Norwegian Earnings: Travel Demand Momentum Yet to Falter, Positions Firm for Banner Sales in 2024

Narrow-moat Norwegian’s results displayed the strong sentiment of its consumers, with 2024 bookings and pricing at higher levels than 2023 for all quarters and with the firm currently at a record booked position. The appetite for travel has failed to slow, with Norwegian posting as-reported yield growth of 8.2% in its fourth quarter even while absorbing 17% higher capacity versus 2019. Investors sent shares up at a double-digit clip on the firm’s initial 2024 outlook, which called for as-reported net yield growth of 5.5% and net cruise costs, excluding fuel, up 3.5%, despite facing a 325-basis-point headwind for higher drydock expenses this year. This implies 2024 net yields per available passenger cruise day of around $283, an impressive rate considering the level is more than 10% higher than the daily rate narrow-moat Royal Caribbean is set to print on its recently lifted outlook. The net cruise cost forecast (excluding fuel) of $159 per passenger cruise day implies an average annual cost increase of 3% since 2019, lower than the average annual inflation rate of 4.3% over the same period. Both per diem yields and costs ex-fuel were slightly better than our 4% growth and $161 respective estimates, and as such we plan to raise our $27 fair value estimate by a mid-single-digit rate. We view shares as attractive given a wide margin of safety.