NCLH Posts $677 Q3 Loss, but 2H 2021 Bookings Show Demand

Due to suspension of all cruises in the third quarter 2020 ended September 30, Norwegian Cruise Line Holdings (NCLH) posted a $677 million net loss, compared to net income of $451 million for the same quarter a year ago. NCLH is the parent company of Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. Adjusted net loss was $638 million, compared with adjusted net income of $482 million in third quarter 2019.

The cruise company's revenue also decreased to $6.5 million for the quarter, compared to $1.9 billion in 2019.

Total cruise operating expenses—crew costs, fuel, insurance, ship maintenance and other costs—decreased nearly 81 percent in third quarter 2020, compared to the same quarter a year ago. 

In 2020, NCLH took on additional debt to enhance liquidity. Not surprisingly, net interest expenses (including debt modification costs) were nearly $140 million, compared with $60 million in the same quarter a year ago. 

Hope for the Future

While the financial report was expected to be negative, given lack of revenue from cruises that did not operate, NCLH outlined its hope for sailings to begin once again. 

"The new 'Framework for Conditional Sailing Order' issued by the U.S. Centers for Disease Control and Prevention is a step in the right direction on the path to the safer and healthier resumption of cruising in the U.S., reinforcing our existing rigorous commitment to health and safety," said Frank Del Rio, NCLH's president and CEO."

NCLH said it will continue to collaborate with the CDC on next steps to relaunch operations with a shared goal of protecting the health and safety of guests, crew and the communities visited. "While we have a long road of recovery ahead of us, we are encouraged by the continued demand for future cruise vacations, especially from our loyal past guests, across all three of our brands," Del Rio noted. 

But while the conditional order represents a step forward in the resumption of cruising in the U.S., NCLH's press release on the financial results also cited "significant uncertainties" about certain requirements of the order including "pending technical instructions for future phases."

Booking Environment and Outlook

In addition, while booking volumes remain below historical levels, there continues to be demand for future cruise vacations, particularly beginning for sailings operating in the second half of 2021 and beyond, despite limited marketing efforts.

NCLH's overall cumulative booked position for the first half of 2021 remains below historical ranges as expected due to the current uncertain environment caused by COVID-19; however, in the second half of 2021, bookings are in line with historical ranges. Pricing for full year 2021 is also in line with pre-pandemic levels, even after including the dilutive impact of future cruise credits.

NCLH said pent-up future demand for cruising is further demonstrated by record booking achievements in September and October including Oceania Cruises’ Labor Day upgrade sale, which was the most successful holiday promotion in the line’s history. In addition, Regent Seven Seas Cruises set a new World Cruise opening day booking record for its 2023 World Cruise. It also set a new all-time largest single booking day in the line's history for the 2022-23 Voyage Collection.

As of September 30, 2020, NCLH had $1.2 billion of advance cruise ticket sales. Future cruise credits factored into that totaled $0.85 billion. 

Financial Action Plan

NCLH said it "continues to take swift, proactive measures to mitigate the financial and operational impacts of COVID-19." That includes cost reduction and cash conservation as well as securing additional capital.

As of September 30, 2020, the company had $10.9 billion in debt. Cash and cash equivalents totaled $2.4 billion. NCLH was in compliance with all debt covenants as of September 30, 2020. Average cash burn for the third quarter 2020 was approximately $150 million. Assuming its vessels remain at minimum manning status, NCLH said its fourth quarter 2020 average cash burn rate would be higher, based on timing of interest expenses. 

In addition, due to the fluidity of its voyage resumption schedule and associated expenses, the company also expects more cash burn, based on costs for preparing ships to return to service. Those costs will include re-staffing, re-positioning, provisioning, implementation of new health and safety protocols and marketing. 

That said, "we are focused on positioning the company to not only withstand an extended COVID-19 disruption but to emerge from this period with a clear path for long-term financial recovery,” said Mark Kempa, NCLH's executive vice president and chief financial officer. 

Kempa continued: “Our swift actions to adapt to this unprecedented environment by reducing costs, conserving cash and enhancing our liquidity profile will bolster our efforts to navigate through COVID-19, relaunch our vessels and, over the longer-term, optimize our balance sheet and resume our consistent track record of strong financial performance."

2020 Financial Outlook: As a consequence of COVID-19, NCLH said it will report a net loss on both a U.S. GAAP and adjusted basis for the fourth quarter and the year ending December 31, 2020.

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