Giving Kevin Sheehan Credit
Written by: Paul Motter
Norwegian Cruise Lines is on a roll right now – getting ready to introduce a brand new ship to the world, and just completing a long-awaited public offering of stock shares on the NASDAQ Stock Exchange under the name Norwegian Cruise Line Holdings (NCLH).
It’s been a long road for Norwegian, and it hasn’t all been easy. NCL spent decades as a distant third runner-up in cruise corporations, after top dogs Carnival Corp. and Royal Caribbean International.
Since late 2011, the company now prefers the shorthand name “Norwegian,” versus the former nickname “NCL,” which was commonly known and used by the company since the 1970s. But the old NCL was also a bold company that unfortunately never reached the current level of success – and whether it was mismanagement or just bad luck isn’t the question, it was likely a bit of both.
But Norwegian, under the guidance of relatively new CEO Kevin Sheehan (since 2008), and investors Apollo Management, has been turned around and finally achieved the success it deserves.
The story of NCL vs. Norwegian
In 2000 NCL tapped Colin Veitch, a Brit working for Princess Cruises, to be CEO. NCL was seeking to differentiate its product and under Veitch NCL introduced many innovative and important concepts which have transformed the entire cruise industry. These include “Freestyle cruising,” which includes open seating dining, more and less formal dining alternatives available every night and finally doing away with mandatory dress codes, making them optional for all guests.
Unfortunately, it was far too easy for the competition to pick up on every good idea NCL introduced, and they did, in spades. So while Veitch was considered a visionary by industry insiders, there was no legal way for Veitch to keep his ideas exclusively for the use of NCL. When NCL introduced “Free-style dining,” all of the competing cruise lines soon invented their own names for the same concepts. And to be fully clear, open seating was already working on more exclusive cruise lines like Windstar, but NCL was the first to take it mainstream.
However, while Veitch was sharp-witted and affable in public, it has been suggested by insiders that his private style was much different. It has been said it was riddled with disorganization, a stifled social environment and over-spending. Veitch was arguably visionary, but NCL also needed a people-oriented leader by example.
To his credit, Veitch guided the introduction of nine new ships to NCL – virtually every ship now under the control of Sheehan. Veitch started the US-flagged Hawaii operations, which he hoped would perform well enough to support three ships. What seemed like a logically good idea didn’t work out; eventually the Hawaii project was scaled the down to its right size (one ship) to make it profitable.
But the ship that fully defined Free-style cruising, Norwegian Epic introduced in 2010, was fully conceived under the tutelage of Colin Veitch (the good and the bad) and is still the flagship of Norwegian. Notably, Norwegian has seen a great deal of the success since the debut of Epic and its basic interior free-style design serves as the template for all ships Norwegian has planned for the future. So, Veitch also deserves some credit for building the image of the cruise line which Sheehan has now made popular and successful.
Most of the Veitch tenure was under the tenure of majority owner Star Cruises of distant Malaysia, allowing Veitch the freedom to experiment and adjust his work as he went along. With a prosperous and distant parent company for a privately held company his focus was on growing the brand name rather than making each quarter profitable. But in 2007 the U.S.-based private equity firm Apollo Management acquired 50% of the company and a majority of board members.
At the March, 2008, Seatrade convention Colin Veitch compared working for Apollo Management to a “day and night colonoscopy without anesthetic, after which everything sounds like fun.” I told you he was funny, but not surprisingly, it wasn’t much later that Veitch announced his resignation from NCL.
Kevin Sheehan was hand-picked by Apollo in 2008. He came in as CFO from the car rental division of Cendant (a large travel conglomerate that owns many well-known travel brands), but he was named CEO in less than a year.
After Sheehan took over, he told the Wall Street Journal what he saw at NCL. “There wasn’t discipline around anything.” Sheehan said the company was suffering from low morale. I had this corroborated by another NCL executive (who shall remain nameless) who suggested it was due to the managerial style of Colin Veitch. The same person described Kevin Sheehan as completely different; as a truly nice guy with whom you can discuss anything. Even his corporate bio says “Sheehan’s tell-it-like-it-is persona and personal philosophy of leading by example has allowed him to reinvigorate the organization by opening lines of communication and creating a positive corporate culture.”
Unfortunately, one of Sheehan’s first directives by Apollo was to replace 11 of the 14 people in top management positions at NCL. Only certain key people remain, such as Andy Stuart, the EVP of Global Sales and Passenger services who started with NCL in 1988.
The next challenge Sheehan faced was the 2008 recession. Prices dropped, and Sheehan saw the need to manage the bottom line. He said that his team looked into all possible ways to reduce operational costs without affecting the passenger experience (assuming that is possible). Norwegian renegotiated contracts with outside providers and also froze employee salaries and reduced the travel and entertainment budgets of shoreside personnel. These are not popular actions for a CEO so we give Sheehan credit; he did this and still remained a popular leader.
Veitch – Blame and Credit
I always enjoyed listening to Veitch, especially as he fearlessly vied with industry heavyweights like Bob Dickinson (former President of Carnival Cruise Line). In a public conference, immediately after Dickinson told the travel agent community what percentage of Carnival sales cut the agent out of the loop, Veitch said to Bob “I think you use statistics the way a drunk uses a lamppost, for support rather than illumination.”
Veitch’s reign over NCL led to the creation of the Free-style concept, and the ideas and the ships that appeared during his time are still the same ones driving the image of Norwegian right now. Norwegian Epic, with its triumphs and foibles, is the template for all of the future ships coming to Norwegian, including Norwegian Breakaway, Norwegian Getaway and even the Norwegian Breakaway-plus project — all sporting an almost an identical interior floor plan to Norwegian Epic, although the exterior has been streamlined and the staterooms have been redesigned.
The Breakaway design has been nicely refined by Norwegian with a “Waterfront” idea that I believe will prove to be very popular with cruisers, but that is one of very few design details different between Epic and all the new ships. So, let’s give credit to Veitch for his vision, and to Kevin Sheehan whose management style has made Norwegian profitable and the future bright. Since the company’s IPO just last Friday where the stock offering was priced at $19, the shares have traded as high as $28.86, almost a $10 increase. That says all a lot about Sheehan’s management style.
Posted: January 23rd, 2013 under Paul Motter.