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Rumblings of a recession and a downturn in economic outlook may be on the horizon, but Norwegian Cruise Line Holdings doesn’t seem concerned.
In the company’s second quarter earnings call on Thursday, CEO Frank del Rio spoke of a “global consumer demand environment that has remained healthy and may be getting healthier — even as we enter the second decade of economic expansion.”
For the quarter ending June 30, the cruise line’s revenue increased 9.3 percent to $1.66 billion, compared to $1.52 billion in 2018. Meanwhile, profit reached $240.2 million, up from $226.7 million the prior year. Earnings per share were up to $1.11, from $1.01 the year prior.
Norwegian’s most notable hurdle during the quarter was that which afflicted the entire cruise industry: the Trump administration’s sudden decision to ban cruises to Cuba early in June. As del Rio told investors, the “the quarter will be primarily remembered with the challenges brought on by the closure of a popular destination that became inaccessible to us and to the industry literally overnight.” He added, “while we were ready for a possible cruise ban to Cuba, we were not quite frankly ready for the ban to take effect with only 12 hours advance notice.”
Norwegian changed course by rerouting 2019 itineraries for vessels bound to Cuba to other Caribbean ports, including Great Stirrup Cay, its popular private island. Next summer, the Norwegian Sun vessel will deploy in Alaska instead of Cuba, which del Rio noted was a good choice for that itinerary’s reputation for high onboard spending. Chief Financial Officer Mark Kempa summarized the effect of the Cuba ban on the year’s balance sheet.
“As a result, we now expect adjusted EPS to be in the range of $5 to $5.10. If not for the $0.52 combined headwinds from both Cuba and [technical issues on the Norwegian Pearl,] our guidance would have been in the range of $5.52 to $5.62.”
That said, the outlook for the year remains resolutely positive, noted Kempa. “The combination of the continued robust demand environment, the building excitement for the upcoming launches of Norwegian Encore and Seven Seas Splendor and the march towards achieving our Full Speed Ahead 2020 Targets is setting up 2020 to be another milestone year.”
An investor question regarding ongoing controversy in the city of Venice was a revealing peek into the cruise industry’s attitude in that much-watched corner of the world. This week, Italian transport minister Danilo Toninelli, said as early as next month, large cruise ships would begin being rerouted away from the Guidecca canal to alternative ports. (It’s worth noting that industry insiders say that any plan to reroute large ships is beset with logistical, environmental, and legislative challenges, not to mention bureaucracy.)
Del Rio said the flurry of recent headlines and attention were due to the MSC Opera crash earlier in the summer, but that he didn’t foresee any substantial changes that would affect Norwegian.
“There are several alternative berths in and around a Venice that, should it come down the to the bigger ships not being able to embark and disembark guests in the same places they do today, there are alternatives that can work for the industry. We don’t, quite frankly, expect to see any major changes in the near term. But this is governments, and governments can do anything they want to do.”
All in all, Norwegian certainly sounds optimistic that “the record demand for our cruise vacation,” as del Rio put it, will continue.