Geopolitical Headwinds Crimp Norwegian's Near-Term Outlook, but Global Demand Still Robust

Changes to consumer behavior surrounding travel as a result of the coronavirus had altered the economic performance of Norwegian Cruise Line Holdings, affecting its ability to generate excess economic rents. As consumers returned to cruising after the 15-month sailing halt that ended in July 2021, cruise operators added COVID-19-related protocols, which proved successful (as evidenced by lower positivity rates than on land) to reassure passengers of the safety of cruising in addition to the value proposition the holiday provides. However, with ships now fully deployed at normal occupancy levels, pricing has been restored, set to surpass prepandemic levels in 2023. Still, Norwegian could intermittently see pricing competition as global supply shifts to focus disproportionately on the North American consumer, containing yield upside. On the cost side, higher oil prices and unfavorable foreign exhange could keep costs elevated in 2023. However, we expect both pricing and costs to normalize over time, rising at a low-single-digit rate longer term.