On horseback


It’s been a tough two years – no, two brutal years – for the beleaguered cruise industry, but Norwegian has done a better job than most of surviving the deluge. When will he be better?

File image courtesy of NCL

Posted on March 25, 2022 9:37 PM by

Tony Munoz








(Article originally published in the January/February 2022 edition.)




“Listen, Humpty Dumpty has broken. There are thousands of pieces on the floor, and it will take time and all the king’s horses and all the king’s men to put Humpty Dumpty back together. But I’m confident we can do it.” says Frank Del Rio, president and CEO of Norwegian Cruise Line Holdings, adamant.


Del Rio has faced the COVID crisis since early 2020, when the virus hampered human activity globally. It demanded that its employees be vaccinated and that passengers sailing on its ships provide proof of vaccination, which Florida Governor Ron DeSantis disputed in court. A state appeal is pending.


To help ensure liquidity, the company launched a series of capital markets transactions beginning in March 2020 totaling over $8 billion. The Norwegian management team also launched SailSAFE, a health and safety program for guests and crew, and hired Dr. Scott Gottlieb, former Commissioner of the United States Food and Drug Administration, to oversee the Company’s Global Health and Wellness Council.


They made it clear that the company would spare no expense to protect the well-being of its guests and crew. “In light of the past two years, we continue to expect the unexpected and adapt accordingly,” says Del Rio. Gottlieb adds that the cruise industry can tightly control the environment on ships and notes that NCLH has invested heavily in onboard therapeutic and testing protocols to improve safety.


Road to the top


After graduating from the University of Florida, Del Rio went to work at an accounting firm in Miami, a job he found boring. “I was a bad accountant,” he likes to say, so he jumped at the chance to work with Ed Rudner, one of the founders of Alamo Rent a Car, at Certified Vacations, who managed the personal vacation dreams of Delta Airlines customers. . The business was a huge success.


Rudner left Certified to buy a small, bankrupt cruise line in Norway named Renaissance Cruises. Del Rio soon followed as CFO and learned cruise line finance. He was promoted to head of sales and marketing, and the line was successful, ordering eight new ships.


But Renaissance grew too fast and started losing money. The board ousted Rudner and Del Rio became co-CEO. The French investment group that had financed the new ships then fired Del Rio as well in April 2001. A few months later, the chaos of 9/11 struck, preventing worldwide travel and putting Renaissance back into bankruptcy. The French regained possession of the eight ships and anchored them in Marseilles.


Del Rio was only forty-seven and unemployed. After the dust settled, one of the French bankers started calling him to see if he would be interested in submitting a business plan for a new cruise line (to be called Oceania) to charter some of the ships. . After a lengthy due diligence process, Del Rio won the tender to charter three of the vessels. But that was 2002 – just after 9/11 – and a tough time to raise capital on Wall Street.


So he cobbled together the $7 million seed funding for Oceania by mortgaging his house and borrowing money from family, friends, and anyone who would listen. Not a single bank or financial institution was interested.


In January 2003, Oceania Cruises opened with 20 people and nothing else — no computers, not even a paper clip, Del Rio recalls. The new cruise line announced that its first cruise would be six months later on July 5, and it was. He remembers it as the busiest and happiest period of his career.


At the end of 2005, Oceania was profitable. The French investment group contacted Del Rio in mid-2006 and said it wanted to end the charter deal. He was baffled and asked how he was supposed to raise $350 million to buy the ships. “I don’t know, but try” was the reply.


Wall Street is a jungle of high profile investors and international interests, but it was a world of opportunity for Del Rio. He admits to having widened his eyes a little during the first meeting with the ex-firm Lehman Brothers. He presented the business plan and said he needed $375 million to buy three ships. Lehman said fine, no problem, and offered 100% LIBOR financing plus a few points. Del Rio had to remind them that Oceania was a startup without a lot of capital or profits, but the results were the same at Bear Stearns and UBS. So he went with Lehman while UBS took a secondary position.


Along the way, he also met Apollo Management, a private equity group founded by Leon Black. Unbeknownst to him, Apollo was looking for an entry point into the growing cruise industry. Two years later, in 2007, at the height of easy money, Apollo swooped in and made Del Rio an offer he couldn’t refuse.


Apollo and Oceania joined forces and soon purchased Regent Seven Seas Cruises – a luxury brand – from the Carlson Companies and formed Prestige Cruise Holdings to run the two companies with Del Rio as CEO.


Seven years later Apollo sold Prestige to Norwegian for $3.3 billion and Del Rio thought he was done with it. “Typically, in buyouts, the buyer CEO is a genius and the seller CEO is an idiot,” he says. “So I was playing dumb and the Norwegian CEO knew everything and that was fine with me.” He was sixty years old and had just collected another big paycheck.


Then, on New Year’s Day 2015, about six weeks into his retirement, a board member from Norway called Del Rio home with some urgency. His wife teased him about the company desperately needing him. Soon, he learned that not only was he coming back, but he was coming back as president and CEO of the entire operation — not just the two brands he had previously sold.


Launch a perfect game


Since taking the helm in 2015, Del Rio and his team have more than doubled their revenue from $3.1 billion in 2014 to $6.4 billion in 2019, the last full year before the pandemic takes hold. The company’s three distinct cruise offerings – contemporary (Norwegian), premium (Oceania) and luxury (Regent Seven Seas) – were hitting full throttle.


“We threw a perfect game,” Del Rio said. “I remember watching Sandy Koufax throw his perfect game in 1965 and I always thought that was the epitome of flawless execution – throwing a perfect game in baseball – and that’s where we were. March 13, 2020 when the virus changed everything. So my goal is to get back to where we were then.


With 28 ships, nine more on order and a focus on high-end cruising, the company is in a strong position to do just that. Unlike its competitors, Norwegian has not sold or scrapped any ships during the pandemic. Its fleet is the youngest of the “Big Three” in cruising – Carnival, Royal Caribbean and Norwegian. And while it may be the smallest, it’s number one in most categories that matter – net yield, onboard revenue yield, customer satisfaction and customer retention.


“Do I want to be the greatest? ” he asks. “Not really. With us, it’s quality rather than quantity.


He points out that his management team is the best in the business: “I wouldn’t trade any of my best guys for someone else’s best. You know, mano a mano, we win every time. We win all the important areas, and we have been together for a long time. They are like family to me.


This team includes Harry Sommer, a 30-year cruise industry veteran who leads the contemporary Norwegian brand. Its Project Leonardo newbuild program is expected to add six new ships from 2022 to 2027 to Norwegian’s existing fleet of 16 ships.


Howard Sherman leads premium operator Oceania Cruises, which he helped found with Del Rio in 2003. Its six ships will be complemented by two new Allura-class ships by 2025.


Regent Seven Seas, marketed as “perfected luxury”, is led by President and CEO Jason Montague, another veteran of the Oceania era. In 2016, Montague oversaw the delivery of Regent’s first new vessel in 13 years, the Seven Seas Explorer. The all-suite, balcony-only Seven Seas Splendor was delivered in 2020. Reflecting its position as the epitome of luxury cruising, Regent’s 2023 143-night world cruise sold out in one day. The Regent brand will add a new ship to its Explorer class in 2023.


On horseback


It’s all part of Del Rio’s “secret sauce” – the youngest fleet in the industry, three incredibly strong brands and a management team that walks in the same direction and trusts each other.


Echoing Ronald Reagan’s famous question, “Are you better now than you were four years ago?” Del Rio’s answer is no. “Are we better off now than a year ago? he adds: “Yes, because at least we are starting to function. We have half the fleet in operation. A year ago we had none.


He knows it will be a marathon, not a sprint. All of this pent-up customer demand continues to be rejected by hesitant passengers. But Del Rio and his team have been through tough times before. And while it won’t be over tomorrow, it will be over soon. “And then we’ll start winning again,” he says, “and start throwing a perfect game again.”


Tony Munoz is founder, publisher and editor of The Maritime Executive.



The views expressed here are those of the author and not necessarily those of The Maritime Executive.



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