Norwegian Cruise Line sees strong demand, liquidity for 18 months

Norwegian Cruise Line says 2021 bookings are 'on track,' despite the coronavirus pandemic taking a major toll on the industry overall. Kevin McCarthy, Neuberger Berman Senior Research Analyst. Yahoo Finance's Alexis Christoforous and Brian Sozzi discuss.

Video Transcript

ALEXIS CHRISTOFOROUS: All right, welcome back to "The First Trade." We're keeping a close eye on Norwegian Cruise Lines this morning. It posted a big earnings miss but says it is seeing strong demand for future bookings and has the liquidity to make it through the next 18 months without any sailings.

Let's talk about it now with Kevin McCarthy who covers the cruise industry at Neuberger Berman. Good morning, Kevin. Good to see you.

I'm taking a look at Norwegian's stock, down more than 5% at the moment. What did you make of this latest earnings report?

KEVIN MCCARTHY: Morning. Thanks, Alexis. Well, you know, I think they did a commendable effort overall with explaining the liquidity situation, their booking window, and in particular, what they're doing around safety protocol for future sailings. I don't think anyone really expected much here. Liquidity was the big name of the game up into the quarter. And, you know, I think they've-- they're typically a pretty upbeat management team, and I think they delivered on that. They're just fighting a tough tape right now.

BRIAN SOZZI: Do you think Norwegian, just based on what you've seen in terms of raising debt in the latest quarter, have they removed the going concern risk? I know they put that out there a couple of weeks ago. It spooked a lot of people in the markets though.

KEVIN MCCARTHY: Yeah, you know, I think they have. I mean, of course it comes into question what your horizon is for the liquidity gap. They've said 18 months is the window.

Right now, you know, all three of the operators are securing their balance sheets to be able to survive throughout this period. And if you look at what the stocks are assuming, you know, they're underwriting assumptions that profitability on a per unit basis really doesn't get back to '19 levels until even post '24. So I think right now we're looking at liquidity situations that, for at least the next 24 months, you know, are likely in a pretty good shape.

ALEXIS CHRISTOFOROUS: You know, Kevin, it's hard to believe that folks are going to be running back to the cruise industry even when economies reopen. Do you think that Norwegian's being a little too optimistic here that they're going to be able to bounce back as quickly as they're saying they will? because they are offering some guidance.

KEVIN MCCARTHY: You know, I think that, you know, what probably is being missed by some is that the cruise, the airlines, these companies, their lifeblood is obviously customer traffic and being able to convince people that they are a safe platform for travel and for vacation experience. So I do think there's going to be an opportunity for them to create leadership positions in safety protocol and what they're doing around making sure and ensuring that, you know, customers feel safe on-- you know, if they select cruising for a vacation option.

The other thing I'd mention is that what the cruises have is, you know, something they're going to have to flex right now is roughly 2/3 of their customer base are repeat, very loyal customers. And that's something that I think they can rely on in times like this.

ALEXIS CHRISTOFOROUS: When you look at the cruise-line landscape right now, Kevin, who do you think is best positioned to survive this pandemic? Is it Norwegian?

KEVIN MCCARTHY: It's a great question. I think in this environment we're probably pivoting a little bit from mass experiential travel a little bit more towards curated vacation, which would put the emphasis on players that are more nimble, newer tonnage. And keep in mind, when the routes open, the itineraries open up, they're going to be very concentrated, likely around North America and the Caribbean. So smaller is probably better, and Norwegian-- and newer tonnage as well. So Norwegian fits the bill from that regard.

ALEXIS CHRISTOFOROUS: All right, Kevin McCarthy over at Neuberger Berman, senior research analyst there covering the cruise-line industry. Thanks for your insights this morning.

KEVIN MCCARTHY: Thank you, Alexis.