NCLH’s losses narrow

2022-05-14T10:52:28+00:00 May 14th, 2022|Finance|

Norwegian Cruise Line Holdings (NCLH) reported a GAAP net loss of $1 bill or EPS loss of $2.35 for the first quarter of this year.

This was down on the net loss of $1.4 bill or EPS loss of $4.16 in 1Q21.

NCLH also reported an adjusted net loss of $760.5 mill or adjusted EPS loss of $1.82 in 1Q22, compared to $668.6 mill and $2.03, respectively, in 1Q21.

During the quarter, revenue increased to $521.9 mill, compared to $3.1 mill in 2021, due to the resumption of cruises.

Total cruise operating expense increased 266.1% thus far this year, compared to 2021, primarily due to the resumption of ship operations.

This 1Q21 increase in opex reflected higher payroll, fuel, and direct variable costs of fully operating ships. Cost for certain items such as food, fuel and logistics also increased due to inflation. In addition, there was an increase in repair and maintenance costs, including planned drydockings.

“We reached the biggest milestone yet in our great cruise comeback as ‘Norwegian Spirit’, the last ship in our fleet to resume sailing, welcomed guests on board in Papeete, Tahiti.

“The herculean effort to restart our fleet would not have been possible without the incredible fortitude of the entire Norwegian team and the unwavering support of our key partners and stakeholders around the world,” said Frank Del Rio, NCLH President and CEO (pictured). “Looking ahead, our strategy is to ramp up occupancy in a disciplined manner with the goal of exceeding historical net yield1 levels for full year 2023, while maintaining the high guest satisfaction scores and strong on board revenue generation we are currently experiencing.

“We are encouraged that consumer demand remains robust with net booking volumes not only back to pre-Omicron levels but now approaching historical levels despite a temporary retreat, due to the Russia/Ukraine conflict. Pricing remains very strong for all future periods and our value-add bundling strategy is working better than ever,” he added.

The company completed its phased fleet relaunch on 7th May, 2022 and its entire 28-ship fleet is now back in operation. This marks the completion of a nearly 10-month long process to return ships to service, which began with ‘Norwegian Jade’ in July’ 2021.

By the end of 1Q22, NCLH had 85% of its capacity operating. Occupancy in the first quarter was 48% primarily reflecting the impact of Omicron, which caused operational challenges and disruptions, including additional travel restrictions, increased health-related protocols and certain port closures.

During the surge, the company claimed that it continued to follow its core go-to-market strategy and did not discount-to-fill in order to boost near-term load factors. As the booking impacts of Omicron and the conflict in Ukraine have faded, net booking volumes and occupancy levels have sequentially increased each month.

Despite these challenges, strong ticket pricing and on board revenue drove positive cash contribution from the fleet operating in the quarter.

In recent months, NCLH saw a significant improvement in the global public health and regulatory environment. In March, the US Centres for Disease Control and Prevention (CDC) removed its Travel Health Notice for cruising for the first time since the start of the pandemic.

The CDC also recently announced a relaxation of certain protocols and recommendations in its voluntary COVID-19 Programme for Cruise Ships Operating in US Waters. In addition, more ports globally have re-opened to cruising and travel restrictions continue to ease around the world creating a more favourable environment for ship deployment.

The quarter began with net bookings, particularly for close-in voyages, negatively impacted by the Omicron surge, which began to improve in mid-January.

This momentum was temporarily disrupted as the company experienced elevated cancellations, primarily for itineraries in the Baltic region, in the immediate weeks following the start of the Russia/Ukraine conflict.

However, this impact was short-lived and net booking volumes have since shown sequential improvement, not only rebounding back to pre-Omicron levels but also now approaching the booking pace needed to consistently sail at historical load factor levels.

As a result of these temporary setbacks, NCLH’s current cumulative booked position for the second half of 2022 is below the comparable 2019 period but at meaningfully higher pricing even when including the dilutive impact of future cruise credits (FCCs).

The booked position improves throughout the year with the fourth quarter of 2022 in line with the comparable 2019 period and at meaningfully higher prices. Booking trends for 2023 continue to be positive with both booked position and pricing significantly higher and at record levels when compared to bookings for 2019 and pre-pandemic 2020 at a comparable point in the booking curve.

NCLH’s advance ticket sales balance, including the long-term portion, increased $418 mill in 1Q22 to $2.2 bill as of 31st March, 2022. This included around $0.6 bill of FCCs or 27% of the total deposit balance. Gross advance ticket sales build was about $1.1 bill during the quarter, the highest level since the start of the pandemic.

As of 31st March, 2022, NCLH’s total debt position was $13.6 bill and the liquidity was $3.1 bill, consisting of cash and cash equivalents and a $1 bill commitment available through 15th August, 2022.

As part of its financial recovery plan, the company raised around $2.1 bill through a series of debt transactions in February, 2022 to further optimise its balance sheet.

The proceeds from these transactions were used to redeem all outstanding 12.25% senior secured notes, due 2024 and 10.25% senior secured notes, due 2026, with the balance of the proceeds expected to be used to make scheduled principal payments on debt maturing in 2022, including any accrued and unpaid interest, as well as related premiums, fees and expenses, in each case.

In addition, in connection with these transactions, debt maturities were extended and certain collateral and guarantees were released.

NCLH’s monthly average cash burn for 1Q22 was about $375 mill, below the previous estimate of around $390 mill. Beginning in April, 2022, the Company resumed debt amortisation payments which were deferred during the pandemic.

“I am incredibly proud of the significant progress we have made to-date in our operational and financial recovery, demonstrating our company’s resilience as we navigate the evolving public health environment and geopolitical conflicts,” said Mark Kempa, Executive Vice President and CFO. “With our entire fleet now back in revenue service we reached a critical milestone, which we believe will result in positive operating cash flow for the second quarter.

“We are focused on building on this recovery momentum and gearing up to deliver on our industry-leading growth profile through 2027, representing 50% capacity growth versus 2019, beginning with the incredible, first in its class, ‘Norwegian Prima’ this summer,” he said.