Could Smaller be Better for Investors in Norwegian Cruise Lines?

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Norwegian Cruise Lines Holdings (NYSE:NCLH) reports earnings on July 9. If the reports of Royal Caribbean Cruises (NYSE: RCL) i Carnival Cruise Lines (NYSE: CCL) are an indication, investors should expect revenues to approach pre-pandemic levels and an improved earnings picture. – MarketBeat

This is not surprising. The overall economic picture is still cloudy. But one thing is certain, consumers continue to prioritize experiences and travel. And that’s working out well for cruise lines that are seeing passengers return to levels close to what they had at the end of 2019.

But does that mean it’s time for investors to make the move on Norwegian Cruise Lines stock? This is one of the questions we will address in this article. And the answer may come from the company’s decision to reverse the industry trend.

The Norwegian is setting his own course

I guess you could ask ten cruise consumers what the best part of the experience is and you’d get ten different answers. This speaks to a calculated business decision by the cruise lines. This is to create an onboard experience that truly offers something for everyone.

This is leading to something of an arms race where cruise lines like Carnival and Royal Caribbean are outdoing each other to create the biggest ships. The result is that cruise ships have become mini cities on the water. And for some travelers it may mean that staying on the ship is more enjoyable than taking in the sights and sounds of ports of call.

Norwegian is taking a different approach. One that emphasizes space over size. According to the company, its latest fleet, Norwegian Prima boasts “the most exterior deck space of any new cruise ship … our most spacious accommodations and … top-notch service so you don’t wait a second not a second. round.”

Other highlights include:

  • 13 different suite categories including the largest three-room suite on any new cruise ship
  • The company’s largest balcony and sea view cabins
  • The company’s largest bathrooms in standard rooms
  • More total pool deck space than any other vessel in the NCL fleet

Substituting space for size

That doesn’t mean the boats are exactly small. Each ship reaches about 955 feet in length and can accommodate more than 3,200 passengers.

But that’s significantly slimmer than Royal Caribbean’s “Wonder of the Seas,” which is 1,200 feet long and can hold roughly 7,000 passengers.

As I see it, the cruise line figures that in a post-pandemic world, consumers will prioritize personal space (and personal service) over having more things to do. The company is catering to a premium consumer and offers a cruise experience that passengers will perceive as beyond the top-of-the-line ships of Royal Caribbean or Carnival.

It may not be a formula that appeals to all travelers, but it sets the company apart.

Should Investors Sail With Norwegian Cruise Line’s Earnings?

Norwegian recently announced its intention to leave open a $1 billion commitment with funds managed by affiliates of Apollo Global Management until March 31, 2023. The company has not drawn on these funds and does not plan to. However, it illustrates that the cruise line industry as a whole is navigating uncertain waters.

I tend to take investment advice from seeing what consumers are doing rather than listening to what they are saying. And right now, consumers are choosing to make up for lost time. A cruise excursion, for travelers so inclined, can be a cost-effective way to do this.

However, much remains unclear about the length and severity of this recession. While revenues are expected to surpass pre-pandemic levels as early as next year, the revenue story is different. While the company is expected to be profitable by 2023, it does not foresee a return to pre-pandemic earnings per share in the next five years.

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