Norwegian CEO Del Rio enthused about return to Turkey

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Norwegian Cruise Line Holdings CEO Frank Del Rio said the company’s decision to return to the Eastern Mediterranean in 2019 is working out so far.

After pulling out of the region in 2016 because of terrorism fears and political instability in Turkey, NCLH has scheduled 12 sailings this year and has an additional 20 on the calendar for 2020.

“All 12 sailings in 2019 are better loaded and at higher pricing than the surrounding sailings that do not include Turkey,” Del Rio said.

He told investors on a conference call to discuss fourth quarter and 2018 earnings that Turkey is the key to the itinerary.

“The fact that the North American consumer, who is the one booking most of these Eastern Mediterranean cruises, seem to want to come back to the eastern Med and is willing to pay a premium price bodes very well for 2020,” Del Rio said.

The risk is that itineraries must be developed and sold 18 to 24 months in advance of sailing, he continued.

“So you test the waters, you see what happens, and it takes you a while to really ramp up. So at this point, assuming there are no other disruptions — reasons to not go to the Eastern Med — I expect that we along with the rest of the industry will probably increase the number of deployments to the Eastern Med beginning in 2020 and even more in 2021.”

Del Rio, who has a hand in all itinerary planning at NCLH, said that when the eastern Med is good, “it’s as good as any, if not the best, of all itineraries.”

On the call, Del Rio said NCLH enters 2019 in the best-booked position in its history, giving yield managers more leeway to raise prices.

“We’re pushing prices higher wherever we can,” Del Rio said. “While we still have a lot of cabins to fill, the emphasis will be on raising prices — on all three brands.”

In addition to Norwegian Cruise Line, NCLH operates Oceania Cruises and Regent Seven Seas Cruises.

The company had net income of $954.8 million in 2018, up 25.6% from the $759.9 million recorded a year earlier. Revenue rose 13% to $6.1 billion.

Last year, NCLH decided to redeploy the Norwegian Joy from China to Alaska, where it will cruise starting in April alongside sister ship Norwegian Bliss. That will increase NCLH’s presence in Alaska to 9% of total capacity, up from 7% last year.

Capacity in the Asia Pacific region will drop to 6% from 12% last year. NCLH will have six ships in Europe this summer and capacity there increases to 23% from 20% last year, while year-round capacity in the Caribbean is pegged at 36%.

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NCLH Reports Fourth Quarter and Full Year 2018

Norwegian Breakaway

Norwegian Cruise Line Holdings today reported financial results for the fourth quarter and full year ended December 31, 2018, as well as provided guidance for the first quarter and full year 2019.

“The team at Norwegian Cruise Line Holdings delivered a breakout year in 2018, once again generating industry-leading record financial performance.  Strong global demand for our portfolio of brands, the successful, record-breaking introduction of Norwegian Bliss and the flawless execution of our demand creation strategies drove our fifth consecutive year of double-digit earnings per share growth,” said Frank Del Rio, president and chief executive officer.  “Building on this momentum, we entered 2019 in the best booked position in our Company’s history, with pricing above prior year’s record levels.  The strong start to this year’s WAVE season, coupled with our moderate in-year capacity growth and our solid booked position across our three brands, has us well-positioned to continue driving price throughout the year and into 2020, where we will also benefit from the first full year of sailings from Norwegian Encore and the addition of Regent’s Seven Seas Splendor.”

Highlights:

  • The company generated GAAP net income of $954.8 million or EPS of $4.25.  Adjusted Net Income was $1.1 billion or Adjusted EPS of $4.92.
  • The company beat full year Adjusted EPS expectations by $0.07, and surpassed the midpoint of its initial February 2018 Adjusted EPS guidance by $0.37, despite a $0.07 impact from unfavorable fuel prices.
  • Total revenue increased 12.2% to $6.1 billion. Gross Yield increased 3.4%.
  • Net Yield increased 3.5% on a Constant Currency basis, exceeding the Company’s initial February 2018 guidance by 150 basis points.
  • Achieved record gross Adjusted EBITDA Margin of 31.3%.
  • Adjusted ROIC increased to 11.0% from 10.1% the prior year.
  • Reached year-end Net Leverage target of low three times.
  • Authorized $1 billion, three-year share repurchase program and embarked on meaningful capital returns to shareholders by opportunistically repurchasing approximately $665 million shares under previous and current program. Approximately $600 million remains available under current authorization.
  • Record-breaking introduction of Norwegian Bliss, the first cruise ship specifically designed with features and amenities for the ultimate Alaska cruising experience.
  • Broke ground on new, state-of-the-art passenger terminal at PortMiami.

Full Year 2019 Highlights

  • Company’s 2019 booked position at all-time high entering the year and at higher pricing.
  • Net Yield growth guidance on a Constant Currency basis for full year and first quarter 2019 of 3.0% to 4.0% and approximately 2.5%, respectively.
  • Norwegian Joy to join record-breaking sister ship, Norwegian Bliss, in Alaska in spring 2019.
  • Norwegian Encore, the fourth and final ship in the tremendously successful Breakaway Plus Class, will join the fleet in the Caribbean in the fourth quarter.
  • Company reaffirms expectations to achieve its Full Speed Ahead 2020 targets provided at its 2018 Investor Day.

Full Year 2018 Results

GAAP net income was $954.8 million or EPS of $4.25 compared to $759.9 million or $3.31 in the prior year.  The Company generated Adjusted Net Income of $1.1 billion or Adjusted EPS of $4.92 compared to $907.7 million or $3.96 in the prior year.  Strong growth in 2018 including an increase in GAAP EPS of 28.4% and Adjusted EPS of 24.2% follows strong 2017 growth of 19.1% and 16.1%, respectively, further demonstrating the Company’s continued underlying earnings power.

Revenue increased 12.2% to $6.1 billion compared to $5.4 billion in 2017. This increase was primarily attributed to an 8.5% increase in Capacity Days due to the delivery of Norwegian Bliss in April 2018 and Norwegian Joy in April 2017, as well as strong organic pricing growth across all core markets.  Gross Yield increased 3.4%. Net Yield increased 3.5% on a Constant Currency basis and 3.7% on an as reported basis.

Cruise operating expense increased 10.2% in 2018 compared to 2017, primarily due to an increase in Capacity Days.  Gross Cruise Costs per Capacity Day increased 2.7%.  Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 2.6% on a Constant Currency basis and 2.9% on an as reported basis.

Fuel price per metric ton, net of hedges increased to $483 from $465 in 2017.  The Company reported fuel expense of $392.7 million in the period.

Interest expense, net was $270.4 million in 2018 compared to $267.8 million in 2017. The increase in interest expense primarily reflects additional debt incurred in connection with the delivery of Norwegian Bliss and Norwegian Joy in the second quarter of 2018 and 2017, respectively, Project Leonardo financing costs, and higher interest rates due to LIBOR rate increases. The increase in interest expense was partially offset by the benefit from the October 2017 full redemption of the 4.625% Senior Notes due 2020 and the benefit from the partial redemption totaling $135 million of the 4.75% Senior Notes due 2021 in April. This year’s results included a non-recurring $6.3 million redemption premium and write-off of fees in connection with the partial redemption. 2017 included losses on extinguishment of debt and debt modification costs of $23.9 million.

Other income (expense), net was income of $20.7 million in 2018 compared to expense of $10.4 million in 2017. Other income in 2018 was primarily due to gains on foreign currency exchange.  Other expense in 2017 was primarily due to losses on foreign currency exchange.

Fourth Quarter 2018 Results

GAAP net income was $154.6 million or EPS of $0.70 compared to $98.8 million or $0.43 in the prior year.  The Company generated Adjusted Net Income of $188.8 million or Adjusted EPS of $0.85 compared to $156.8 million or $0.68 in the prior year.

Revenue increased 10.5% to $1.4 billion compared to $1.2 billion in 2017.  These increases were primarily attributed to the addition of Norwegian Bliss to the fleet, along with strong organic ticket pricing growth across all core markets and robust onboard spending.  Gross Yield increased 3.0%. Net Yield increased 4.7% on a Constant Currency basis and 4.2% on an as reported basis.

Total cruise operating expense increased 8.5% in 2018 compared to 2017, primarily due to an increase in Capacity Days.  Gross Cruise Costs per Capacity Day increased 1.8%.  Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 3.6% on a Constant Currency basis and 3.4% on an as reported basis.

Fuel price per metric ton, net of hedges increased to $496 from $460 in 2017.  The Company reported fuel expense of $104.4 million in the period.

Interest expense, net decreased to $68.2 million in 2018 from $84.3 million in 2017. In connection with the redemption of senior notes and refinancing of certain of credit facilities, interest expense, net included losses on extinguishment of debt and debt modification costs of $23.9 million in 2017.

2019 Outlook

“2018 marked a key inflection point for the Company as we have made significant progress towards achieving our Full Speed Ahead 2020 Targets.  Our cash generation continues to accelerate and we remain keenly focused on returning meaningful capital to our shareholders, already returning approximately one-third of our three-year targeted capital distribution,” said Mark Kempa, executive vice president and chief financial officer of Norwegian Cruise Line Holdings Ltd.  “We are confident in our outlook for 2019 and beyond, and have built upon our foundation for measured capacity growth by enhancing our growth profile through 2027, with announced orders for all three of our award-winning brands, now totaling eleven vessels, enabling us to expand our presence both globally and domestically and further diversify our product offerings to continue driving outsized shareholder returns.”

2019 Guidance and Sensitivities

In addition to announcing the results for the fourth quarter and full year 2018, the Company also provided guidance for the first quarter and full year 2019, along with accompanying sensitivities. The Company does not provide guidance on a GAAP basis because the Company is unable to predict, with reasonable certainty, the future movement of foreign exchange rates or the future impact of certain gains and charges. These items are uncertain and will depend on several factors, including industry conditions, and could be material to the Company’s results computed in accordance with GAAP. The Company has not provided reconciliations between the Company’s 2019 guidance and the most directly comparable GAAP measures because it would be too difficult to prepare a reliable U.S. GAAP quantitative reconciliation without unreasonable effort.

Norwegian Cruise Line Holdings’ momentum accelerates into 2018

Norwegian Cruise Line Holdings’ net income rose 23% last year to $780 million, as European pricing and bookings recovered faster than expected and the booking curve extended to a near-optimal length.

Revenue rose 10.7%, to $5.4 billion.

The Wave season for 2018 has started strong and the outlook for 2018 is bullish, driven by a strong economy and consumer demand, CEO Frank Del Rio said.

“This year is by far the most excited, the most energized and the most optimistic I have ever been at the start of a new year,” Frank Del Rio said.

He said the strong demand environment of late 2016 and 2017 has “accelerated through this year’s early Wave season, as both the number of bookings sold and the price points achieved reach record levels” across all three brands — Norwegian Cruise Line, Regent Seven Seas Cruises and Oceania Cruises.

“Our overall booked position during the first seven weeks of 2018 further improved compared to the same time last year,” he said.

He said on average NCLH guests are booking five weeks earlier than at the end of 2016.

Del Rio said the weak link if there is one, is China. “I don’t think China is hitting on all cylinders as it can,” he said, referencing the continued tensions with South Korea and the resulting uniformity of short cruise itineraries, which can only visit Japan. Nevertheless, he said China was profitable in 2017.