Norwegian Cruise (NCLH) Bets on Strong Demand Amid Cash Burn

Norwegian Cruise Line Holdings Ltd. NCLH has been benefiting from strong demand and booking volume growth. The company is ready to launch its fleet by April. However, coronavirus pandemic and cash burn remain major concerns. Let’s delve deeper.

Key Catalysts

Norwegian Cruise intends to launch its full fleet by April. Since the pandemic began, the company has not operated with full capacity. At present, the company’s eight ships are in operation. CEO Frank Del Rio told CNBC that the company’s full fleet of 28 ships will resume operations by Apr 1. The company anticipates operating with 75% of its vessels by the end of this year.

The coronavirus pandemic has severely affected the company’s booking. While overall booking volumes remain below historical levels, it has been registering solid demand for future cruise vacations. Despite lower sales and marketing investments, the company is reporting solid bookings for future periods across all brands. It stated that overall cumulative bookings for full year 2022 are ahead of 2019 levels.

Norwegian Cruise is constantly looking to expand fleet size, which is currently at 28. It has plans to introduce nine more ships through 2027. Most of them are on order for Norwegian Cruise Line, while the rest are for Oceania Cruises and Regent Seven Seas Cruises. For the Regent brand, it has one Explorer Class Ship, which is to be delivered in 2023. For the Oceania Cruises brand, the company has two Allura Class Ships, which are to be delivered in 2023 and 2025. With Project Leonardo, Norwegian Cruise will have an additional six ships with expected delivery dates from 2022 through 2027.

Maintaining liquidity has become a herculean task amid the coronavirus pandemic for most of the companies. Cash and cash equivalents as of Jun 30, 2021 were $2.8 billion, up from $3.3 billion as of Dec 31, 2020, and $252.9 million at the end of Dec 31, 2019. Although total debt at the end of Mar 31, 2021 was $11.9 billion, it is confident that with the amount of liquidity it holds, it can survive for some time.

Concerns

Although the company announced the restart of cruise voyages, it is unable to evaluate the overall impact of the COVID-19 pandemic on its long-term or short-term business results. Norwegian Cruise expects to report a loss in the third quarter of 2021 and witness net loss until the company is able to resume regular voyages. The rapidly spreading Delta variant remains a concern.

Norwegian Cruise, which shares space with Royal Caribbean Cruises Ltd. RCL, Carnival Corporation & plc CCL and  AMC Entertainment Holdings, Inc. AMC in the Zacks Leisure and Recreation Services space, has been bearing the brunt of high expenses for quite some time now. Costs associated with the suspension of cruise voyages and continued payment of protected commissions and crew salaries are adding to woes. The company's monthly average cash burn for second-quarter 2021 was approximately $200 million compared with $190 million in the prior quarter. For third-quarter 2021, it expects the average cash burn rate to temporarily remain elevated at approximately $285 million per month due to the phased relaunch of additional vessels.

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