NCLH: DOUBLE TROUBLE?

Two markets could negatively impact the 1st half of 2014 according to our proprietary pricing survey

 

 

We’re not done with our current pricing survey but wanted to point out some somewhat disconcerting trends we’re seeing with NCLH.  With the Getaway celebration in the rear view, jubilation and excitement may not be the exuded emotions when NCLH reports earnings next Tuesday morning.  4Q should be fine but we’re concerned with first half 2014 demand trends.  Starting with the Caribbean, we may be seeing some pricing pressure, finally, with the double digit increase in capacity this year.  Based on our proprietary pricing tracker, Norweigan Caribbean pricing has not recovered since we reported on its weakness in mid-January.  In fact, the discounting accelerated in the past month for 1H 2014.   While 1Q close-in pricing took a steep fall in February, 2Q’s prices were also lower.

 

While the bulls may focus on Getaway’s premiums over its peers (Sun, Pearl, Epic) in the Miami market which remain quite robust in 2Q and 3Q, that also reflects much lower prices (-20-30% in some cases) for the older ships since Getaway’s pricing actually fell slightly sequentially in February.  As we look out to the late fall/winter itineraries, Getaway’s pricing is almost in-line with that of Epic – not exactly bullish.

 

While the Caribbean is the largest market, the bigger area of concern, in our opinion, is Alaska.  Compared with RCL and CCL, Norwegian has the greatest exposure to Alaska in 2014 with 10% of capacity in 2Q and 19% of capacity in 3Q.  We continued to see close to double digit pricing declines for Norwegian in the Alaska market in February.  The frigid cold weather may have influenced potential cruisers to look at warmer destinations.  

 

Not all is bad.  Europe is the lone bright spot.  Pricing was up nicely +15-20% YoY in February, continuing the strong pricing trend seen in January.  But Europe only accounts for 20% of 2014 capacity, down by 5% points compared with 2013’s.

 

We think FY 2014 yield growth expectations of 4.25-4.5% is an aggressive target.  To achieve this, NCLH will need some help.  The good news is that there are still a number of weeks left in wave season.  Cost savings could offset some of the expected revenue shortfall but top line will likely be the focus for investors.  The midpoint of the 2014 EPS guidance range could fall below Street consensus of $2.29; for Q1, we’re estimating $0.16 (Street: $0.23).  Revenues for 1H could be $10-20MM lower than what the Street is expecting.

 

NCLH looks promising over the long term but dicey here ahead of earnings and into 1H 2014.

 

The following chart illustrates the initial results of our cruise pricing survey:

 

NCLH: DOUBLE TROUBLE? - nclh