Norwegian Buys Its Way Out of Cheap Caribbean Cruises

Viewing the Norwegian Getaway cruise ship near Leer, Germany Photograph by David Hecker/Getty Images

Norwegian Cruise Line, the third-largest cruise company, is moving into the tony segment of the market with its $3 billion deal for Prestige Cruises International, parent of Oceania Cruises and Regent Seven Seas Cruises.

Most businesses want to have a high-end product, and that’s exactly what Norwegian has bought. The acquisition will help bring in more revenue from outside the Caribbean, where Norwegian now gets about half its sales—and where sales have been hampered recently by a glut of new cruise ships.

Norwegian shares soared 11 percent on news of the deal, which is being seen as a way for the company to become less dependent on budget vacationers. Prestige collects about $400 per day from its affluent guests, compared to $170 at Norwegian, SunTrust Robinson Humphrey analyst Patrick Scholes said in a client note.

“Our ships have some of the highest space-to-guest ratios in the industry and cater to a very loyal and affluent customer base that is mostly shielded from the impact of recession and economic downturn,” Prestige Chief Executive Frank Del Rio said during a conference call on Tuesday. After the deal, Del Rio will remain chief of Prestige, which is 80 percent owned by private-equity firm Apollo Global Management. (Analysts believe that Apollo, which owns a 25 percent stake in Norwegian, probably gained more by selling Prestige than it would have by taking the cruise line public.)

Norwegian’s larger rivals already have upscale brands, with industry leader Carnival operating the Seabourn Cruise Line and Royal Caribbean Cruises courting luxury travelers through its Azamara Club Cruises. Oceania and Regent together have eight ships—more than Seabourn and Azamara combined—with about 6,500 berths; a new Regent ship is scheduled for delivery in 2015.

The deal doesn’t surprise. In an interview with Bloomberg Businessweek earlier this summer, Norwegian Chief Executive Officer Kevin Sheehan described his immediate goal for the company as better financial returns and noted that Norwegian’s board and private equity owners were open to making acquisitions. Until now, Norwegian has sought to compete in the upscale segment of the market via luxury suites on its existing ships in a section called the Haven, but it has found it difficult to lure well-heeled travelers in large numbers. On Tuesday, Sheehan said that the Regent and Oceania brands would give the company exposure to travel agents who serve the affluent.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE