Norwegian Cruise Line's long path to recovery

Norwegian cruise Line (NCL)reported a 2Q09 net profit of $15.2 million earlier this week, much better than the $5.4 million it earned in the previous three months and a significant improvement from the $27.0 million loss the company had suffered a year earlier.

A lot of the recovery came from lower costs, but CEO Kevin Sheehan had something positive to say. Firstly, he belives that the decline in ticket prices has come to an and and the latest figures already indicated that people spend moreon board their ships than what they had done before.

So far so good!

NCL has had a rough ride in the recent past. The launch of NCL America, a US flag operation in the Hawaii islands that was meant to generate high returns as a year-round premium priced operation, did exactly the opposite.

This was not the first time the NCL management has had an issue of strategic nature on its plate, which has taken an awful lot of resources to sort out. In 1980, the intyroduction of SS Norway was hailed as a true coup and indeed for a while, it put NCL in the very forefront of the Caribbean cruise industry. That is, the SS Norway was there.

The ship was roughly of equal tonnage than the other four vessels of the company put together. If you think what Carnival Cruise Lines (CCL) or what is Royal Caribbean International (RCI) today did in that period, there is a marked difference to NCL.

CCL in particular increased the number of ships rather than the size of them in its early years. RCI was mare aggressive to grow the size of its vessels too - and still is - but as all their ships were designed and built for them , certain similarities could be retained in the ambiance of the fleet.

NCL's great leap forward negated it this possibility to gradual, step by step growth. As the industry developed, a pattern of success had become obviouys by the mid-1990s. You would need big ships to have economies of scale on the ship level and many, preferrably similar vessels to obtain the same on the corporate level.

Throughout the 1990s, NCL was left to compete against CCL and RCI with a fleeet that was falling further and further behind each time either competititor introduced a newbuilding. By the end of the decade the situation had become critical. With Norwegian Sky and Norwegian Sun NCL had its first modern, large vessels, but the fleet mainly consisted of old and small units that were no match in competition against CCL and RCI.

The NCL product had become a watered down version of that of their competition, which only added to the worries of the then top brass. The introduction of Freestyle Cruising by the company early this decade gave it spark that it had been lacking for a long time and all of a sudden, the NCL brand was fashionable again.

Today, it has a modern, consistent fleet and the revamped Freestyle Cruising product continues to provide a platform on which the company should be able to build its future success. Norwegian Epic, at 150,000 gross tons, is its sole newbuilding on order at the moment. It is far larger than any other ship in the fleet. There seems to be no indication that the newcomer would cannibalise sales of cruises on NCL's other ships.

Let us hope that it will not prevent future investment in ships - probably not of the same size as the Epic - that will help the company to grow without compromising flexibility in fleet deployment.