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Norwegian Cruise Line Is In for a Choppy Recovery

Divya Premkumar
·5 mins read

At the onset of the pandemic, many investors wrote the cruise ship industry off for good but some operators like Norwegian Cruise Line (NYSE:NCLH) are looking to climb back on board. Companies in the industry faced an existential crisis this year with ships harbored at the port for months on end, customers demanding refunds and lawsuits costs piling up during a period of high uncertainty. This pushed Norwegian Cruise Line stock to new lows.

Source: Shutterstock.com

Like many of its peers in the travel and leisure sector, Norwegian Cruise Line, a company worth over $5 billion saw its revenue drop by 80% this year. Its year-to-date revenue stands at just $1.3 billion compared to $6.46 billion in 2019. As the rest of the world approaches a new normal, the future of Norwegian Cruise Line still remains a burning question.

Choppy Waters Ahead for Norwegian Cruise Line Stock

It’s been a turbulent year for Norwegian Cruise Line, to say the least. The novel coronavirus pandemic put the entire cruise ship industry in jeopardy while earning some of its players a bad rep. A report by The Wall Street Journal stated that cruise ships played a role in spreading the virus in the early days of the pandemic. Some cruise ships set sail despite having positive cases on board.

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The bad PR, coupled with zero revenue, put operators like Norwegian Cruise Lines in a bad position. The cruise operator entered the year on a bright note and hoped to hit record revenue and earnings for the year. But once the pandemic spread across the globe, it soon became a distant dream.

It didn’t help that the cruise ships are the very anti-thesis of social distancing. A business model that involves people huddled together in an enclosed space makes it unlikely that this industry will experience a rebound anytime soon. Norwegian Cruise Line, which is smaller than Royal Caribbean (NYSE:RCL) and Carnival Cruises Corp (NYSE:CCL), may face the longest road to recovery.

Moreover, when Norwegian Cruise Lines does resume operations, the economy will be in a deep-recession and demand for travel will be low. So even if cruise ships could potentially start their engines in the coming months, it doesn’t necessarily mean that the path to recovery will be smooth.

A Plan to Sail the High Seas Again

Norwegian Cruise Line may have seen zero bookings this year but the company hoped to make a comeback in 2021. However, with a second wave of cases creeping its ways across the globe, the predictions now seem overly optimistic. Although bookings are expected to be higher than they were this year, it is unlikely that they will be anywhere near its pre-pandemic levels.

On March 14, the Centers for Disease Control and Prevention (CDC) issued a no-sail order for all cruise ships stating that it was one of the key areas for the spread of the virus. But with the order set to expire on Sept. 30, cruise operators are hoping to sail the seas again.

On Sept. 21, Norwegian Cruise Line and Royal Caribbean submitted a 60-page proposal to the CDC citing the steps the companies would take to ensure the safety of its passengers. This will include mask recommendations, daily temperature checks and frequent testing of all the crew on board.

“A key part of it is to create a bubble, where we test every single person going on board, the guests and the crew and protect them so that the likelihood of entering with coronavirus is very low.” Royal Caribbean CEO, Richard Fain told CNBC.

With thousands of cruise line employees out of work and revenue levels in a steep decline, Norwegian Cruise Line stock is hanging on to a life raft and will sink if it are unable to resume operations soon. Battered cruise lines hope to find their new normal just as other industries have.

The Bottom Line on NCLH

It’s safe to say that cruise lines like Norwegian were among the worst-hit business as a result of the pandemic. With many companies in the industry standing on its last leg, the need to resume operations is more of a necessity than a requirement for survival.

U.S. cruise operators are hoping to adopt a similar model to their European counterparts like MSC Cruises SA, that set sail earlier this month. The operator has organized testing facilities at different ports to ensure everyone is tested before climbing on board.

While the CDC has not made a decision on the extension of the no-sail order, the green light to resume operations will allow Norwegian Cruise Line to recoup at least some of its losses. However, the speed of recovery still remains a question as demand is expected to be low.

But until we see an uptick in Norwegian Cruise Line stock, it would be best to hold off on this investment.

On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.

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