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Full Steam Ahead for Norwegian

Robust travel demand supports pricing growth for the cruise operator, driving profit gains.

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 Norwegian Cruise Line’s (NCLH) capacity has risen to more than 50,000 berths from around 30,000 before the acquisition of Prestige, making the company an increasingly relevant competitor in the cruise industry. Capitalizing on decades of consumer analytics and best practices across brands, Norwegian can nimbly cater to changing trends, in our opinion. Additionally, we view its freestyle cruising as a differentiated product, catering well to an older demographic, who may want to take their families on holiday, and millennials, who want increasing options. While this experience differs from traditional cruising, the lack of switching costs among cruise brands constrains Norwegian’s economic moat to narrow instead of wide. With the inclusion of Prestige’s brands and global diversification, we think the company could fortify its moat through increasing brand awareness and scaling costs.

Our long-term thesis continues to evolve as Norwegian has returned to the Asia-Pacific market after a 15-year hiatus. This aids the company’s focus on itinerary scarcity (redeploying capacity to new markets and diversifying duration of itineraries) and should prevent Norwegian’s products from becoming commodified. We already viewed the company’s capacity as scarce relative to its peers, as the Norwegian brand will have only 17 ships in operation by the end of 2020, and the differentiated product (freestyle cruising), along with Prestige’s tilt to high-net-worth consumers, carves out a differentiated base of consumer demand than many of its peers.

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Jaime M. Katz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.