A series of strategic missteps, uneven execution, and poor cost control have strained Norwegian Cruise Line’s (NCHL) financial profile and undermined investor confidence, relegating the former industry leader to the bottom tier of its peer set.
In a letter to the Board, Elliott Management argued that “the case for change at Norwegian is as compelling as any we have ever seen,” describing the situation as “one of the clearest value-creation opportunities in the public markets.”
To orchestrate this turnaround in the company’s fortunes, Elliott has taken a 10% stake in the company, making it one of Norwegian’s (NCLH) largest shareholders and a key collaborator to drive the changes necessary to “unlock the company’s full potential.”
To that end, Elliott submitted its “Norwegian Now” thesis, detailing the case for change and outlining the actions required to rebuild the company.
Elliott contends that meaningful reform at Norwegian (NCLH) starts with a broad reconstitution of the board, adding members whose travel industry experience complements the company’s strategic needs.
Once a new board is in place, Norwegian (NCLH) should seek leadership that can implement a business plan to address the company’s bloated costs that were misaligned with competitors, ship deployment decisions that have created an unnecessary yield headwind, and the company’s “high tolerance for value destruction.”
“Norwegian’s CEO appointment reflects a profound failure of Board oversight: the company had no credible succession plan, no executive bench, conducted no comprehensive search, and ultimately installed a leader with no executive experience in the cruise industry,” Elliott said in their letter regarding the recent appointment of John Chidsey as CEO.
As the third-largest cruise operator (behind Carnival and Royal Caribbean), Norwegian (NCLH) has failed to translate a modern, well-maintained fleet and ownership of one of the largest private island destinations into outperformance of its rivals. Instead, the company has been undermined by burdensome debt, poor cost management, inconsistent strategy, and pursued strategies that were not only misaligned with customer preferences but with industry trends as well.
Fortunately for investors, Elliott believes these missteps are easily corrected and represent a potential for “strong return on invested capital and significant revenue growth opportunities.”
“Norwegian benefits from a rare combination of secular tailwinds, high-quality assets, and untapped opportunity. Realizing this potential, however, requires meaningful change. We urge the Board to engage with Elliott to implement the changes necessary to strengthen this important Company. Norwegian’s shareholders have waited long enough.”
Elliott’s stake and plan for correction is lifting Norwegian Cruise Line Holdings (NCLH) shares by as much as 6% on Tuesday, giving a modest lift to competitors Royal Caribbean (RCL), Carnival Corporation (CCL), and Viking Holdings.