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| Frank Del Rio, chairman and CEO, Prestige Cruise Holdings, at left, and Kevin Sheehan, president and CEO, Norwegian Cruise Line Holdings |
It’s official. After much speculation, Norwegian Cruise Line Holdings (NCLH), parent of “Freestyle” Norwegian Cruise Line, confirmed that it’s purchased Prestige Cruise Holdings, parent of upper premium Oceania Cruises and luxury operator Regent Seven Seas Cruises.
The deal was inked for $3.03 billion and included a mix of cash, NCLH stock and the assumption of Prestige debt. Additionally, a contingent cash consideration of up to $50 million will be paid to Prestige shareholders upon achievement of certain 2015 performance metrics.
Agents can expect final closure of the acquisition during the fourth quarter of 2014. So what’s it all mean?
This morning, Norwegian Cruise Line Holdings conducted a briefing for financial analysts. We’ve included a few of the illustrations from the presentation within this article, but for the full presentation click here.
The two firms jointly sent an email letter to trade partners, pledging support for them and explaining what the deal means. “This is a great opportunity for you,” wrote Kevin Sheehan, president and CEO, Norwegian Cruise Line Holdings, and Frank Del Rio, chairman and CEO, Prestige Cruise Holdings. “All three brands share a passionate view of travel agents as the life blood of our industry. This common belief will continue to be core to our strategies going forward.”
While calling the purchase, “a significant announcement for the cruise industry,” John Lovell, president, Travel Leaders Franchise Group, Leisure Group and Vacation.com, noted that because it just took place over the weekend, “it’s far too early to say what impact, if any, this will have on our businesses.”
He stressed that what’s important from his groups’ perspective is that they’ve enjoyed long-term partnerships with Norwegian Cruise Line, Regent Seven Seas and Oceania Cruises. “All these organizations believe and support the travel agency distribution channel and we fully expect that will continue,” Lovell said.
Scott Koepf, vice president of sales for Avoya Travel/American Express Travel Representative, said his group considers Norwegian’s acquisition of Prestige to be very positive news. “Since both companies had common ownership with a venture capital group, today’s news of the acquisition was not a complete surprise,” he noted. “However, we were surprised by the rapid pace at which the acquisition came to fruition.”
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| Chart by NCL Holdings |
Preservation of Brand Differentiation
Based on comments made by Sheehan and Del Rio in the letter to trade partners, it appears NCLH desires to maintain brand differentiation: “We are committed to maintaining three distinct brands and this will flow into all of our operations. We will be maintaining dedicated brand sales, passenger services and marketing teams that will continue to support each of these distinct brands.”
The letter also stated that “day-to-day business operations will be business as usual.” The executives said they are committed to providing quality guest experience and preserving each brand’s uniqueness. That said, “over time, we will strive to build brand loyalty across the Norwegian family of brands to provide unique experiences for generations of guests and their families," the letter told agents.
Some agents we spoke to expressed surprise at the news and noted they were taking a “wait and see” attitude. Among them was Alan Rosenbaum, a vacation specialist with CruiseOne, Johns Creek, GA. “I was surprised to hear the news,” said Rosenbaum. “Norwegian is so different from Regent and Oceania, that I just don’t see any synergy there.”
Yet, he added: “On the other hand, having diverse holdings seems to be working for Carnival Corporation. I think in the long run we just have to wait and see. Carnival lets their cruise lines run relatively independently, which is a good thing. The danger will be if Norwegian tries to accomplish economies of scale by combining functions. In that case, I think the products will suffer. But as I said, we’ll have to wait and see.”
A Stronger Company with Diverse Brands
Previously, Norwegian Cruise Line stood alone as one brand owned by NCLH. In contrast, competitors Carnival Corporation and Royal Caribbean Cruises Ltd. have a portfolio of brands in multiple segments – from contemporary to premium and luxury.
Carnival owns 10 diverse brands, Royal Caribbean has five and now Norwegian becomes a stronger competitor with three.
NCLH said it now will leverage cross selling opportunities by offering cruise products for every stage of a guest’s life cycle. Now, if clients sail on Norwegian Cruise Line, as they age they now have an NCLH product to move up to – either in the upper premium or luxury segment.
With the newly combined assets, NCLH will have 13 large Norwegian Cruise Line contemporary ships of 2,000 to 4,000 passengers, with a total berth capacity of 34,510; five small to medium-sized, upper premium Oceania Cruises ships of 684 to 1,250 berths, and three small luxury Regent ships of 490 to 750 berths.
“Overall, we feel it strengthens Norwegian by having multiple brands,” said Koepf, noting that NCLH is now positioned to be even more competitive with brands of Carnival Corp. and Royal Caribbean Cruises Ltd. Now, he says, “the company can offer multiple types of guest and travel experiences with its multiple brands.”
He also thinks the move is positive for Oceania and Regent, “in particular because it increases the financial strength and backing of both companies,” Koepf added. “Synergies and buying powers between brands can strengthen the brands as long as they remain separate in management and strategic positioning.”
From a front line seller's perspective, "I hope that since travel agents earn more commission on the all-inclusive products with RSSC and semi-inclusiveness of Oceania, we will continue to see Norwegian offer agents the ability to make more money by selling 'all inclusive' packages they offered last month," emphasized Michael Consoli, a Cruise Planners franchise owner, Atlanta, GA. He says that's a win-win for all parties.
As the NCLH acquisition is under way, Consoli would also like to see "one strong anti-rebating policy...across the three brands since that allows travel agents to be competitive." Currently, RSSC and Oceania both have taken anti-rebating stances.
Improving NCLH’s Financial Metrics
Norwegian is a contemporary brand so cruise pricing is naturally at the lower end of the industry spectrum. That coupled with an industry-wide excess of Caribbean capacity over the past winter and spring has resulted in lower than anticipated pricing for much of Norwegian’s inventory.
With no more higher revenue new ships – very successful for the line -- launching for Norwegian until later in 2015, analysts had expressed certain concerns about per diem opportunities for growth. Last month, USB Investment research downgraded NCLH’s stock to “neutral” from “buy.”
At that time, here were industry points made by Robin Farley, a UBS Investment Research analyst.
Today's move now gives NCLH a strong performing upper premium brand in Oceania, as well as a luxury partner in Regent, diversifying its portfolio of products, and creating the opportunity for higher per diems and marketing synergies across the lifetime of a guest.
"I think this acquisition will strengthen the Norwegian Cruise Line brand as a whole, as it will now allow them to catch up to their competitors who also have diversified portfolios," stressed Michelle Fee, CEO, Cruise Planners. "It benefits travel agents when all cruise brands are healthy."
Fee added: "Keep in mind that the competition for travelers’ attention is not just with other cruise brands, but all travel options, so the need to build strong cruise companies is essential for the entire industry."