NCLH Takes Measures to Mitigate Business Impacts From COVID-19

Norwegian Cruise Line Holdings Ltd. issued a business update on April 27 detailing its efforts to successfully ride out the global COVID-19 pandemic, including refinancing debt and reducing operating and capital expenses. The company said it expects to report a net loss for the first quarter and for the year.

“The COVID-19 outbreak has had a significant impact on the company’s financial position and results of operation. If the temporary suspension of sailings is further extended, the company’s liquidity and financial position would likely continue to be significantly impacted,” the statement said. “The company now estimates its cash burn to be on average in the range of, approximately $110 million to $150 million per month during the suspension of operations.”

NCLH and its three brands – Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises – have taken numerous steps to reduce operating expenses, including instituting a temporarily shortened work week and reduced work hours with a commensurate 20 percent salary reduction for shoreside employees.

The company also “significantly” reduced or deferred marketing expenses in the first half of the year, paused the employer 401k match contribution, implemented a company-wide hiring freeze and suspended travel for shoreside employees across the organization.

The company’s 28 ships are in safe haven, in port or at anchor and transitioning to cold lay-up, which means taken out of service since they are not expected to operate normally for a period of time. NCLH last week extended a voluntary suspension of operations to June 30, 2020.

The company said it was “meaningfully reducing cruise operating expense which includes reducing expenses associated with crew payroll, food, fuel, insurance and port charges.” The company also reduced capital expenses by about $515 million.

“With the COVID-19 pandemic impacting communities worldwide, we continue to closely monitor the evolving global public health environment. We have also taken decisive action to protect the company’s future by shoring up our liquidity position through cost mitigation and cash conservation measures as well as pursuing additional sources of liquidity to help us weather this global pandemic,” said Frank Del Rio, president and CEO of NCLH Ltd. “We believe the disruption to the travel industry, while swift and severe, will eventually subside. Our guests continue to demonstrate their desire for cruise vacations as we continue to experience demand for voyages further in the future across our three brands. When the time comes, we will be ready to safely resume operations and welcome our loyal guests on board.”

The year started with a bang, with all three brands at record booking levels, but then COVID-19 emerged. As voyages were canceled, NCLH brands offered refunds or future cruise credits for 125 percent of the cruise fare paid. As of April 17, approximately half of the guests whose voyages were canceled requested cash refunds.

“As of April 17, advanced bookings for the remainder of 2020 were meaningfully lower than the prior year with pricing down low-single digits,” the statement said. “Booking trends indicate demand for cruise vacations in the medium and longer term with the booked position for 2021 essentially flat compared to prior year at pricing that is down mid-single digits.”

As of March 31, the company had $1.8 billion of advance ticket sales, including approximately $850 million for previously announced voyage cancellations through June 30, 2020, and approximately $350 million for voyages scheduled for the remainder of 2020. Norwegian continues to receive new customer deposits and final payments on future bookings for 2020, 2021 and 2022.

NCLH also was able to refinance debt and is working with export credit agency lenders on an industry 12-month debt holiday. The company had secured a new $675 million revolving credit facility in addition to its existing $875 million revolving credit facility.

“Our quick action to proactively and aggressively implement initiatives to preserve cash and enhance liquidity in this uncertain and fluid environment puts us in a stronger position to withstand the adverse financial effects of COVID-19,” said Mark A. Kempa, executive vice president and CFO of NCLH Ltd. “We will not only benefit from the actions taken to strengthen our liquidity profile but will also benefit from a period of reduced capital expenditures with no newbuild deliveries until at least mid-2022. We will continue to evaluate all additional options to enhance liquidity.”