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Why Norwegian Cruise Line Capsized in November

By Rich Duprey – Dec 3, 2021 at 11:07AM

Key Points

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The cruise ship operator maintains that profitability is just over the horizon.

What happened

Shares of Norwegian Cruise Line (NCLH 1.76%) ended the month of November 24.1% down from where they started, according to data from S&P Global Market Intelligence, as the cruise ship operator reported third-quarter earnings that indicated that while it is charting a course to profitability once more, it hasn't quite reached shelter from the squalls kicked up by the pandemic.

It followed that up with an announcement that it would be selling $800 million worth of convertible senior notes, an amount that could rise to nearly $1 billion if underwriters exercise their overallotment options.

NCLH Chart

NCLH data by YCharts

So what

The cruise industry was hit hard by the coronavirus outbreak because even after much of the global economy was allowed to reopen, cruise ships were forced to stay in port. Despite stringent protocols to keep passengers safe, most ports viewed them as floating petri dishes waiting to spread infection around the world, and they were forced to remain docked.

To survive the cataclysm, cruise lines assumed massive amounts of debt. Norwegian, for example, saw its long-term debt balloon from $6.8 billion to over $11.7 billion at the end of 2020, and its financial report last month showed it had more than $12.4 billion worth at the end of September. 

Now it may be adding on almost another billion dollars' worth.

Wave of $100 bills and coins

Image source: Getty Images.

Now what

Investors should still be hopeful that Norwegian Cruise Line will still come through the storm intact, although it might take a little longer than originally hoped. First the delta variant of COVID-19 sank hopes of a quick recovery, and now speculation about what the omicron variant means is further derailing a return to the high seas.

Norwegian said about 40% of its total capacity -- some 11 ships across the Norwegian, Oceania, and Regent Seven Seas brands -- are all back in the water, and its cumulative booked position for 2022 is in line with what it experienced in 2019.

That was a record year for the company, and today it's achieving that level at higher prices, even including the impact of credits it is giving to passengers for cruises canceled during the depths of the pandemic.

No doubt Norwegian investors will feel a little seasick over the course of the recovery as the cruise line stock rolls with the waves of a pandemic increasingly in the rearview mirror.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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