Launch of new ships sees Norwegian cruise liner battle big rivals

2013-12-03

Reading time 1:43 min

(Norway).- Norwegian Cruise Line may be number 3 in the cruise industry after Royal Caribbean Cruises and mishap-ridden Carnival, the largest. 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 us$ 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 year. It'll be the largest cruise vessel to use Miami as its home port year-round.

"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 and Norwegian (NCLH) 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 says. Carnival and Royal 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 us$ 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 report. "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 us$ 26.6 million from us$ 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.