By
Tony Peisley |
There was a small window of opportunity, we took it and it worked out pretty well.”That was Norwegian Cruise Line’s CEO Kevin Sheehan’s understated take on the company’s successful IPO in January. The bold move by the company saw the estimated initial share price offer of US$16-US$18 raised to US$19 with shares then trading (as NCLH) at US$24 on the Nasdaq within hours and rising again to US$27 over the next week.
With 3.5m extra optional shares also bought, the IPO raised US$478m instead of the original estimate of US$370m and that is primarily being used to pay down debt, including that on several ships. About 13 per cent of the equity was sold, leaving the current owners each with slightly reduced shares: Genting Hong Kong (43.4 per cent), Apollo Global Management (32.5 per cent) and TPG (10.8 per cent).
Speaking a couple of weeks after the event, Sheehan described the IPO as ‘inevitable’. He said he would have preferred that it happened a little further down the line but there were pressing reasons why the company chose that particular moment.
Previous attempts at an IPO had been postponed several times before – under both the current ownership and management and previous regimes – but he explained that “a variety of things just came together. Our own recent financial performance had a pretty good track record and investors could see that. Many also knew me from other places over the years so there was always going to be a lot of interest in our offering but the key to the timing was that Washington had just managed to resolve a little bit of the tax situation for consumers. This boosted the market but we knew we needed to slip in the IPO before the potential negatives set in about the debt ceiling and how all the new government programmes were going to be funded.”
The brevity of existence of that particular window was underlined when – within hours of this interview taking place – news came out that the US economy had gone back into decline during the last quarter of 2012.
Looking ahead, Sheehan is hoping that the other window of opportunity – one for the industry as a whole and not just Norwegian – will stay open for a little longer.
He says: “The IPO brought attention to the industry, reminding people that, come hell or high water, it had managed to maintain annual growth of more than 7 per cent over the last 10 years. We just need to get some pricing discipline into the market and there is a potential sweet spot ahead which has been created by the slowdown of new orders since 2008 when the economic downturn began. It means capacity will be growing at just 2-3 per cent over the next five years, giving us a huge opportunity to rationalise our prices.”
By ‘rationalise’, of course, he means pushing them back up to and hopefully beyond the levels being achieved before the downturn. Norwegian is as well placed as any brand to do this following a succession of ever-improving fiscal quarters and years. The line’s 2012 results revealed that net income rose by more than a third compared with 2011 – from $126.9m to $173.1m (an increase of 36 per cent). As revenue only increased by 2.6 per cent to US$2,276.2m, this was a particularly good performance.
“Carnival and Royal Caribbean are still the big corporate players with more than three quarters of the market between them, while we stand at about 10 per cent, but I have learned that in this industry you really compete at a brand, not a corporate level,” explains Sheehan. “On that basis, we have done really well over the past couple of years on both ticket yields and onboard revenue.
“We still have to bob and weave in the marketplace to compete but, when you compare our brand with those two big corporations, the average age of our ships is about 40 per cent younger and, over the next five years, that gap will increase.”
With 11 ships now and four new ones on the way, the average age of the NCL fleet will stay much the same, says Sheehan. “If you have 100 ships and are building just two or three more a year, the average age will be going up much more every year. I think this is important for us as it is the new features and innovations on newbuilds that drive the market now.”
He is upbeat about the line’s ability to maintain and exceed previous high points with its new ships. “We did have some challenges on Norwegian Epic but we were able to overcome them and it has been rated the top ship in the industry by Travel Weekly for the past couple of years. That ship is the business case which we then used to build Norwegian Breakaway and Norwegian Getaway and which gives us confidence that these two ships will be a big success.”
Having originally planned to operate the new ships in Europe, where Norwegian Epic spends each summer, there was a change of plan and now Norwegian Breakaway will be year-round out of New York from this spring and Norwegian Getaway will be year-round from Miami beginning next February.
In fact, the ships will not just operate from these port cities but they are being respectively branded as ‘New York’ and ‘Miami’ ships, says Sheehan. “All the attributes of Norwegian Breakaway are the epitome of the New York experience and it will be the same for Norwegian Getaway with Miami. We are very proud that we are a Miami company that will have its ‘Cadillac ship’ there year-round. As with Norwegian Breakaway, we have found a hot local artist to create the rendition for the hull and at Cruise Shipping Miami we will reveal something spectacular which has never been done on a cruise ship before.”
Neither ship is cruising in Europe because of changes made in brand deployments there since the orders were placed. “We have expanded our European presence from one-year-round and two seasonal ships to two-year-round and two seasonal ships and that is the way we intend to leave it for the time being. It was not a hard decision to send them to New York and Miami instead,” he explains. “New York is such a strong market for us and we have a long-term commitment to the port. Miami is equally important for us so it is a very low-risk deployment for both ships.”
The larger Breakaway Plus ships, however, will not be so closely linked to a single city or port, says Sheehan, as this can have unintended consequences, such as limiting deployment flexibility in the future (as in the case of the Hawaii-focused ship originally called Pride of Aloha). “We have renamed it Norwegian Sky now it is no longer in Hawaii. But it still has a large lei on its side, which we will finally be removing in its next drydock.”
This is an abridged version of an article that appeared in the Spring/Summer 2013 edition of International Cruise & Ferry Review. To read the full article, you can subscribe to the magazine in printed or digital formats.