NCLH: Cautiously Optimistic for 2017

Norwegian Cruise Line Holdings (NCLH) posted net income of $342.4 million, or $1.50 per share, on revenues of $1.5 billion for the third quarter ended Sept. 30, 2016, compared to net income of $251.8 million, or $1.09 per share, on revenues of $1.3 billion.

For the full year, NCLH provided guidance of adjusted earnings per share from $3.38 to $3.42, compared to $3.35 to $3.45 provided on the second quarter earnings call.

Expecting to deliver double digit growth in 2017, seemingly lower than previous guidance, Frank Del Rio, president and CEO, said that 2017 was showing commensurate bookings to this year, but at slightly lower prices. He said that for the first half of the coming year, both pricing and occupancy are ahead of this year, while the second half of the year suffers from the heavy concentration of Mediterranean cruises with bookings and pricing below this point last year.

He painted an encouraging picture of European bookings, but said pricing was running behind at this point compared to last year. However, that 2016 momentum couldn’t be held as geopolitical events in Europe took their toll on bookings.

“In a nutshell, 2017 depends on the Mediterranean,” said del Rio, who added bookings over the last eight to 10 weeks had been strong.

Other headwinds going into 2017 include the strength of the U.S. dollar versus the British pound and higher fuel prices, according to Del Rio.

“Our expectations for pricing increases in 2017 is very much tempered,” he added.

For next year, the NCLH brands will have 37 percent of their capacity in the Caribbean, down from this year due to the Norwegian Getaway being repositioned to the Baltic, meaning that European summer capacity will be 23 percent, up from this year.

China, Asia and Pacific capacity will be 8 percent up from 3 percent this year, driven by the Norwegian Joy going to China and also the build-up in Australia.

Alaska and Bermuda will see flat capacity year-over-year at 7 and 6 percent respectively. Hawaii will have 5 percent, a slight increase, and the balance will be in other markets, according to Wendy Beck, executive vice president and CFO.

Norwegian will not have another ship for Western markets until 2018, when the Bliss goes to Alaska, and Oceania and Regent will not have any new capacity until 2020.

Going forward, Norwegian plans to expand its sourcing in China, Europe and in Australia and elsewhere in Asia outside of China. The company has recently opened sales offices in Tokyo, Singapore and Mumbai.

“While the growth in the China market has been impressive it is still in its very early stages of its development,” said del Rio, noting the company was pleased with signed charter contracts and pricing on Norwegian Joy sailings in 2017. The Joy will debut in Shanghai at the end of June, and is built specifically for the Chinese market.

“We continue to be very bullish on China,” del Rio added later on the call.

The company is also laying international groundwork, in an attempt to drive international sourcing.

Del Rio said sourcing is up 20 percent in Australia and New Zealand, and those markets had the lowest customer acquisition cost. The Norwegian Star debuts in the region next year.

There are deployment changes that will benefit 2017 deployment as well, which del Rio referred to as “deployment optimization initiatives.” These moves include taking the Epic out of Europe for the winter as well as sending the Getaway to the Baltic for Q2 and Q3.

“We expect her to garner higher prices than sailings in the Caribbean,” added Beck, referring to the Getaway’s deployment change. 

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