Norwegian Cruise Line may be No. 3 in the cruise industry
after Royal Caribbean Cruises and mishap-ridden Carnival, the
But it's making up for its smaller size with a splashy rollout
of new ships in North America. This comes at a time when the
industry hasn't been adding much new capacity in the region.
In May, Norwegian's 4,000-passenger Breakaway launched cruises
out of New York, which helped boost the company's third-quarter
net revenue nearly 20% year over year to $596 million and
adjusted earnings 19% to 86 cents a share.
The new ship, brimming with perks such as Broadway shows,
enjoyed premium pricing and relatively high levels of onboard
spending by passengers.
A sister ship, the Getaway, could provide even more rewards
when it sets sail out of Miami for Caribbean locales early next
It'll be the largest cruise vessel to use Miami as its home
"This is a big deal," said Mike Driscoll, editor of newsletter
Cruise Week. "The Caribbean is the biggest cruise market by far
in North America andNorwegian (
) is finally at the stage where it can compete head to head in
the national market."
Foothold In Florida
While the New York-based Breakaway attracts a lot of customers
driving in from the Northeast, the Getaway's Miami base for
Caribbean voyages draws customers from across the country, he
) andRoyal Caribbean Cruises (
) have long operated year-round cruises to the Caribbean from
Florida. But Norwegian hasn't run year-round cruises from Miami
in more than 10 years.
With its two new ships sailing from New York and Miami to
cruise-popular Caribbean ports, Norwegian expects 2014 earnings
to grow 60%, driven in part by an expected net yield of more than
4%, despite heavy promotions by rivals.
Analysts polled by Thomson Reuters expect 2014 earnings to
grow higher than that. For this year, they see profit rising 43%
to $1.39 a share. In the first quarter's busy "wave" season next
year, they expect EPS to jump 283% to 23 cents.
New ships command double-digit premiums, CEO Kevin Sheehan
said in a conference call after Norwegian's third quarter
"We want to continue to push on pricing and keep a careful
eye, of course, on the load," he said.
Meanwhile, Norwegian has worked to bolster its balance sheet
by lowering the cost of debt via redemptions and refinancing of
high-rate notes. In the third quarter, interest expense fell 44%
to $26.6 million from $47.2 million a year earlier. Its cost of
debt at the end of the quarter was under 4% vs. 6.6% at the end
of December 2012.
Norwegian is majority owned by Genting Hong Kong,Apollo Global
) and TPG Capital, so the public float is relatively small.
Late Monday Norwegian announced the majority shareholders will
sell 22 million ordinary shares in a secondary offering. A 30-day
option will be granted to underwriters to buy up to 3.3 million
additional shares. Norwegian won't sell any shares in the
offering nor receive any of the proceeds.
Beyond the Breakaway and Getaway two even larger ships, the
Norwegian Escape and Norwegian Bliss, are set to be delivered in
2015 and 2017 respectively. New vessels, more fuel-efficient than
older models, should continue to support growth in earnings and
return on invested capital, analysts say.
Meanwhile, as Norwegian expands its fleet, global industry
capacity growth is expected to slow to 3.6% for 2013 to 2016 vs.
the more than 6% annual growth from 2003 to 2012, Wells Fargo
Carnival Faces 'Difficult Year'
While Norwegian is steamrolling ahead on the heels of its
January public offering, Carnival is trying to recover from a
series of mishaps.
Analysts forecast that Carnival's earnings will fall for the
third straight year this year. Carnival expects net yield to be
down 3% to 4% in the first half of 2014.
"Carnival is clearly having a difficult year," Driscoll
Rather than cruise with Carnival's more upscale Holland or
Princess brands, many would-be customers turned off by Carnival's
headline-grabbing problems at sea have signed on with Norwegian
or Royal Caribbean, UBS analyst Robin Farley noted in a recent
Norwegian, relying on just one ship brand, skews to a
higher-end demographic than the mass-market Carnival brand,
Demand for cruises fell after Carnival-operated Costa
Concordia tipped over after hitting rocks off the coast of Italy
in early 2012. The industry was starting to recover when
Carnival's Triumph lost power in the Gulf of Mexico early this
year, a top-of-the-news event that left more than 3,000
passengers to cope with no power and overflowing toilets.
Driscoll says Norwegian and Royal Caribbean "could have done
better this year if it weren't for the negativity surrounding the
"Barring another Black Swan event, the industry really should
do pretty well next year," he said. "But it's hard to tell now
because this is not a heavy booking period. You really won't know
That's when the cruise industry's three-month promotion-heavy
"wave" season begins.
Even Europe's cruise business, which was especially impacted
by the Concordia accident, is on the mend. Norwegian plans to
deploy about 20% of its fleet in Europe in 2014, about the same
as this year. Sheehan said in the last conference call that
pricing "has been a positive" and that "we're feeling pretty good
about Europe right now."
Other cruise lines are adding capacity in Europe. Royal
Caribbean's Anthem of the Seas is expected to enter service in
Southampton, England, in 2015.
Norwegian says that 55% of its capacity will be in the
Caribbean in the fourth quarter, with cruises leaving from Tampa,
Fla.; Miami; New Orleans and New York.