Norwegian Cruise Line Sails Into Luxury Market

The company's planned acquisition of Prestige brands Regents Seven Seas and Oceania delivers access to well-heeled cruisers

Sep 2, 2014 at 2:13PM

Norwegian Cruise Line Holdings (NASDAQ:NCLH) is buying access to the upper crust. The company has agreed to acquire privately held Prestige Cruises International in a deal worth just over $3 billion, the company announced today. In doing so, Norwegian will pick up brands that serve upscale travelers -- a smart move as the cruise industry shifts its focus away from bargain rates toward premium experiences. It also gives Norwegian a new way to compete with the upper-tier brands operated by Carnival Corporation (NYSE:CCL) and Royal Caribbean Cruises (NYSE:RCL).

Upscale at full sail
Prestige's two brands lead the luxury cruise and upper-premium cruise markets. Regent Seven Seas Cruises currently sails three ships that max out at 700 guests -- guests who are happy to pay premium rates for no-holds-barred luxury: suites up to 2,000 square feet, chef-prepared meals, and land adventures including treks to Egypt's Valley of the Kings and French wine tours.

Prestige's other brand, Oceania Cruises, operates five ships, with the largest capable of carrying up to 1,250 passengers. Oceania positions itself as an upscale value line with offerings that include themed cruises focused on Mediterranean art, French cuisine, and other delights. Where Regent Seven Seas is all-inclusive, Oceania touts promotional deals, but its offerings are definitely for the traveler with a large budget.

A quest for more of the luxury market
The deal brings Norwegian Cruise Line's total fleet from 13 to 21 ships, leaving the company 3rd in size compared to industry leader Carnival and the 2nd-largest operator, Royal Caribbean. The value is not in the number of berths Prestige delivers but in the customers that Prestige will bring with it. These cruisers are happy to pay, for instance, $8,500 for a seven-night Caribbean luxury cruise -- or $149,000 for an 87-day epic sailing voyage from Tokyo to London. The latter cruise, which sails in March 2015, is already almost sold out, although there are suites left in the $63,000 range.

Suffice it to say that the Prestige purchase will better position Norwegian to compete with Royal Caribbean and Carnival at the uppermost end of the cruise market. While Carnival cruises are a popular mass-market option in the U.S., the company operates a total of 10 cruise brands, including the premium Holland America and "ultraluxury" Seabourn lines.

Royal Caribbean's six brands include Azamara Club Cruises, which offers butler service for suite guests on its 686-passenger ships, and Celebrity Cruises, which last week launched a new slate of luxury vacation packages that include African safaris and trips from the Amazon River to Antarctica.

Better balance
While a $149,000 cruise is not for everyone, courting that market gives Norwegian a hedge against economic downturns that can hit middle-class travelers disproportionately hard. During a recession, rich cruisers might scale back from the $150,000 suite to the $53,000 option, while travelers with less discretionary income will likely scale back to a staycation on dry land.

"From the travel agent perspective, it's a positive move for both Norwegian Cruise Line and Prestige since the brands can diversify their portfolios, while still maintaining each cruise line's unique brand personality," said Michelle Fee, CEO of the travel agent network Cruise Planners, in an email to The Motley Fool. "I think this acquisition will strengthen the Norwegian Cruise Line brand as a whole, as it will now allow them to catch up to its competitors who also have diversified portfolios."

The Prestige purchase doesn't mean that Norwegian is moving away from the mass market. In July, the company announced its order for two new big boats, 4,200-passenger Breakaway class vessels that will launch in 2018 and 2019. Expect these ships to offer popular amenities such as Broadway shows and celebrity chef dining options. But with strong demand for upper-tier service and amenities, Norwegian's move into the upscale market is a smart way to balance its brand portfolio.

The transaction is subject to regulatory approvals and is expected to close in the fourth quarter of 2014. The total transaction consideration of $3.025 billion includes the assumption of debt and there is an additional contingent cash consideration of up to $50 million to be paid to Prestige shareholders upon achievement of certain 2015 performance metrics. Shares of Norwegian Cruise Line Holdings were up roughly 11.5% as of 2:15 p.m.

Bank of America + Apple? This device makes it possible.
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its destined to change everything from banking to health care. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here

Casey Kelly Barton has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers