Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH) Q4 2022 Earnings Call Transcript

Dan Politzer: Understood. Thanks so much for all the color. Operator: And the next question comes from the line of Steve Wieczynski with Stifel. Please proceed with your question.

Steve Wieczynski: Yes. Hey guys. Good morning. I want to ask, Frank, this is probably for you. I want to ask about how you guys think about cutting costs versus balancing the customer experience? And I guess, what I’m getting at is, we’ve read out there, you guys have taken some action on board, whether that’s cutting things like entertainment or servicing cabins, things like that, which I assume is being done to reduce costs. But do you worry about the customer experience that starts to be impacted and you eventually start to hurt the long-term perception of your product? Just trying to figure out how you balance those two things.

Frank Del Rio: Good morning, Steve. It is a balance. Obviously, you don’t want to kill the goose that lays the golden egg, which is the customer. We believe that the — we’re trying to balance what customers pay, what they actually pay for and what they receive. So, for example, we did not cut the turndown service that you mentioned across all brands or across all cabin categories. It’s only in the lower cabin categories that equate to a lower per diem. So, look, it’s management’s responsibility to optimize revenue and minimize costs. That’s economics 101, and that’s what we’re doing.

Mark Kempa: Steve, I think, the other way to think about it is, we’re simply aligning ourselves to what others in the hospitality sector have done as well. So, this is nothing new. I think customers in today’s society are used to getting a different level of service. We’re not degrading the product. We’re squarely focused on making sure that the guest experience is wholly intact, but we’re going to align ourselves to what is the new normal for the hospitality sector. I think, it’s the right thing to do.

Steve Wieczynski: Okay. That makes sense. And then, second question, Mark, this is probably going to be for you, and it’s kind of a quasi-accounting question, which I’m not an expert in. But we’ve seen you guys also — at least, I think, I’ve seen you guys kind of increase your service fees or acuities by a pretty decent amount. And I would assume that some portion of that has to — does that hit your — half of it hits your yields and then the other half hit cost? I’m just trying to figure out, if you guys could help us think about what that impact is on that yield side? And I guess what I’m trying to get at here is, I don’t want to — I’m hoping that expectations for yields don’t get too ahead of themselves, if all that kind of makes sense.

Mark Kempa: Well, Steve, you’re taking a big chance asking me an accounting question, but I think I’m going to go for it. Look, absolutely, when we increase the service fees, it does get rolled up as part of our gross revenue, but there’s also a cost to that. And there’s obviously some direct cost to that, but there’s also the employment costs, which go against that, which hit in our net cruise cost. So, service fees, again, the vast majority of that, all goes to our dedicated crew and employees who are working on the ship, but there is a revenue component to it and there is a cost component to it. But, again, that’s something that’s been consistent for us over the years. No change in the accounting or no change in the comparability.

Steve Wieczynski: Okay. Got you. Thanks, guys. Appreciate it.

Operator: And the next question comes from the line of Conor Cunningham with Melius Research. Please proceed with your question.