Profits Down, Cruise Fares Up? NCL's Q2 Earnings Report

July 27, 2010
Earnings Reports

(5:35 p.m. EDT) -- One month after the launch of Norwegian Epic, the splashiest new-cruise ship debut of 2010, Norwegian Cruise Line has issued an earnings report for Q2 2010. The bottom line? Fuel costs and a one-time interest payment related to the $1.1 billion Epic chomped into profits (without the interest payment the line would have made money). But despite suffering a net loss for the quarter, NCL enjoyed a boost in pricing, net yields and continued strength with occupancy levels -- par for the course for a cruise industry that has rebounded well from the recession.

Do the Math

NCL reported a net loss for the quarter of $14.9 million on revenue of $477.9 million compared to net income of $15.2 million on revenue of $478.4 million in 2009. So why the drop in profits?

The net loss in 2010 included a non-recurring charge of $33.1 million related to foreign exchange contracts associated with the financing of Norwegian Epic. Excluding this non-recurring charge, net income for the period was $18.2 million. Rising fuel costs also took a bite into profits. Average fuel cost per metric ton in the period climbed to $508 in 2010 from $356 in 2009. If you take fuel costs out of the equation, cruise costs per capacity day decreased 2.3 percent.

Despite the hit, NCL's net yield, or net revenue per passenger cruise day, increased by 6.6 percent compared to Q2 of 2009. The increase in net yield came from both improved passenger ticket pricing and increased onboard revenue per capacity day.

"Our improved results over last year were achieved while absorbing a 43 percent increase in the price of fuel," said NCL's CEO Kevin Sheehan in the statement.

Deals or No Deals?

In line with what Carnival Corp. and Royal Caribbean Cruises Ltd. have already reported about their own brands, NCL's 2010 pricing for the remainder of the year is expected to surpass 2009 levels. As we reported previously, NCL (as well as Carnival) actually alerted consumers of its April price hike. Still, Norwegian Epic's pricing is significantly lower than that of another monumental new-build, Oasis of the Seas, which debuted in late 2009. NCL has also been including Epic in its regular promotions, something that Royal Caribbean simply has not done with Oasis. So if you want to cruise on a splashy new-build for less, Epic may be an option. (See our piece, Oasis vs. Epic: How Much Will You Pay?)

Future Tense

In the statement, the line noted that "the second half of 2010 is showing solid improvements in pricing from 2009 levels with load factors consistent with prior year." But it cautioned that while "the booking curve continues to be healthy ... [it] has narrowed from the highest levels achieved in the first quarter of 2010."

In Case You Missed It

Norwegian Epic, the line's largest, flashiest ship ever debuted in June, and has begun sailing its regular schedule of Caribbean cruises out of Miami. Check out our sneak preview of the brand-new ship.

NCL Background

Unlike Carnival Corp. (Carnival, Princess, Costa, etc.) and Royal Caribbean Cruises Ltd. (Royal Caribbean, Celebrity, Azamara Club Cruises, etc.), NCL is not a publicly traded company in the U.S. It's half owned by Apollo Management LP, a private equity firm, and half owned by Genting Hong Kong, which is publicly traded on the Hong Kong stock exchange. While NCL is not a publicly traded company, conditions in the company's bond offering state that it does have to file a public earnings report -- the line does not, however, have a traditional earnings call, where analysts have a forum to grill executives for some color on the company's financials. Both Royal Caribbean and Carnival have such calls.

--by Dan Askin, Associate Editor