Norwegian Cruise Line Holdings (NCLH) has shaved some $70 million off its profit guidance for 2016, a sharp revision of previous forecasts for up to $877 million in net income.
The disappointing reset came mainly as a result of weakness in Europe but also from misplaced hopes for high prices in the Caribbean this summer for Norwegian Cruise Line's two newest ships.
Norwegian issued the revised forecast in releasing its second-quarter results, reporting a net profit decline of 8.4%, to $145.2 million. Revenue rose to $1.2 billion from $1.1 billion.
On a conference call with analysts, Frank Del Rio, the CEO of NCLH, conceded that the company miscalculated when it put both the Norwegian Escape and the Norwegian Getaway on Caribbean itineraries out of Miami.
"At one time, we thought that the Miami market was strong enough to handle two of our vessels," Del Rio said. (A third ship, the Norwegian Sky, does short cruises from Miami.)
Instead, Norwegian next summer will shift the Getaway to Baltic Sea itineraries, the highest-yielding routes in Europe.
Del Rio said the Caribbean isn't hurting overall. Revenue per day for the Norwegian Epic, sailing from Port Canaveral, Fla., is up double digits from its European season last year, and in general, Caribbean yields are expected to grow.
"We just thought it was going to be higher," Del Rio said.
Capacity for NCLH brands, which include Regent Seven Seas Cruises and Oceania Cruises, is up 15% in the Caribbean this year, while it is down mid-single-digits for competitors, Del Rio said.
Next year, that is expected to reverse, with NCLH down 4.5% and up about the same at Carnival Corp. and Royal Caribbean Cruises Ltd. brands.
A bigger problem for NCLH are the continued disruptions in Europe, which are battering demand from the North American source market. That market accounts for some 70% of NCLH's passengers in Europe, a much higher share than the European itinerary passengers of the other big cruise companies.
Del Rio said bookings for Europe by North Americans had finally started to rebound from the terrorist attack in Brussels in March. But, he said, "the faint traction we had seen following Brussels quickly collapsed by the occurrence of further events," such as the attack at the Istanbul airport and the Bastille Day truck attack in Nice, France.
So NCLH is filling its ships with more Europeans, who pay lower fares and don't spend as much onboard. He said that given the pattern of stops and starts due to terrorist incidents, "it is difficult to be very optimistic that things will turn around."
"There's been no healing process in this environment, because it's one after the other after the other after the other," he said.
NCLH is also struggling in South America, where Oceania Cruises in particular has a number of sailings this winter on its Insignia, Marina and Regatta ships. Del Rio said negative perceptions about the Zika virus are having an impact, although it is hard to quantify.
"The situation there is more acute than it may be here in South Florida," Del Rio said. "And so we are seeing softness in South America, and we're having to do more of what we do in the marketplace to stimulate demand for folks to go there."
Some of Norwegian's itineraries are seeing more demand than last year, including those in Alaska, Hawaii and Bermuda, Del Rio said. They account for 16%, 5% and 12%, respectively, of Norwegian's capacity.