Norwegian Cruise cuts profit forecast as Middle East conflict raises fuel costs
By Anuja Bharat Mistry
Impact of Middle East Conflict on Norwegian Cruise Line's Financial Outlook
May 4 (Reuters) - Norwegian Cruise Line cut its annual profit forecast on Monday, as the cruise operator battles surging fuel costs linked to the war in the Middle East and tepid demand for its sea voyages, sending its shares down 7% in morning trading.
Rising Oil Prices and Industry-Wide Challenges
Global oil prices surged above $100 a barrel after U.S. and Israeli strikes on Iran led to the closure of the Strait of Hormuz. More than $50 billion worth of crude oil supply has been lost since the start of the war, according to Reuters calculations as of mid-April.
Competitors and Airlines Also Affected
Rivals Carnival and Royal Caribbean have also highlighted potential hits from rising fuel costs, and several global airlines have warned of jet fuel shortages.
Norwegian's Fuel Hedging and Profit Forecast
About half of its fuel consumption for the year was hedged, and net of that, Norwegian expects annual fuel prices of $782 per metric ton, based on spot rates as of April 28, up from the prior $670.
Booking Trends and Consumer Behavior
The Middle East conflict has forced consumers to re-evaluate travel plans, particularly to Europe, Norwegian said, adding that the current booking range was below optimal after execution missteps led to shorter Caribbean itineraries.
Revised Profit Forecast
Norwegian now expects fiscal 2026 adjusted profit between $1.45 and $1.79 per share, compared with its prior forecast of $2.38.
Cost Reduction Measures
Turnaround Strategy and Leadership
COST CUTS IN ACTION
Norwegian is also cutting costs as part of its turnaround strategy under new CEO John Chidsey after the cruise operator came under pressure from activist investor Elliott Investment Management.
Organizational Restructuring
The company was making some role and position adjustments to its shoreside organization, a Norwegian Cruise Line spokesperson told Reuters.
Restructuring Expenses and Payroll Reductions
In the reported quarter, the company recorded restructuring expenses of $12.2 million. Executives said on a post-earnings call that annual salary and benefits costs would reduce by 15% for 2026. Payroll expenses for 2025 were $1.40 billion.
Financial Performance and Analyst Commentary
Its first-quarter revenue of $2.33 billion missed analysts' average estimate of $2.36 billion, according to data compiled by LSEG. But its adjusted profit of 23 cents beat estimates of 14 cents, partly due to the company's cost savings.
The forecast cut is a possible reset, with management execution now even more critical to get Norwegian back to an earnings growth trend, Jefferies analysts said in a note.
(Reporting by Anuja Bharat Mistry in Bengaluru; Editing by Leroy Leo)
