Cruise industry faces more headwinds amid rising costs

Travellers are flocking to luxurious cruises after the pandemic, but it won’t come cheap as operators lift fares amid higher costs.

The cruise industry faces more headwinds amid rising costs after a tumultuous few years during Covid-19, but Norwegian Cruise Line Holdings has been buoyed by reaping revenues of 15 per cent more per cruise passenger than in previous years and higher cruise fares.

However, the world’s third-largest cruise operator also warned about rising costs after reporting strong demand for its voyages in the three months to June 30 from the same period in 2019.

Norwegian Cruise Lines Holdings – which operates Regent Seven Seas, Norwegian, and Oceania – said the 15 per cent increase in the second quarter to June 30 has helped drive its revenue up 33 per cent to a record $US2.2bn ($3.34bn).

However, the company’s shares sank as the cruise line operator’s outlook for the third quarter missed estimates given its higher costs.

“We are pleased to report strong second quarter results, in which we met or exceeded guidance on all key metrics, allowing us to improve our full year outlook for adjusted EBITDA and adjusted earnings per share,” said Harry Sommer, president and chief executive of Norwegian Cruise Line Holdings.

“The continued strength in the demand environment is evident not only in this quarter’s results, in which we generated a meaningful increase in pricing on 19 per cent capacity growth compared to 2019, but also in our forward booked position which is within our optimal range and at higher pricing.

“As we look to the near future, we are focused on sustaining this momentum by capitalising on the robust demand environment, strategically enhancing our guest experience, right sizing our cost base through our ongoing margin enhancement initiative, building excitement for the upcoming launches of Norwegian Viva and Regent’s Seven Seas Grandeur and ultimately charting a path to reduce leverage and de-risk our balance sheet.”

The group’s prima class, Norwegian Viva, is preparing to depart on its maiden voyage from Venice on Thursday.

Norwegian Viva cruise ship racetrack. Picture: Supplied

Norwegian Cruise Line Holdings said its booking position for the remainder of the year continues to be at record levels and at higher pricing.

The company remains within its optimal booked position of around 60-65 per cent on a 12-month forward basis.

Advance ticket sales balance increased versus the prior quarter, reaching a record $US3.5bn, approximately $US167m higher than the prior quarter, and 56 per cent above the second quarter of 2019.

As expected, occupancy in the quarter is slightly lower than the second quarter of 2019, reflecting the company’s strategic shift to longer, more immersive itineraries, Norwegian Cruise Line Holdings said in a statement.

“This shift naturally results in lower occupancy levels and is expected to attract higher quality guests, generate higher net yields, improve guest satisfaction and cultivate stronger loyalty over time.”

As a result, full year occupancy in 2024 and beyond is expected to be 200 basis points lower relative to 2019.

The company continues to prioritise efforts to optimise its balance sheet and reduce leverage.

Norwegian Cruise Line Holdings last week reported $US13.1bn debt at the end of June, but said it expects to refinance its operating credit facility by the year-end.

Adjusted EBITDA guidance for the full year improved to the range of $1.85bn to $1.95bn. Updated guidance reflects approximately $30m of headwinds from higher interest and fuel expense for the back half of the year.

Norwegian Cruise Line Holdings shares closed 1.8 per cent lower at $US17.95 in the US on Friday, giving it a market value of $US7.61bn.