Seatrade Cruise News is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

NCLH shares fall nearly 12% on Europe demand outlook

2ac94e5ee9ac7614c07ad19a691a578c_XL
Europe destinations have been narrowed with Turkey off the charts (Photo: Norwegian Cruise Line)
Norwegian Cruise Line Holdings shares closed down 11.76% after the company cut its outlook for 2016 and said it wouldn't meet its 2017 expectation of $5 EPS, mainly on softer demand for Europe cruises from its core North American market. CEO Frank Del Rio blamed the 'steep deterioration of the geopolitical situation in Europe.'

NCLH dipped to $37.68 in trading before settling at $37.91, off $5.05.

Bookings started to recover in the weeks following the Brussels terrorist attack, which occurred just before NCLH reported first quarter earnings. That gave cause for optimism. But then came the Istanbul airport bombing, the Bastille Day attack in Nice and the failed Turkey coup.

'There's been no healing process in this environment because it's been one [incident] after another after another,' Del Rio said Tuesday.

The 'sheer number of incidents and their magnitude' has impacted demand for NCLH's Europe cruises, which are typically 70% sourced from North America. Though the company has tried to make up for that by sourcing more Europeans, they pay less for cruises and spend less on board than Americans.

Given the magnitude and number of events that have shaped the booking environment, 'it is difficult to be optimistic' for Europe demand in 2017, Del Rio said. Europe yields are expected to decline in 2017, compared to 2016.

Historically, Europe has been the strongest performing cruise destination so this year NCLH has more than half its fleet there for about a seven-month season. Of those 12 ships, eight are the company's highest yielding, including Regent's new Seven Seas Explorer and Oceania Cruises' Sirena. Their additions added capacity pressures to their respective brands at a time when destinations were narrowed with Turkey off the charts.

Del Rio said while it's difficult to find a silver lining in the Europe impact, at least the company has now locked in expectations for 2017, removing uncertainty.

Besides Europe, factors in the lowered guidance include the impact of foreign exchange since the Brexit vote, more tempered expectations for Caribbean pricing and the impact of sticking to a pricing integrity policy which is resulting in lower occupancy and, therefore, reduced on-board spending in the near-term but which NCLH believes is needed to retain its hard-fought pricing gains.

NCLH is also seeing some softness in South America demand. Bright spots include Alaska, Bermuda, Hawaii and the advance interest in China ship Norwegian Joy.

'Today is not a happy day here at Norwegian headquarters for obvious reasons, but we had to reset expectations,' Del Rio said during the company's second quarter earnings call. The revised, more moderate guidance for 2017 'takes full account of the environment we're in.'

Del Rio thinks soft North American demand for Europe cruises is 'a temporary situation. I just don't know how temporary it is.'