After reporting third-quarter earnings results on Wednesday, Norwegian Cruise Lines (NCLH 5.37%) said it isn't profitable just yet, but will be by the back half of 2022. Consumers are proving they still want to set sail on voyages and Norwegian's bookings remain robust, despite a temporary setback caused by the delta variant of the coronavirus.
The cruise operator's cumulative booked position for 2022 is in line with what it experienced in 2019 -- which was a record for the company at the time -- and it's doing so at higher prices, even when including the impact of credits it is giving to passengers for cruises canceled during the depths of the pandemic.
A heavy anchor of debt
The cruise ship industry took a much bigger hit than most other businesses during the pandemic as it was prohibited from sailing, even after virtually every other industry reopened.
Just to remain afloat, cruise lines took on large amounts of debt that they're now trying to pay down. Norwegian's long-term debt load ballooned from $6.8 billion at the end of 2019 to over $11.8 billion at the end of September. Its total debt is now $12.4 billion and it has $1.9 billion in cash and equivalents in the bank.
The cruise line also said it just entered into a $1 billion commitment that runs through Aug. 15, 2022, to help provide it with additional liquidity. While it has yet to tap into the money and doesn't intend to do so, if it does draw down on the funds, they will convert into an unsecured note maturing in April 2024.
That's why a return to profitability is so important for Norwegian.
A long time to leave port
The cruise ship company said total revenue for the third quarter was $153 million, short of Wall Street's consensus estimates of $198 million, and it reported an adjusted loss of $2.17 per share, worse than the $2.09-per-share loss analysts were expecting.
President and CEO Frank Del Rio said, "While consumer concerns surrounding the Delta variant resulted in a slowdown in bookings during the third quarter, net booking volumes have improved over the past six weeks and we continue to see robust future demand for cruising particularly for the second half of 2022 and beyond when our full fleet is expected to be back in operation at normalized occupancy levels."
Norwegian has 11 ships across its three brands -- Norwegian, Oceania, and Regent Seven Seas -- all back in the water, representing about 40% of its capacity. By the end of the year it expects to be at 75% of capacity with the full fleet heading back out to sea by April 1, 2022.
That's a result of the delta variant that struck and caused bookings to slow in the early part of the third quarter, impacting the fourth quarter and early part of 2022. Over the last six weeks of the period, however, consumer demand returned, which bodes well for the second half of the year.
Profitability is just over the horizon
The sudden deceleration in bookings was likely why Norwegian was forced to make that extra $1 billion of liquidity available. It reported it was burning through cash at a rate of $275 million a month during the third quarter, and though that was less than the $285 million per month it had previously guided toward, any new variant outbreaks could upset its plans.
Advance ticket sales for the quarter were $1.7 billion, including the long-term portion, which includes approximately $750 million of future cruise credits it issued, up $300 million on a net basis from the end of the second quarter, even when including approximately $100 million of revenue recognized in the quarter.
Norwegian Cruise Line's stock opened lower after the company released results because the market expected better, but the storm seems to be passing for the travel and tourism industry and this cruise ship operator should find clearer sailing from here.