Norwegian Cruise Line works to defy notion that bigger is better

 Norwegian Cruise Line (NCL) is openly defying the conventional wisdom that the biggest ships produce the largest returns for shareholders, as it sits on an orderbook with the smallest newbuildings of any mass-market brand.

Frank Del Rio, chief executive of New York-listed parent company Norwegian Cruise Line Holdings, says there is a limit to the economies of scale offered by large cruiseships.

“Economies of scale do not go to infinity,” he told TradeWinds.

In what the Miami cruise line is calling Project Leonardo, NCL has ordered four firm 3,300-berth vessels from Italy’s Fincantieri, with delivery slated for 2022 to 2025.

The world’s third-largest cruiseship owner also has options for two more of the units, with delivery slated for 2026 and 2027.

Among vessels currently on order, no other mass-market or contemporary cruise line has booked a ship that small since AIDA Cruises’ delayed order at Mitsubishi Heavy Industries in 2011, according to data from shipbroker Clarksons.

Contemporary brands

Major contemporary brands under the Carnival Corp, Royal Caribbean Cruises and MSC Cruises corporate umbrellas have all focused primarily on ordering vessels of between 4,000 and 5,700 berths since the start of 2015.

Executives claim these bigger ships typically mean bigger profits, particularly when they are also new.

But Del Rio says the curve for economies of scale tends to flatten out, and cruiseships of this size have reached that plateau. Each of the newbuildings in NCL’s latest order will pay for itself within five years, he claims, so shareholders will be “very happy”.

“These vessels will be as profitable on a return on investment metric as the largest ship that you can think of,” he said on the sidelines of the Seatrade Cruise Global conference in Fort Lauderdale, Florida.

Del Rio points to destination flexibility as a key advantage that the 140,000-gt Leonardo ships will have over vessels as large as 225,000 gt.

“We believe these vessels are the perfect size to deliver top return on investment for our shareholders while providing the flexibility that we as a company can deploy these vessels throughout the world,” he said.