Norwegian's Competitive Position Aids in the Restoration of its Narrow Moat Rating

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. However, as consumers returned to cruising after the 15-month sailing halt that ended in July 2021, passengers regained their appetite for travel relentlessly, bolstered by the value proposition the holiday provides. With ships now fully deployed at historical occupancy levels, pricing has been restored and is set to surpass prepandemic levels in 2023. While Norwegian could intermittently see pricing competition depending on the macroeconomic environment, we believe its freestyle offering and attractive itineraries will keep passengers engaged with the brand. On the cost side, while higher oil prices and unfavorable foreign exchange could keep costs elevated at times, we expect management will focus on extracting further efficiencies as the business continues to scale. Over time, we expect both pricing and costs to normalize at low-single-digit rates.