Norwegian Cruise Line: A Turnaround, Perhaps?

Norwegian Cruise Line Holdings (NCLH +1.37%), a name one recalls from more opulent times, has experienced a modest rally this week. The cause, as is so often the case these days, is the intervention of an activist investor. Elliott Management, a firm with a reputation for…persuasion, has acquired a ten percent stake. The market, predictably, has responded with a degree of optimism. One suspects it is grasping at any sign of life.

The State of the Fleet

Prior to the recent unpleasantness – the pandemic, naturally – Norwegian enjoyed a period of respectable returns. From its initial public offering in 2013 until 2020, it managed a commendable thirteen percent annualized return. Since then, however, the vessel has foundered. Over the last three years, total returns have limped to a mere thirty-five percent, while competitors Carnival Corp. and Royal Caribbean have positively soared, achieving returns of 181 and 333 percent respectively. Elliott, it seems, has taken a dim view of these results, and with some justification. The recent appointment of an internal candidate as Chief Executive Officer – a gesture of boardroom complacency, one suspects – appears to have been the final provocation.

The firm’s diagnosis is, if not entirely novel, certainly pointed. Norwegian’s EBITDA margins, once industry-leading, have slipped to a middling thirty-six percent. Unit costs have increased by forty-four percent since 2013 – a rather alarming figure – while Carnival and Royal Caribbean have managed more modest increases of twenty-one and thirty percent. SG&A expenses, meanwhile, have ballooned by an almost unbelievable 248 percent. One pictures lavish expense accounts and a general disregard for fiscal responsibility.

Elliott also notes a failure to capitalize on its private island, Great Stirrup Cay, in the manner that Royal Caribbean has exploited Coco Cay. A missed opportunity, perhaps, or simply a lack of imagination. The firm’s assessment paints a picture of wasteful spending, an obsession with unnecessary luxuries, and a general air of entitlement.

The proposed remedy is predictable: a boardroom overhaul, the appointment of fresh management, and a rigorous cost-cutting exercise. Elliott hopes to boost EBITDA margins to forty-five percent. The market, however, appears to have priced in a rather more pessimistic outcome, valuing the company as if on the verge of collapse. This is, perhaps, unduly harsh. The cruise industry, despite its occasional setbacks, remains a popular vacation option. Whether Elliott can truly steer Norwegian back on course remains to be seen. It is not a venture for the faint of heart, but one imagines that Elliott Management, with its customary ruthlessness, may at least introduce a degree of order to the chaos.

2026-02-20 21:32

The State of the Fleet

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