Impact of COVID-19 on Norwegian Cruise Line

The spring of 2020 has been fraught for cruise lines that were compelled to suspend service indefinitely due to the spread of the COVID-19 pandemic. Norwegian Cruise Line has faced numerous challenges since March, including canceled voyages, financial difficulties, and a halt on expensive shipbuilding projects.

“We believe the ongoing effects of COVID-19 on our operations and global bookings have had and will continue to have a significant impact on our financial results and liquidity,” reads Norwegian’s securities filing.

Norwegian Cruise Lines, alongside the Cruise Lines International Association—a trade group comprising the majority of the world’s cruise operators—ordered its ships back to port and canceled future cruises for at least 30 days, beginning March 14. This order was later extended to the end of June.

The decision from Norwegian was quickly followed by a blanket No Sail Order issued by the US Centers for Disease Control and Prevention for all cruise lines operating in the US through at least July 24. Numerous other ports around the globe have also introduced regulations on cruise ships to mitigate the spread of the novel coronavirus.

“This is the first time that we have completely suspended cruise voyages,” says Norwegian in its Update on Liquidity and Management’s Plan. “As a result of these unprecedented circumstances, we are unable to predict the full impact of such a suspension on our company.”

Not only is Norwegian at anchor for the first time in the company’s 54-year history, but it is also in the throes of building nine new ships. Before the pandemic, those costly projects were seven years out from completion; however, the timeline could be pushed further back depending on when shipbuilders can resume operations. Currently, those orders are in limbo, making it uncertain how COVID-19 will affect travelers’ demand for cruises.

“We cannot predict when any of our ships will begin to sail again or when ports will reopen to our ships. Moreover, even once travel advisories and restrictions are lifted, demand for cruises may remain weak for a significant time, and we cannot ascertain if and when each brand will return to pre-outbreak demand or pricing,” notes Norwegian in its filing. This scenario creates considerable financial uncertainty for the world’s third-largest cruise line.

To counter this financial strain, Norwegian plans to issue stocks and bonds, alongside drawing down on revolving credit. Additionally, it has secured a $400 million investment from private equity firm L Catterton. If these measures fall short of stabilizing the company’s finances, Norwegian may be compelled to pursue waivers from lenders, default on loans, or even seek bankruptcy protection. Complicating matters further, Norwegian’s securities filing revealed that the Florida Attorney General is investigating “the company’s marketing during the COVID-19 outbreak” and whether it made false and misleading statements regarding the pandemic.

It’s noteworthy that Norwegian Cruise Line is not alone in facing these challenges. The US House Committee on Transportation and Infrastructure launched an investigation into the competitor Carnival Cruise Line on May 1, concerning over 1500 confirmed cases of COVID-19 traced back to their ships during the spring. Carnival, however, is in a more financially robust position and is already strategizing to resume service out of select US ports.