curve, we have the right base loading of business on the books. And we think that’ll start to help us again in 2027. But that’ll take time to turn around.
Ben Chaikin (Equity Analyst at Mizuho)
Okay. And then I think, if I’m not mistaken, I believe Q4 yields are negative. I think in the prepared comments you mentioned they’ll continue to be pressured. Maybe that’s kind of saying the same thing. Is that correct? Can we confirm that? And if so, can we kind of deconstruct maybe some of the high level assumptions for Q4 if possible? Europe is 13% of mix. I think we all imagine that’s probably negative year over year. It’s just a large swing between maybe the previous implied versus today. So could you help us? Thanks.
Mark Kempa (Executive Vice President and Chief Financial Officer)
Yeah, I think when you look at the both, you know, both ends of the guidance range, you know, there certainly could be a scenario where, you know, Q4 could be negative. That said, we still are a ways out and we still have a lot of booking momentum to go. I think we’re very, very excited that we’ve now started to see marketing in earnest starting over the last week or two around our exciting island which is going to open in late summer. So we would expect that will help turn the corner and help with demand generation. But certainly if you’re looking at the, the high end of guidance, there is a scenario where Q4 could be negative. And then if you look on the other book end of that, I think you’re in positive territory. So look, we’re focused on the future. We’re focused on turning the demand engine around and the marketing engine and that’s going to take some time. So we’ll continue to look for those green shoots coming forward.
Connor Cunningham (Equity Analyst at Melius Research)
The next question is in the line of Connor Cunningham with Melius Research.
OPERATOR
Please proceed with your questions.
Connor Cunningham (Equity Analyst at Melius Research)
Hi everyone. Thank you. Maybe to just clarify what you just said there. So you have a second half implied net yield guide of negative 3.4 to negative 7.2. You just talked about potential for positive yields come the fourth quarter. So that would imply like that third quarter is well below the low end of the 7.2 range. So I just trying to Understand the puts and takes. There’s been a lot of moving parts from quarter to quarter. Totally understand that Europe is a larger portion come 3Q. So if we could just get a little bit more granular on the 3Q. I know that you’re not specifically guiding to it, but I think it would be really helpful.
Mark Kempa (Executive Vice President and Chief Financial Officer)
Thank you, Chair Powell. Yeah. Hi, Connor. So, you know, obviously yes, the implied second half is a wider range, but I think when you look at Q3, given our significant Europe deployment being behind the booking curve with the war exacerbation, I think, you know, there’s a scenario where you could see high single digit negative yields in Q3. So hopefully that’ll help you, help you kind of back into where Q4 could be. And that’s on the worst, that’s on the high end of the, or the low end of the guidance, I should say at a negative five for the year.
John Chidze (Chairperson and CEO)
Well, and I. Connor, I think the other thing is, John, again you guys are trying to like really, you know, nail this down. I don’t know how many times to say it. We are not comparable to our peers at the moment. And so with the reason I said in my prepared remarks that we have the range, I think you even said in a question earlier, the wider range is just letting these teams gel. They’re not even completely hired. I mean we’re hiring people in revenue. Man, the teams are being built out, they’re gelling. So by definition, I think it would be irresponsible to have some super tight, you know, range. And we could explain it to you exactly, you know, down to the every 10 basis point change. That’s just not possible with the Norwegian brand. So it’s more that than there’s anything that, you know, we can singularly point to and say that’s your issue. So if you keep thinking about this as a turnaround story for the Norwegian brand, again, the luxury brands are operating as you would expect. That’s really what accounts for the variability.
Connor Cunningham (Equity Analyst at Melius Research)
So I wouldn’t be making, you know, assumptions. It’s more just letting, letting this, this whole thing gel together. Yep, I totally understand. It’s just that things have been moving around so maybe just to may stick with that. So again, this is a gradual turnaround and I understand that it takes a while to build. So as we think about 27, maybe just like whole company rather than just specific parts, it seems that this will take at least the first half of 27 to start to see a lot of the fruits of your labor start to play out. Is That a fair timeline. It just. You talk about gradual improvement and I understand that, but just if you could just help bridge us to how you start to see this thing from a commercial strategy standpoint. Turn. Thank you.
John Chidze (Chairperson and CEO)
Yeah, I mean, as we’ve said all along, I think the cost, you’ll keep seeing the cost come out. I mean, over the next two to four quarters, you’re just going to see one thing sort of on top of the others. We keep turning over rocks and there’s plenty more to go there. But yes, I think on the revenue side, when you think about, you know, getting your marketing message out there, getting back to the things we’ve talked about, you know, premium families with kids, seasoned travelers, things of that that, you know, we’ve sort of walked away from for the last couple of years, which Mark’s talked about, you’ve seen that in the decline in our occupancy rates, all of that. You can’t just flip a switch and go, ah, we’re back to where we were in 2018 or 19. And the consumer just reacts immediately. So I do think that’s going to take some time. So, yes, I think it’s accurate to say, you know, you’re going to see your green shoots in 27 and as you get clicking into 27, you know that’s going to roll over into 28 when hopefully we’re hitting on all cylinders. So I think you’re correct. To me, the cost and the revenues are on two different tracks. The cost will come quicker. I think the revenue will come a little bit later. But again, the revenue is far outstrips the cost opportunity.
Connor Cunningham (Equity Analyst at Melius Research)
Totally good. Thank you.
Brandt Montour (Equity Analyst at Barclays)
Our next questions are from the line of Brandt Montour with Barclays.
OPERATOR
Please proceed with your question.
Brandt Montour (Equity Analyst at Barclays)
Good morning, everybody. Thanks for taking my questions. So the first one is a bit of a near term question because I don’t think we really kind of got into the nooks and crannies of the third quarter. You know, have you guys seen any sort of signs of stabilization over the last couple weeks and sort of how much left do you have to book for that quarter? Just trying to get a sense where we’re at in the calendar and that booking cycle. If even the numbers you did put out for the third quarter feels fully de risked here and what you’re seeing real time.
Mark Kempa (Executive Vice President and Chief Financial Officer)
Yeah. Good morning, Brent. Look, I think, you know, fundamentally, you know, when you, you know, at the core, you have to consider where we entered where, you know, where we entered the season, we were behind the booking curve. We had more business to go after that was exacerbated by the war. You know, again, when you think about that, we had a higher hill to climb than that than some of our competitors. And as John said, we’re just not comparable. So, you know, we’ve seen elevated cancellations in Europe across the board. And you know, again, here and there in certain areas of Europe, you start to see some green shoots. But, you know, given the fact that we’re sitting here in May, it’s going to be very hard to dig out of that hole that we’ve created ourselves for ourselves with that being behind in the booking curve again on the luxury brands. The last three or four weeks we have seen, I would call it even slightly better than stabilization. We’ve seen some encouraging signs over the last three to four weeks for region and for Oceania.
Brandt Montour (Equity Analyst at Barclays)
Okay, that’s helpful, thanks for that. And then non commissionable fares, I believe went into effect this week for you guys. And I know that forecasting 27 and 2H26 is a bit difficult with all the teams gelling and everything you sort of talked about already. But hopefully you have an idea of what you’re sort of internally modeling for NCFS in terms of those being either net dilutive or net accretive to yields. And so maybe just take us through sort of the model specific to NCF’s effect on the business for the second half of 2017. Is that accretion, how much of a bad guy is that? And when it can kind of flip positive. If that’s in 27 and if that’s
Mark Kempa (Executive Vice President and Chief Financial Officer)
how you think about it overall. Hi, Brandt. And again, I think we probably talked about this on our prior call or call before that, you know, the whole NCF statement was really about again trying to garner and garner attention around the Norwegian brand, getting back to the, you know, getting the travel agent community instilled with the Norwegian brand as we obviously go to shorter and more domestic cruising. So very, very early in the stage to say, you know, what, that, what that quantification is going to be in 2027. But again, the thesis was getting back in the attention in front and center of the travel agent community. So, you know, as you think about that, it was only related to the travel agent distribution channel. It was not a policy that went across our direct channel. So we think over time the volume will outpace any potential impact as a result of that minor cost impact.
Brandt Montour (Equity Analyst at Barclays)
Thanks, everyone.
James Hardiman (Equity Analyst at Citi)
The next questions are from the line of James Hardiman with Citi.
OPERATOR
Please proceed with your questions.
James Hardiman (Equity Analyst at Citi)
Hey, good morning. Thanks for taking my questions. I’m going to ask the 2027 question a little differently. I don’t know, I mean, there’s a lot of unknowns here, so I don’t know how much of this you can, you can help with. But I guess a, as we think about the booking curve, obviously one of the issues, one of the main issues for 2026 is that you, you entered the year behind and so some of the external issues were so much more difficult to overcome. Anything you can tell us about where you sit on the booking curve with regards to 2027? And then as I think about the different possibilities for 2027, the streak kind of has you getting back to your algo right next year, Obviously it’s going to be off of a much lower base. But should we think about the opportunity? 27 versus 26 is still sort of a normal opportunity. Could it be greater than that? Because there’s a lot of one timers as we think about 2026 or is this stuff going to carry over so much so that we should not be anticipating meaningful yield growth in 2027?
John Chidze (Chairperson and CEO)
Yeah, I think it’s a little difficult to know. Again, I think we know where we made our mistakes in terms of, you know, getting behind the booking curve and I think the team that is being built knows where the mistakes were and is working to correct that. As we go into 27. I think the proof will be in the pudding, obviously, because again, that team is being built out, the system’s being refined, calibrated, whatever word you want to choose. So I would certainly think it’s going to be better. I wouldn’t sit here and tell you it’s going to be all the way to bright. I wouldn’t promise you that, but I think meaningful improvements are being made in those areas. So I’d say again, I’m optimistic whether it plays out perfectly in 27 versus 28, only time will tell. But I feel better about. At least we understand where we made our mistakes and I think we’re working to correct them again. On the luxury brands, I think they’re right where they should be from an expectation standpoint in 27. So again, it’s all about Norwegian and
Mark Kempa (Executive Vice President and Chief Financial Officer)
James on the cost side of the equation, again, we’ve talked about we’re taking quick and decisive action. We’ve already seen that with some of the numbers we talked about today, that’s not going to stop. So you’re going to see a much quicker change on the cost side of the base of the Business. And again, getting our revenue management and demand engine via our marketing engines correct again will take more time. So we’re going to move quick and decisive on that. But that’s not something you turn around over time. Definitely on the cost side you’re going to see a much quicker results flowing through.
James Hardiman (Equity Analyst at Citi)
And to that point, I know I’ve asked this question a bunch of times, Mark, but you know, maybe assure us that some of the outperformance on the cost side isn’t contributing to the underperformance on the top line. That is, you know, cutting a little, you know, more muscle and not entirely fat. And then I guess, big picture. You know, John, you’ve talked a couple times here about how you’re not really comparable to your peers right now. I guess I’m just trying to think through the brand damage that’s been done here, how consumers are thinking about your brand from a big picture perspective and you know, how much needs to be repaired as we move forward.
John Chidze (Chairperson and CEO)
Yeah, well, I’m going to answer both parts and then Mark can jump in. No, we’re actually investing more money in revenue management and marketing. Not marketing, but I’m talking about an in team in the horsepower. So we’ve been very careful where we took cost out to have it not impact in any way revenue producing opportunities. So we will be spending more money in those areas, not less. Again, marketing dollars per se hasn’t been done as efficiently or effectively as possible. So that’s obviously an area you can cut. But I can assure you in terms of intellectual horsepower, we are definitely continuing to upgrade in those two areas. So do not worry about that at all. And then in terms of brand damage, I don’t think there’s been any brand, when you look at guests satisfaction scores, you know what the consumer thinks. I think there hasn’t been any brand damage. Again, I think the brand is functioning. If you recall in an earlier call, I said, I just don’t think we’ve maximized what we can get out of the Norwegian brand because we haven’t been doing things as effectively or as coordinated as we should. So I don’t look at it as you have to repair damage. I look at it as, you know, we just got to get back to maximizing what we can get out of that brand. And that’s again just through operational missteps over the past years, couple of four or five years. Whether it’s our itineraries, whether it’s how we went to market, whether it’s, you know, ineffective airspin that, as we said, is more akin to a subsidy marketing. So there’s lots of things like that, but I don’t, I don’t see any brand damage.
Mark Kempa (Executive Vice President and Chief Financial Officer)
Yeah, I would agree, I fully agree with John. You know, we’re not talking about a brand damage issue here, James. Again, this is about making sure we’re putting our dollars to work in the right places and you know, equally as important having the teams focus on the right priorities versus too many priorities. And you know, by doing that you actually get a lot more productivity and intellectual horsepower. So we’re investing in the right places and we’re focusing on the right priorities. It goes back to a lot of fundamentals.
James Hardiman (Equity Analyst at Citi)
That’s helpful. Thanks, guys.
Lizzie Duff (Equity Analyst at Goldman Sachs)
Thank you. Our next questions are from the line of Lizzie Duff with Goldman Tax.
OPERATOR
Please receive your questions.
Lizzie Duff (Equity Analyst at Goldman Sachs)
Hi, good morning. Thanks for taking the question. Understandably, we’ve heard a lot about Europe. You’ve touched on Alaska, but maybe if we could just touch on what’s going on in the Caribbean right now and what you’re seeing there. You know, you had a lot of capacity to absorb this year. We’ve seen some recent deployment shifts from MSC and whatnot. And so we’d love to hear the kind of latest of what you’re seeing in the Caribbean and just the broader kind of competitive environment there more broadly.
John Chidze (Chairperson and CEO)
Yeah, look, Lizzie, we’ve been pretty transparent. You know, we did have a large Caribbean deployment shift this year and we were very frank on our last call that we did not have the right tools in place. We didn’t have our marketing in place. We just, we didn’t have our island in place. We’ve now launched the marketing of our island in the last week or two. So we’re hopeful that that’s going to start to improve demand generation. So again, that goes back to a lot of internal missteps that the company took along the way. So, you know, as we’ve seen the Caribbean, we believe in the Caribbean, we think it’s going to be a good market for us, but we have to have the right tools in place and we’re working on that.
Lizzie Duff (Equity Analyst at Goldman Sachs)
Got it. Thank you. And then I wanted to ask just about long term deployment. You know, obviously Europe has its challenges this year with the conflict, but I think even pre that, I think Europe was, you know, tracking a little bit down. You mentioned some of the open door itineraries and whatnot. I guess. How do you think about Europe in the long term? I guess is your mix of deployment. Are you happy with that current mix that you have or could you see kind of making some shifts over time, whether it’s out of Europe or kind of anything else?
John Chidze (Chairperson and CEO)
No, I mean, I’ll give you my take. I think no, we’re happy with the current mix. I think again, when you think about how much of our business we source from the US for our European itinerary. So obviously the Iran war has a much bigger impact on us than some of our competitors in that sense. But I think again, when we get everything aligned the way it should, whether it’s in the Caribbean or whether it’s in Europe, the Norwegian brand should perform better because all the fixes we’re talking about aren’t for one specific region of the world. They’re, you know, they’ll flow across all the different areas of the globe. So I think we feel, we feel
OPERATOR
good about Europe long term. Our next questions are from the line of Vince Serpell with Cleveland Research.
Vince Serpell (Equity Analyst at Cleveland Research)
Please proceed with your questions.
OPERATOR
Hi. Thanks.
Vince Serpell (Equity Analyst at Cleveland Research)
Wanted to unpack Grace Therap K a little bit more. Could you just talk in more detail on review scores? Guest impression. I know that you still have the water park to go, but there was, you know, considerable investment already to this point. I imagine more people enjoying the lagoon going to Silver Cove. It’s kind of like what the guest feedback has been. And you know, when you think about quantifying that, if it’s possible, at one point you had thrown out some potential yield benefit the island could generate.
Mark Kempa (Executive Vice President and Chief Financial Officer)
Yeah, good morning, Vince, it’s Mark. Look, as we’ve said, you know, with phase one opening of Great Stirrup K, we’ve seen our guest satisfaction scores improve, you know, dramatically. And so the feedback from the guests who are touching the island and getting to the island has been nothing short of great. That said, you know, as we’ve said before, we have not opened some of the primary monetizing events or activities, activities on the island which are scheduled for late summer this year. So we think when those open together with a solid marketing campaign behind that, we absolutely believe that the island will generate incremental yields not only from the on island monetization, but over time getting premiums for itineraries that are calling on that, which is of course underscoring the thesis of the investment there. So again, we’re very happy with the results to date and we look forward to again, late summer opening up the monetization activities which we believe will really start to spark incremental demand.
Vince Serpell (Equity Analyst at Cleveland Research)
Great. And then just kind of a longer term question, you look at the occupancy levels and there’s always the balance between price and load. But this business used to be at 107. I think you’ve got more Caribbean capacity now. Perhaps there’s room to even, even get above that 105 just a couple years ago. You know, how are you thinking about just the occupancy opportunity over the next few years as you start to get, you know, some of these missteps addressed, get the teams gelled, the marketing message. Right. How are you thinking about where occupancy could go?
Mark Kempa (Executive Vice President and Chief Financial Officer)
Look, Vince, that’s absolutely, that’s, you know, one of our items, front and center, where we think there’s opportunity on the occupancy, occupancy side. We want to get back to not only historical levels of our occupancy, but also to exceed that. You know, we said on our last earnings call or a couple calls ago that, you know, we’re not just looking at maximizing our existing, our new ships from an occupancy standpoint, but taking our existing fleet and ensuring that, ensuring that we’re maximizing space across our existing assets so we can add more thirds and fourths and get more of the families. But I’ll go back to again, we have to get the brand, specifically the Norwegian brand, front and center. We have to get the marketing and demand engine front and center. And over time, we believe that will help drive both price and occupancy.
Vince Serpell (Equity Analyst at Cleveland Research)
Thank you.
Robin Farley
The next questions are from the line of Robin Farley with ubs.
OPERATOR
Please receive your question.
Robin Farley
Great, thank you. I just wanted to go back to clarify some of the comments in the release. In your earlier comments, do you believe the situation in the Middle east is negatively impacting bookings for Caribbean and Alaska? Because the wording in the release sounds like you may be thinking that the Middle east is impacting things outside of Europe as well. So just wanted to clarify that. And then when we think about your change in Q4 guidance, and I know these are broad strokes, right, we’re not trying to nail down tens of basis points, but going from something a couple hundred basis points positive to something flat or a couple hundred basis points negative. Just since Europe is not as much of a factor in Q4, can you help us think about how much of that impact in Q4 you think is kind of impact from the Middle east versus what you were describing as kind of self inflicted. Thank you.
John Chidze (Chairperson and CEO)
Yeah, so I would say yes, it is having some impact on the U.S. i mean, gas prices, everything. I mean, it’s kind of across the board. You can look at airlines, you can. I know the premium end of airlines is fine, which if you look at our premium brands, they’re different, but mass, you know, mass. All you have to do is look at Spirit. Yes, it is having some impact, for sure. But in terms of, you know, the fourth quarter, how much is the Middle east again? I’m not. We can’t really parse what’s. How much is one versus the other. Again, we just said we’re assuming the environment doesn’t change from where it is today. We’re not assuming it gets any worse. We’re not assuming magically it goes away next week and, you know, oil goes back to, you know, 50 bucks a barrel. We’ve just sort of assumed that the environment stays the way it is. And given all the issues we’ve talked about, sort of our turnaround in that brand, that’s really what’s driving that spread. It’s nothing specific around the war, but yes, overall, for sure, the environment is softened to some extent.
Mark Kempa (Executive Vice President and Chief Financial Officer)
Yeah. And Robin, I think those are just, you know, downstream ancillary effects that we’re seeing. You know, what’s interesting, of course, as John has said several times, you know, our luxury brands are just fine and we’re seeing great performance out of there. Even further, I think, you know, once we have our guests on the vessels, we’re actually seeing healthy onboard spend. So it’s a matter of, again, making sure we’re getting in front of the consumer, having our right demand and marketing engine going and getting the guests on board. If we can do that, I think that’s really going to help turn things around.
Robin Farley
Great, thank you. And then just a quick follow up on your leverage levels at the end of the year. I know we’ll be able to do the math in more detail after the call. Just with the change in guidance. Where do you see that getting your leverage levels at year end? Thank you.
Mark Kempa (Executive Vice President and Chief Financial Officer)
Yeah, I think, you know, based on the range of outcomes that, you know, you’re probably looking at somewhere in the high fives. And, you know, so obviously, you know, we’re not happy with where that’s going, but as we’ve said before, it will take time to turn around the revenue side of the equation, but we are moving quick and decisive on the cost side. So to the extent over the next couple quarters, you know, we can announce some more actions around that.
Robin Farley
Hopefully that will give us some more insulation. Great. Thank you very much.
OPERATOR
Thank you. Last question. One more time for one more question. Thank you. That question will be coming from the line of Trey Bowers with Wells Fargo, please receive your questions.
Trey Bowers (Equity Analyst at Wells Fargo)
Hey guys, thanks for the question. You said a couple times on the call that the luxury brands are just fine. I assume that is a statement of kind of where you see the marketing engine and the brand strength, but is that also a signal of just kind of yield dynamics? And if so, could you give us a sense for kind of order of magnitude differential between what you’re seeing at Norwegian versus what you’re seeing at the luxury brands? And then I have a follow up. Thanks.
John Chidze (Chairperson and CEO)
We don’t break that out. I’m just saying that from an overall standpoint, you know, we like what we see and as we’ve said along, there’s cost opportunities in those brands which we’re going to continue to go after those just like we are at ncl. Might not be on an absolute basis as much, but plenty of opportunity there. But it’s definitely a more resilient consumer. No great surprise.
Trey Bowers (Equity Analyst at Wells Fargo)
And then on the 125 million of kind of SG and a save that you expect to see going forward, can you guys just one final time just try to unpack a little bit? You know you’re talking about kind of needing to improve the marketing messaging of the Norwegian brand and you’re, you’re improving the people. So there’s an investment happening there. So just help us understand how it makes sense that kind of maybe marketing spend is. Where exactly was that inefficiency? Just any incremental detail of a marketing spend that sounds like it’s getting cut as you need to kind of increase and improve awareness of the brand would be super helpful.
John Chidze (Chairperson and CEO)
Thank you. Yeah, I don’t.
Mark Kempa (Executive Vice President and Chief Financial Officer)
Without going to any detail, all you need to do is just sort of look at our marketing spend over the last three or four years vis a vis our competition and you would see that, you know, we spend, our spend increased dramatically and we’re not nearly as efficient as our competitors. That’s mostly not around heads. That’s just around where we’re spending it, how we’re spending it. So again, we’re investing more in the, in the quality of the people, but there’s plenty of room to cut. So it’s, I mean given, given the disproportionate amount of spend, there are plenty of places to look for money there. Yeah, Trey, it’s about, it’s about putting the dollars to work in the right places versus volume. And you know, again, you can see our numbers when you look at our year end filings vis a vis our competitors. I think we’ve been spending probably 2x on a PER bed basis. But it’s about, it’s about effectiveness and that’s what we’re focused on going forward.
OPERATOR
Well, thank you everybody for joining us this morning. Appreciate all the questions and talk to you later. Thanks.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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