Wednesday, 18 February 2015

Diversification and Norwegian’s bottom line

Diversification and Norwegian’s bottom line

by Tom Stieghorst 
The benefits of diversification in the cruise industry will be evident this week when Norwegian Cruise Line Holdings reports its results for the fourth quarter and calendar year 2014 on Tuesday.

Norwegian, until recently a single-brand company, is heavily tied to the Caribbean in the fourth and first quarters. According to analyst Rachel Rothman, of Susquehanna Financial Group, Norwegian’s results will be pulled down by its high exposure to the Caribbean relative to its competitors Carnival Corp. and Royal Caribbean Cruises Ltd.

Norwegian does not benefit from growth in Asia, which is also helping those two companies, Rothman notes.

In a positive light, Norwegian is aided by not having any cruise brands that do business in currencies other than the dollar. That means the relatively strong dollar affects it less than Carnival, with its Costa, Aida and P&O subsidiaries, or Royal Caribbean, which owns Spain’s Pullmantur and France’s CDF.

From that perspective, Norwegian’s recent acquisition of Prestige Cruise Holdings is ideal. The two Prestige brands, Regent Seven Seas Cruises and Oceania Cruises, both do business in U.S. dollars, so their results won’t be a drag because of currency exchange.

And as destination-oriented luxury lines, Oceania and Regent do relatively less sailing in the overcrowded Caribbean and have more itineraries in Asia, although neither is set up to source business there.

Rothman expects Norwegian to earn about $76 million in the fourth quarter and about $508 million for 2014. The company is building ships just about as fast as is practicable, which should help it diversify its itineraries further away from the Caribbean to areas like Brazil in the winter.

Norwegian has come a long way in a short time. Tuesday’s results may show it has further to go.