Prepared remarks
Good morning, and welcome to the Norwegian Cruise Line Holdings second quarter earnings conference call. My name is Samantha, and I will be your operator. As a reminder to all participants, this conference call is being recorded. I would now like to turn the conference over to your host, Sarah Inmon, VP of Investor Relations. Ms. Inmon, please proceed.
Thank you, and good morning, everyone. Thanks for joining us for our second quarter 2026 earnings call. I'm joined today by John Chidsey, 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 the 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 second 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 2025 and 2026 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.
Thanks, Sarah, and thanks, everyone, for joining the call. I'm joined today by Mark as we discuss our second quarter results. At a high level, we delivered solid second quarter results. Top line grew 5%, driven by increased capacity days, while we lowered unit cost 0.5%, leading to profitability ahead of guidance. At the same time, the team made substantial progress during the quarter to advance our turnaround priorities. I'm going to talk with you today about actions underway and why I am confident in our pathway to revenue recovery, which combined with our cost control capabilities, will drive meaningful growth and profitability and improve shareholder returns. Successful turnarounds are never linear and take time to demonstrate tangible performance improvements, which translates into financial success. Rest assured, our teams are moving with urgency and enhanced accountability across internal functions to continue executing on the initiatives we have underway and are building on our strong foundation.
As you can see on Slide 4, during my first months as CEO, we have moved swiftly. We have made leadership changes across the brands, adding new revenue management and marketing leadership at NCL and building key commercial capabilities, all while remaining focused on improving our booking curves and delivering on critical initiatives such as Great Tides Waterpark on Great Stirrup Cay on time. At the same time, we have not let up on cost discipline and organizational efficiency. Mark will provide more detail later in the call, but during the quarter, we identified an additional $100 million of annualized savings and cash benefits. Combined with the $125 million of annualized run-rate savings we announced last quarter, this brings the actions announced over the past two quarters to approximately $225 million of annualized savings and cash benefits. Importantly, we are actioning these initiatives as demand for cruise and the long-term fundamentals for the industry remain strong as consumers are prioritizing travel and experiences.
We have strong brands, attractive assets, and a product that continues to resonate with guests, but those advantages only matter if we execute with greater discipline and translate them into better financial performance. Turning to Slide 5. Our approach and priorities are consistent with what we outlined last quarter: build the team, culture, and capabilities required to execute, sharpen brand positioning and marketing effectiveness, rebuild demand and improve our booked position, and optimize pricing and yield through that strengthened demand base. This is the path to enhance our fundamental business model and operations to position NCLH for success. Among the top of our priorities list has been ensuring we have the right leaders, talent, and operating discipline in place to guide NCLH forward. This is foundational because the opportunity in front of us is not about strategy, as we have discussed previously, it is about changing how we operate.
We recognize the need to work with a true one-team mindset across functions internally. During the quarter, we made meaningful progress by welcoming our new Chief People Officer, Heather Jacobs. Heather brings more than 25 years of global people and cultural leadership experience across travel and hospitality. We strengthened commercial leadership at the Norwegian brand with the appointment of Lee Applbaum as Chief Marketing Officer. Lee brings more than 25 years of experience building and transforming global consumer brands, including Patron, Bacardi, and Wheels Up. Additionally, we have continued to build out the teams in other critical areas, including NCL revenue management, digital commerce, casino, and itinerary planning. These appointments build on the leadership updates we have made over the past year across other key functions such as technology and strategy in addition to changes made at the brand level.
In total, half of my direct reports are new in the role over the last year, and we have substantially rebuilt and strengthened the Norwegian brand leadership team. Having this experienced team in place is essential to implementing meaningful operational changes. With the team now in place, our next step is to build our operating rhythm and culture and translate that collective experience into better execution and ultimately, better results. I'll now turn to our plans to sharpen our brand positioning, particularly with respect to NCL's marketing engine. As seen on Slide 6, the starting point is important. We believe we have the right product and the right target consumer. We see that in our guest satisfaction scores, repeat rates, and CruiseNext sales, which reinforces that the product and service experience continue to resonate once guests are on board. We have also identified and sized our priority consumer, premium families and seasoned travelers, which represents over 35 million consumers.
Additionally, we already have work underway to develop a clear understanding of what motivates them and determine how best to reach them. In parallel, we are inventorying our products and services to define what truly differentiates NCL and mapping those strengths against the needs of our target guests. The work thus far gives us confidence in the fit between the NCL offering and our target consumer. We provide a flexible premium vacation experience with something for every member of the family, while still creating shared moments together. The gap has been connecting the right consumer with the strength of our offering through our messaging and media. We have the right product and are focused on the right consumer. Now we are focused on effectively reaching that audience through the most impactful channels. Great Stirrup Cay is a clear example of this, and you can see that Great Tides Waterpark is coming together on Slide 7.
Great Stirrup Cay has long been one of our highest-rated destinations. But historically, the island did not fully deliver the breadth of the experience that premium families are looking for. While we had elevated experiences like Silver Cove and our private villas, we also had an opportunity to create more for families to enjoy together. We are addressing that opportunity with Great Tides Waterpark, which is preparing for a preview period beginning next week ahead of the official grand opening on September 4. The nearly 6-acre waterpark will feature 19 water slides anchored by the 170-foot Tidal Tower, an over 800-foot high-energy river, and the industry's first cliffside jumps. These attractions complement the recently opened Great Life Lagoon, a 1.4-acre pool area larger than two Olympic-sized pools combined, as well as existing experiences such as ziplining and Silver Cove. Combined with the pier, which is also expected to open shortly, the island experience will be more reliable, easier to access, and better aligned with what our target guests want from a premium family vacation.
Together, these investments should enhance the island's revenue potential by increasing guest throughput and expanding the range of paid experiences available to guests. I was on the island a few weeks ago, and what stood out to me is the breadth of the experience. Teens can enjoy the slides, cliff jumps, and Wandering River at Great Tides Waterpark, while adults have places like Vibe Shore Club, Silver Cove, and our private villas, where they can relax and enjoy the island in a more elevated way. It is exactly the kind of differentiated experience that allows NCL to create memorable vacations for guests across generations. Importantly, we are not waiting for the 2027 wave season to act. We are already changing the way we communicate Great Stirrup Cay and the broader NCL value proposition. In the coming weeks, we will introduce interim creative that more directly speaks to premium families, highlights the breadth of the NCL experience, and includes a clear call to action.
The goal is straightforward: communicate more clearly why NCL is different, why that difference matters to our target guests, and why now is the right time to book. Improving our brand positioning and rebuilding demand are critical to returning to our optimal booked position. We are also strengthening how we manage that demand through improvements to our team, tools, and processes, as you can see on Slide 8. During the quarter, we began making changes to the way we sell cruises at NCL. As we evaluated our prior approach, it became clear that in certain areas, we were holding price too high, too far out, which limited early demand generation and left us more exposed to close-in discounting. We are now moving toward a baseloading methodology, which establishes more competitive pricing earlier in the booking curve to build demand sooner and support stronger close-in yields. This is not about discounting the product.
It is about managing the full booking curve more effectively, building a healthier booked position earlier, maintaining better price integrity as we move closer to sailing, and being more strategic about our promotional activity. As part of this shift, we have taken pricing initiatives on select sailings in 2027 and open 2028 sailings. The greatest opportunity is on sailings further out in the booking window, particularly later in 2027, where we have more time to shape the curve. For new 2028 inventory and beyond, all NCL sailings will be managed using this methodology from the outset. Taking a step back, we are focused on managing inventory and price in a more disciplined way, maximizing yield over the full booking cycle, and reducing our exposure to close-in demand volatility, particularly in periods of external disruption like the one we are navigating today. With many of these operating changes already in motion, we are moving swiftly to ensure the company is better positioned to capture the revenue opportunity we know exists across our brands.
It is important to remember that we are still early in this process, however, and we expect the financial benefits of the actions we are taking today to build over time. I have spent significant time discussing the NCL brand, but I also want to address the work underway across our luxury portfolio, as shown on Slide 9. The work here is focused on three areas: sharpening brand positioning, elevating the product and guest experience, and strengthening commercial performance over time. At Oceania Cruises, our focus is on aligning the fleet more closely with the brand's luxury positioning. That is why we are reimagining Oceania Nautica to Oceania Aurelia, creating a more intimate, suite-forward ship designed for fewer guests with enhanced service levels. Today, we are also announcing that we have entered into a binding memorandum of agreement to sell Oceania Sirena. The transaction includes a leaseback arrangement that will allow us to continue operating the vessel until the ship is transferred in spring 2028.
This is a deliberate portfolio action to move the Oceania fleet toward a product offering that better supports the brand's positioning and long-term return profile. It also represents another step toward improving Oceania's product-market fit and simplifying the portfolio to more fully reflect the luxury experience our guests expect. At Regent, we are taking similar action to further strengthen the brand's position in the ultra-luxury market. Today, we are announcing a new suite category on the Seven Seas Explorer Class ships, where we will reimagine and expand our entry-level suites on these vessels. As a result, Regent will offer the largest entry-level suites in the luxury cruise industry while also improving two important luxury metrics: space ratios and guest-to-crew ratios. Taken together, these actions are about making the products match the positioning, creating clear differentiation for our guests, and improving the financial performance of our luxury portfolio over time.
We've learned a great deal over the two quarters and made meaningful progress executing against our strategic priorities. While the financial benefits will take time to build, we are confident that the actions we are taking will support stronger performance over time. With that, let me turn it over to Mark.
Thank you, John, and good morning, everyone. I'll begin with our second quarter results on Slide 10, which were ahead of our expectations. Net yield in the second quarter was down 2.6%, which is 100 basis points above our initial expectations. Adjusted net cruise cost ex fuel of $163 was better than guidance, declining 50 basis points, driven by strong cost controls, which ultimately drove adjusted EBITDA of $666 million, exceeding our guidance by $34 million. Lastly, adjusted net income for the quarter benefited from several below-the-line items and was $222 million with adjusted EPS of $0.48, $0.10 better than our guidance. Turning to Slide 11. You can see our third quarter and full year guidance. Our outlook continues to reflect a challenging backdrop as we are in the early stages of the turnaround and continue to build our commercial engine, especially on the Norwegian brand. Starting with full year net yield, we now expect to be at the low end of our guidance range with net yield declining approximately 5%.
This reflects the softer demand environment I just mentioned as well as the fact that many of the changes we are making to drive revenue higher, particularly on marketing and revenue management, will take time to translate into financial results. In the near term, the back half of the year remains pressured. The marketing and demand generation challenges John described have left us below our optimal booked position. The changes now underway, including new creative and media plans, are only beginning to roll out and have not yet had time to materially influence booking behavior. And given the proximity of many of these sailings, there is limited runway for those actions to benefit 2026 results. Looking at net yields in the third quarter, we expect a decline of approximately 8.9% with load factor of 104%. This reflects demand pressure across the portfolio with the most pronounced impact on our European sailings, which represent approximately 39% of our deployment in the quarter.
This is particularly relevant as approximately two-thirds of our guests on these sailings are sourced from North America, where elevated airfare and broader macro conditions have put some pressure on demand. This implies that for the fourth quarter, net yields are expected to decline approximately 6.5% with a load factor of 99%. We are disappointed in this outlook, which is a reflection of our current booked position that is challenged due to the previously mentioned marketing and demand generation issues. Looking ahead to 2027, and as John noted earlier, our efforts underway on marketing and demand generation will take time to manifest themselves in revenue due to our elongated booking curve. As a result, we expect the first half of 2027 to have continued demand challenges with the most pressure in the first quarter. That said, we are confident that these actions underway are the right ones.
As the year progresses and particularly as we move into the second half of 2027, we expect to see improvement as the booking curve better reflects the changes we are making across marketing, demand generation, and revenue management. Moving to cost. As John discussed earlier in the prepared remarks, we have continued to make meaningful progress in improving our cost structure and identifying additional cost savings. We now expect our adjusted NCC ex fuel to be down approximately 25 basis points for the full year as we carry some of the additional savings from the second quarter into the full year. As a result of softer-than-expected top line performance, partially offset by better cost performance, we now expect adjusted EBITDA of approximately $2.5 billion and adjusted EPS of approximately $1.50. Moving to Slide 12. You can see the cumulative impact of the savings and efficiency actions we have taken across the business.
This quarter, we have identified another $100 million of annualized savings and cash benefits related to the consolidation of technology vendors and other employee compensation. Due to the nature of these savings, it is important to note that the vast majority of the benefits relate to capital expenditures, with the remainder tied primarily to salary and benefit efficiencies. These savings build on the $125 million of savings announced last quarter and the approximately $300 million of saving efforts identified from 2024 through 2026, which brings total savings over the past three years to more than $500 million. We expect these cost actions to benefit the business over time, supporting both margin expansion and free cash flow as the top line recovers. It is also important to note that our work here is not done. We continue to see additional savings opportunities across the business, both within SG&A and on the shipboard side, and we expect to build on these efforts going forward.
These savings have been reflected in our unit cost growth, which is detailed on Slide 13. We began the year expecting NCC ex growth of approximately 1%. Last quarter, we reduced that outlook to approximately flat, and we are now reducing our guidance again to a year-over-year decline of approximately 25 basis points. This marks the third consecutive year of NCC ex fuel growth of 1% or less, underscoring the cost discipline we have embedded across the organization and the continued opportunity we see to operate more efficiently. Importantly, these efficiencies have not come at the expense of the guest experience. As John discussed earlier, guest satisfaction scores have continued to improve over the past several years even as we have maintained discipline on cost performance. Moving to Slide 14. Another important factor to keep in mind is that our order book should be viewed in the context of our broader fleet optimization strategy.
While we have a strong order book with 16 ships on order across our three brands, the signed MOA for the sale of Oceania Sirena means we now expect five ships to leave the fleet over the next three years. This is important, because we are not simply adding capacity for the sake of growth. We are actively managing the portfolio to improve fleet quality, better align capacity and product offering with each brand's positioning, and support stronger returns over time. Turning to Slide 15. I want to highlight an important CapEx inflection. Over the last several years, we have invested heavily in our fleet, adding two to three ships annually and driving strong capacity growth, including an expected 7% increase in capacity days in 2026. While we take delivery of two ships in both 2026 and 2027, the cadence moderates meaningfully beginning in 2028 with only one ship scheduled for delivery in each of 2028 and 2029.
As a result, our capacity growth will moderate meaningfully to a 2.5% CAGR from 2026 to 2029, and we expect gross newbuild and growth CapEx to decline by nearly $1 billion annually, materially improving free cash flow generation. This is especially important as our revised adjusted EBITDA outlook for 2026 increased our year-end net leverage expectation, and we now expect to end the year above 6x. Reducing net leverage remains a top priority. As top line performance improves and our newbuild delivery cadence moderates, we expect stronger free cash flow generation to support debt reduction and meaningful progress on deleveraging over time. As shown on Slide 16, 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. We have continued to simplify our balance sheet.
In May, we announced our election of a cash settlement for our two exchangeable senior notes due 2027, which mature early in the year. This election allowed us to reduce our diluted share count by two million shares in the quarter and approximately four million shares for the full year. Overall, the actions we are taking on costs, capital expenditures, and the balance sheet are strengthening the company's financial foundation. While the near-term revenue outlook remains challenging, we are continuing to move with urgency on the areas within our control and remain focused on improving free cash flow and reducing leverage over time. With that, I'll turn it back to John for closing remarks.
Thanks, Mark. Before we open the call for questions, I want to close with a few thoughts. As you heard today, we are moving to make meaningful change across the business. We have strengthened the leadership team, identified additional savings, began changing how we market and price the NCL product, and taken steps to sharpen the positioning of our luxury brands. I also want to recognize the team. Across the company, our team members are working incredibly hard to move the business forward while continuing to deliver great vacation experiences for our guests every day. The changes we are making are not small, and they require focus, accountability, and a willingness to operate efficiently and effectively. I appreciate the way the organization is leaning into that call to action. As I touched on before, we also recognize that the actions underway will take time to fully translate into financial results.
Rebuilding demand, strengthening the booking curve, improving marketing effectiveness, and embedding a more disciplined revenue management approach will not happen overnight. That said, we are confident that we understand where we need to improve and are making the right changes now to position NCLH for long-term success. It is important to note that all the changes we are implementing today are against a backdrop in which the demand for cruise and long-term fundamentals for the industry remain strong. At NCLH, we have strong brands, attractive assets, and a product that continues to resonate with guests. There's more work ahead, but our priorities are clear, and we are moving with greater discipline to translate those advantages into improved financial performance. With that, operator, please open the line for questions.
Questions and answers
Our first question is from Lizzie Dove with Goldman Sachs.
So Mark or John, I appreciate all the color here and the comments that you gave on 2027. I know it's still early, but could you maybe elaborate on how you're thinking about the setup for 2027 on the net yield side, particularly in terms of how booked you are for next year and at what price? And with that in mind, when do you think that we can start seeing some of these green shoots on the net yield side of things?
Lizzie, thanks for joining us this morning. So to reiterate what you just said, of course, it is early to be talking about 2027. But as we think about it, when we look at our current company-specific execution issues, we do expect that to weigh more on the first half than the second half of 2027, and really primarily in the first quarter. We do expect that our first half yields will be negative, again, primarily as a result of the first quarter. But as we think of it going forward, we expect yields to accelerate in the back half of 2027, primarily as a result as we see the benefits from the changes we're making in the business today.
And Lizzie, I would just throw in one other thing, just sequentially — I know the back half of '27 is not as booked, so it's a little hard to tell. But you can sequentially see improvement. Just where we sit today, you can see second quarter better than the first quarter. So it's building in the right direction. Early days, but it's encouraging.
Our next question is from Steve Wieczynski with Stifel.
So I know I'm supposed to ask one question. I'm going to do that, but it's going to have two parts to it. First of all, if we look at the change in your second half guidance, basically, you've lowered your occupancy levels by just about 200 basis points. So is that the decision to essentially start to hold price now moving forward and willing to let that occupancy kind of drift a little bit? You kind of outlined that a little bit on Slide 8. Or is there something else in the fourth quarter that's limiting those load factors? And then second, John, it seems like you essentially have your whole team in place or mostly in place at this point. This turnaround is not going to happen overnight. So as Mark kind of just talked about, I'm guessing 2027 is still going to be somewhat of a transitory type year. Is it fair to think as we kind of move more into '28, that should be the first so-called normalized year? And based on the recent cost cuts that you guys have identified, at that point, could you see your margin profile start to get back into that low 30s type range?
Yes. Let me take a stab at the first, and Mark can add to that and answer your second. In terms of what you're seeing in the fourth quarter, a conscious decision on pricing, we try to balance everything here between load factor and pricing to optimize overall net yield and revenue. So it's not a conscious factor one way or the other. I think it's more a function, as we said in our remarks, that our demand generation is where we have to work hard, and that's where our marketing focus is. That's why we made all the changes in the marketing group at the NCL brand. We've really got to drive the top of the funnel. All the work we're doing around revenue management and other commercial updates will pay dividends, but we need to start writing more names down through the top of the funnel. So that would be my answer to that. Mark?
Yes. John is right. And I think, Steve, as you think about the margin profile and the margin expansion, you're certainly going to start to see that accelerate towards the back half of '27, especially into 2028, not only from the continued cost efficiencies that we're effecting, but also as our demand and marketing engine gets rightsized and we start to create that flywheel. On the load factor point, yes, load factors are down 200 to 300 basis points. We're not looking at price and load in isolation. We're balancing the entire equation for the best overall net revenue and yield. It's primarily a result of having to correct our demand-generating engine and get more names in the top of the funnel. We have new marketing and branding campaigns about to launch and the opening of our island, which we hope will create more awareness and names at the top of the funnel.
And just to add, half of our team started recently — the Head of Marketing and Head of Digital literally started July 6. So we've had the integrated team together for a short time. It will take a little time for us to learn how to work together. The culture journey is just beginning. You're right to think '27 is transitory. We expect better things in the back half of '27 because many of these things will have time to sink in. And I would emphasize that the issue is primarily with the Norwegian brand. Oceania and Regent are being run well, which gives me confidence we can sort out issues at this brand. So '28 could be viewed as the first more normalized year.
Our next question is from Ben Chaiken with Mizuho.
Maybe another one on '27, but specifically as it pertains to the North American to Europe customer. Is the pace of bookings today recovered since the beginning of the conflict? And should we expect a drag as those customers are presumably booking '27 at a lower price, historically given the conflict?
As we think about 2027, we are seeing better trends and sequential improvement each quarter in 2027. It's very early to determine how North Americans are going to Europe for 2027, but the business on the books in the latter part of '27 continues to improve. As for the drag, this year we were behind the booking curve for our European 2026 season, which forced a more promotional environment combined with higher airfare. It's too early to make definitive assertions on 2027 in Europe other than that it is continuing to improve.
And who knows where the conflict will be three months, let alone six months down the road.
Our next question is from Brandt Montour with Barclays.
You've been studying what competitors are doing and you've discussed converting to a more traditional baseloading revenue management style. Have you thought about how consumers and travel agents will react to this new strategy, convincing them not to wait for a lower price? Given Norwegian customers may have been used to waiting for lower prices, do you expect them to adjust to this new plan?
We addressed this on our last call. When you change pricing approach, you don't always know how long it will take to retrain guests and the travel community. Given this aligns us with the industry, I don't think it is a multi-year issue. It might not work instantly, but we have plans to expedite the process. We have confidence in this approach based on how our other brands operate. It's the right thing to do over the long run.
Our next question is from Matthew Boss with JPMorgan.
On your current booked position, which you cited as below optimal for the next 12 months, how much of this do you attribute to macro or items out of your control? And Mark, relative to the Q4 exit rate for net yields now expected down 6% to 7%, could you help bottom-up bridge the opportunity you see in the back half of '27 versus the baseline, given you said yields could be negative in the first half?
Matt, being below the curve is only slightly due to macro events on the margin; the vast majority of our problems are self-inflicted execution issues, which are in our control. We've already taken cost actions and you will see more. We have to execute, work as a team, and fix this. So it's mostly on us, not the macro.
In terms of the Q4 exit rate on yields, as I said in my prepared remarks, we expect the first half to be negative primarily because of Q1. We expect sequential improvement across quarters in 2027. There is opportunity to improve load factors and get better base business on the books, and better overall revenue management funnel performance. It will come down to our team executing and making the necessary changes. We are starting to see improvements in the latter part of 2027.
But it is early.
Our next question is from Conor Cunningham with Melius Research.
When you talk about being behind on the booked position, could you put a number on how far behind you are on the first half of '27 versus a normal year? It seems like being behind could be good as you let the RM changes take hold, so a more granular discussion would be helpful given the expected inflection in the second half of '27.
Conor, we don't provide that level of granular detail. Generally speaking, our targeted booked range is around 60% to 65% as a system at the holdings level. Our performance in Q3 and Q4, and expected Q1 performance, reflects being behind the booking curve. We are improving that as part of our overall strategy, but providing quarter-by-quarter granular numbers is not something we will do.
Our next question is from James Hardiman with Citi.
Given the magnitude of yield declines this year and not keeping pace with the rest of the industry, I'm curious about the Norwegian product competitively. Customer satisfaction is up, but the whole industry is improving their product offerings. Is it possible that even if Norwegian kept pace with historical standards, you haven't kept pace with an industry that's improved their ships and private destinations? If so, how does that reconcile with the $225 million of annualized cost reductions and $1 billion of CapEx reductions? Is there a risk of falling further behind competitively?
I've been here five months and have spoken with trade partners and consumers. I do not think this is a product issue. Our hardware is competitive: great ships, great crew, strong experiences. I believe our island enhancements will be top-tier. The core issue is marketing and execution. We spent too much at the lower end of the funnel and not enough at the top of the funnel. We need to sharpen our media mix and marketing efficiency. When we get guests on board, scores are great and repeat visits are strong. So it's primarily a demand and marketing issue, not a product deficiency.
To add, onboard spend trends remain solid, which reinforces that we need to sharpen our marketing message for the Norwegian brand. Regarding cost reductions, the items announced over the last two quarters do not touch product — they are back-office efficiencies, corporate, technology, and similar areas. We expect future cost savings to be similar in nature and not to negatively impact guest product. In many cases, efficiencies can enhance the product.
Yes. In some cases, we've actually enhanced the product, so the cost actions are not coming at the expense of the guest experience.
Our next question is from Robin Farley with UBS.
You've talked about prior issues with itinerary plans in Europe, like the length of itineraries and open-jaw cruises, and that itineraries can take a while to turn around. Is there anything you would call out for 2027 that might not be ideal, or will 2027 be changed compared to prior years? Also, regarding Mark's comment that the first half of '27 is negative primarily due to Q1 and sequential improvement, does that mean Q2 might not be down?
Robin, on the first half, we expect it to be negative primarily from Q1, but I'm not going to parse it out between specific quarters. We do expect sequential improvement.
On open-jaw itineraries, now that we're working better as a holistic team, we're evaluating changes for '27 and '28 to reduce open-jaw itineraries. Some of this depends on port slot availability and timing, so changes can't be made instantly. Each year you should see sequential improvement as we revert toward prior norms.
Our next question is from Vince Ciepiel with Cleveland Research Company.
You talked about improving trends for the '27 position. Could you comment on recent booking cadence over the last few months? Has the conflict reignited noticeably, or are cruise bookers looking through it into next year?
Vince, there's been volatility in the geopolitical landscape. After our semiannual sale, we saw improvements. Generally, the industry remains strong. If we continue to execute and improve our demand-generating engine and targeted marketing, that should help, but it will take time to have material impact. We expect continued sequential improvement in 2027.
I wouldn't say there's a noticeable material impact across the business from the conflict; you may see on the margin booking moving closer but not materially.
Our next question is from Richard Clarke with Bernstein.
On Slide 11 and your implied Q4 guidance, there's a shift in NCC ex fuel guidance from down 0.9% in Q3 to up 1.1% in Q4. Anything one-off in why costs start growing again in Q4, and how should we think about the exit rate on cost growth into 2027?
Good question. The Q3 to Q4 cadence is driven by timing and by planned marketing initiatives and creative that will start to hit in Q4. There's nothing structural indicating that carries into 2027. We will continue to push hard on costs. We've announced $225 million in the last two quarters and expect more efficiencies. Our aim remains to deliver sub-inflationary or better unit cost performance.
Our next question is from Anthony Berni with Jefferies.
How do you feel about the $100 million cost savings you noted? Should we expect more nine-figure programs in the future? Are the remaining cost takeouts more incremental? Could you give color on where we should expect to see those?
We continue to see meaningful cost opportunities. I won't size them, but they are meaningful and primarily behind the scenes — technology, efficiencies, global sourcing, AI tests, and process improvements. Many of these can be implemented over the next two to three quarters. We'll report back quarter by quarter, and you should expect meaningful improvements going forward.
To add, our global sourcing initiatives are still in early stages, and we believe there's broader opportunity there. Our goal is to continue delivering sub-inflationary or better unit cost performance, and we are confident we will achieve that.
Our next question is from Trey Bowers with Wells Fargo.
On the island and waterpark, the waterpark went on sale in May. Could you put numbers around early action on buy-in, what you're embedding in your guide starting in Q4 and into next year in terms of utilization and yield impact? And with the new Head of Marketing on board, when should we expect to see a real marketing push around Great Stirrup Cay?
We won't go into granular financials on island buy-ins yet; it's too early. The interim marketing will roll out in the next week or two. The soft opening is next week, and social marketing and activations will increase as the grand opening approaches. Once those activities take off, we'll see a bigger impact. It's too early to quantify what will flow through to 2027.
We agree with John — it's early. We have planned activations around the grand opening and other initiatives we hope will drive momentum, but we've not yet hit it hard on the marketing front, so it's premature to quantify.
Our next question is from Andrew Didora with Bank of America.
In the presentation you outlined your 2027 deployment strategy. I know nothing has changed materially, but there was some shifting in the Caribbean and a bit more growth in seasonally weaker Q3. What is driving those marginal shifts, and how do you think about deployment strategy next year as it relates to your overall booking strategy?
Andrew, holistically you won't see broad swings or major strategic changes. You will see some marginal, one- to two-percentage-point shifts between quarters driven by natural redeployment of vessels and assets. There's no indication of a larger strategic change.
Our next question is from Kevin Kopelman with TD Cowen.
You talked about Q1 being pressured a few times. Could you level set us a bit more? Should Q1 be thought of as similar to Q4, or any other color on how the beginning of next year is shaping up?
We're not going to get into more granular guidance by quarter. Think about it this way: the new team, changes to baseloading and marketing, and other initiatives take time to roll through the booking curve. Those impacts will be more meaningful later in 2027 and into 2028. Many members of the team started only recently, so influencing Q1 meaningfully is difficult. Sequentially, quarters should look better as changes take hold over a few quarters.
Our last question is from Chris Stathoulopoulos at SIG.
I appreciate the Slide 8 RM tactics. Why are the baseloading pricing strategy impacts mostly later in '27 and into '28? Is that due to testing or required IT/stack build-out? Can it be accelerated? Does it require evaluation across premium brands like Oceania and Regent, and how might the marketplace receive that?
Those are different issues. There's no delay; we're going forward now. The reason impacts are more meaningful later in '27 is simply because later periods are less booked today and so there's more opportunity to shape the curve. We've already begun making pricing changes in select markets. We're doing this market by market and sailing by sailing; you can't crop-dust it. If I gave the impression of a delay, that was not correct. The question is when you'll see the impact. It's underway as we speak.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.