Norwegian Cruise Line Holdings (NCLH) joined the wave of positive financial disclosures in the cruise industry by beating earnings estimates for Q3 2023. This follows similar recent announcements from Carnival Corporation and Royal Caribbean Group, painting an encouraging picture of the industry’s rebound.
NCLH profited from strong bookings, coming, in part, from the release of its newest cruise ship, Norwegian Viva, and an increase in interest and confidence for cruises in general.
Norwegian Cruise Line Brands Showing Financial Resilience
In 2022, just after the global pause in operations had been lifted, and cruise ships started sailing again in greater numbers, the general feeling was that it wouldn’t be until 2026 or 2027 that the cruise industry would recover fully from the impact of the pandemic.
However, after Carnival Corporation and Royal Caribbean Group posted strong financial results in the last couple of weeks, Norwegian Cruise Line Holdings is following the trend, exceeding earnings estimates comfortably.
The total revenue generated for the third quarter was reported at $2.5 billion, a 33% increase compared to the same period in 2019, which has always been hailed as the strongest year on record for the industry. This brings the earnings per share to $0.71.
This is a result of not only a surge in demand but also a series of operational adjustments aimed at enhancing margins. The occupancy rate came in at an incredible 106% for the quarter, revenue per passenger per day came in 16% higher than 2019, and bookings for the fourth quarter are at a higher level than in 2019, at higher pricing.
“We achieved strong third quarter results, meeting or beating guidance on all key metrics, driven not only by healthy demand from our target upmarket consumer, but also as our ongoing margin enhancement initiative, including relentless efforts to rightsize our cost base, continues to bear fruit,” said Harry Sommer, president and chief executive officer at Norwegian Cruise Line Holdings Ltd.
Harry Sommer expressed cautious optimism for the near future. While careful with short-term expectations due to changing global economic and political turmoil, NCLH is optimistic about the strong number of bookings and the ability to maintain good pricing for their cruises.
“Looking ahead, while we are prudently moderating short term expectations and keeping a close eye on rapidly evolving global macroeconomic and geopolitical events, we remain encouraged by our strong forward booked position and robust pricing and are focused on sustaining this momentum as we close out 2023,” Sommer said.
Norwegian Sailing Through Global Challenges
Even though consumer confidence is high, hurdles remain for the cruise company. The wildfires in Maui and the escalating conflict in Israel led to itinerary modifications, and rising fuel pricing will have a negative effect in the near future.
The Pride of America, known for its year-round inter-island Hawaii itineraries, was forced to change itineraries to minimize strain on local resources in Maui. Following the wildfires, a temporary slowdown in bookings for sailings in Hawaii was evident, primarily for the fourth quarter of 2023.
In the Middle East, all calls to Israel and calls to the surrounding region for the remainder of 2023 were cancelled and redirected due to the escalating conflict. This adjustment also extended to all calls to Israel in 2024.
These issues did have a slight effect on the occupancy rates, which at 102,6% sit slightly lower than expected for 2023, despite the cruise line reaching 106% occupancy over the third quarter.
Fleet and Brand Updates
One area that has had a positive impact on the NCLH bottom line has been the addition of the beautiful Norwegian Viva earlier this year. The Prima-class cruise ship set sail from Trieste on her maiden voyage in August, and has been a hit with those who sailed onboard. Norwegian has also revealed the inaugural season sailings for Oceania Allura.
Additionally, Norwegian Cruise Line announced the introduction of three new solo stateroom categories, addressing a longstanding issue where solo cruisers were subject to supplement charges.
This initiative by the cruise line provides a more cost-effective option for solo travelers, eliminating the extra cost previously associated with such bookings.
All in all, it brings Norwegian Cruise Line Holdings in a strong financial position for the future, one that is looking a lot brighter than a little over 18 months ago.
Mark A. Kempa, executive vice president and chief financial officer of NCLH: “We continue to believe that our strong liquidity position, coupled with our ongoing cash generation and attractive growth profile, provide a path to meet our near-term liquidity needs, including scheduled debt amortization payments and capital expenditures, and significantly reduce leverage and de-risk our balance sheet over time.”
Despite the good news of NCLH posting its first positive earnings since Q4 2019, not all reactions have been positive.
Investors are showing some caution, as NCLH’s gains are smaller compared to competitors, reflected in a stock price that lost nearly 5% after the markets opened. Also, the modest expectations for earnings in the next quarter are not boosting confidence much.