Norwegian Cruise Line's unexpected '98 losses

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OSLO, Norway -- Norwegian Cruise Line Chairman Geir Aune said the company in 1999 expects to resume forward momentum after incurring unexpected losses in 1998. Aune, who took over NCL's day-to-day operations on Jan. 1, said NCL has "taken actions to solve problems" connected with the losses.

As reported, NCL Holding, the parent company of NCL, reported losses for the fourth quarter of 1998 as well as the entire year, disappointing analysts' expectations of a profit. NCL said it lost $12 million in the fourth quarter, compared with a loss of $7.2 million in the period a year earlier.

NCL said its full-year loss was $2.6 million, compared to a $1 million profit in 1997. Financial analysts had been predicting that the industry's fourth largest operator would earn as much as $11.8 million in 1998, a year that produced record profits for the industry's three largest companies.

NCL's losses came in spite of a 15.6% growth in capacity during the year and a 17.7% increase in revenues to $767.6 million, including a 16.1% increase to $192.2 million during the fourth quarter. But NCL said that its operating expenses in 1998 increased by almost $50 million, due to the capacity expansion of the fleet, greater advertising outlays and an increased level of commissions for travel agents above industry norms.

Fleetwide load factors also incurred startling declines, the company reported, dropping from 103.2% to 95.9% in 1998-and to 89.9% in the fourth quarter, compared to 99.4% in the period a year earlier. NCL attributed the drops to major increases in pricing, which increased its net yields per passenger by 11.9% during 1998.

In addition to overall increases in expenses, NCL reported that two ships were responsible for significant losses last year: the Norwegian Star and the Leeward. The mechanically troubled Norwegian Star lost $17.5 million in its Houston program before it was transferred to NCL's Australian joint venture, Norwegian Capricorn Line. The Leeward, a small chartered ship sailing from Miami on short cruises to the Bahamas, lost $3.6 million last year and will be returned to its owner in October. In addition, the Norway incurred low load factors on some of its European itineraries last year, the company disclosed.

Aune listed a number of steps to overcome the problems incurred last year. Among these, he cited a change in the Norway's 1999 European itineraries and a shortening of the season there; an expected small profit from the Norwegian Sea, the Norwegian Star's replacement in Houston, and the expansion of the company's group passenger base for the fourth quarter of 1999.

NCL also reported that it has reduced its agent commission levels "closer to those of competitors."

In another development, NCL noted that it achieved record new bookings during the first two months of 1999, following the announcement of a fleetwide sale late last year, generating a 26% increase in net ticket revenues. That means that 76% of its budgeted revenue for 1999 has now been booked, compared to 69% at the equivalent time in 1998.

NCL said other positive developments for 1999 include the lengthening of the Norwegian Majesty, which will reenter the fleet in April; the delivery of the new Norwegian Sky in August; preparations for an additional Orient Lines ship in 2000.

The line also expects to increase its capacity by 10% this year and 8% next year, while increasing the percentage of capacity built since 1992 from 39% to 54%.

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