After a difficult few years, Norwegian Cruise Line Holdings (NCLH -0.10%) looks to turn this ship around in 2023. The cruise operator anticipates adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) between $1.8 billion and $1.95 billion this year.
While Norwegian sets sail for recovery, the stock still trades 78% below its pre-pandemic January 2020 high. Here's why I'm bullish on this cruise line stock.
1. Impressive passenger revenues
Thanks to strong onboard revenue generation and increased ticket prices, Norwegian Cruise Line drove fourth-quarter passenger revenue that surpassed 2019 levels by 24%. During the company's Q4 earnings call in February, CEO Frank Del Rio referred to onboard passenger revenue as "a bright spot."
Onboard revenue continues to "hold strong with no signs of fading," according to Del Rio. Encouraged by travelers' increasing purchases while aboard Norwegian cruises, Del Rio and team consider onboard revenue "a real-time indicator of a consumer's actual spending."
Norwegian's Q4 2022 revenue more than tripled that of Q4 2021 and edged out 2019's Q4 result by 2.6%.
2. Rising occupancy and new ships
In addition to passenger spending, Norwegian's occupancy has also been on the rise -- hitting 87% in Q4 of last year. During the earnings call in February, Del Rio mentioned that 100% occupancy had already been achieved, and he projects "a return to historical levels" as early as the second quarter. So look for record occupancy levels in the third and fourth quarters of this year.
With occupancy approaching its limit, Norwegian plans to increase its capacity with three new ships this year. These new vessels are estimated to increase Norwegian's capacity by approximately 19% above 2019 levels. More cabins mean more cruisers and more cruisers mean more revenue.
3. Operating costs should ease this year
While Norwegian's revenue result in the final quarter of 2022 slightly exceeded that of 2019, the cruise operator finished the quarter with a net loss of $482 million. In Q4 of 2019, Norwegian posted $121 million in profits on $39 million less revenue than in Q4 of 2022. With the operating environment notably changed, profitability has taken a hit.
However, although higher labor, fuel, and other variable expenses all rose last year, Norwegian chief financial officer Mark Kempa expects these to ease as 2023 progresses. Higher occupancies combined with improved operating efficiencies are also anticipated to contribute to a "lower cost run rate" toward the end of this year.
4. Record bookings and a lengthening booking curve
Kicking off 2023 with an all-time high booked position of roughly 62%, Norwegian broke monthly booking records last November and again in January. As of the company earnings call in February, bookings stood to reach historical levels by the end of Q2.
Not only that, but Norwegian has also enjoyed a lengthening booking curve, which Del Rio considers a "forward-looking indicator." When asked about concerns of a weakening consumer, Del Rio replied that Norwegian had no indication that consumers are shying away from taking cruise vacations, "at least not with our three brands."
Del Rio affirmed, "If you look at our forward bookings, each quarter in 2023 is better booked than the comparable quarter in 2019."
Norwegian's first-quarter 2023 results are scheduled to release on May 1. If the company can progress toward its full-year EBITDA goal, watch for Norwegian's stock to reflect that comeback story.
