As a frequent passenger who takes roughly 25 cruises each year, mostly on mass market cruise lines, it’s easy to see why Royal Caribbean has outperformed Norwegian Cruise Line.

It does not surprise me that the cruise line has changed its CEO while activist investor Elliott Investment Management pushes for major changes at the cruise line, including adding former Royal Caribbean Group CEO Adam Goldstein to its board.

When it comes to why Norwegian Cruise Line has underperformed, it’s both the big things and the smaller ones. The differences are subtle, but meaningful, and it has led to significantly different stock performance.

• Royal Caribbean (RCL) has significantly outperformed Norwegian (NCLH) over the past year: Royal Caribbean’s 1‑year return is about 30.45%.

  Norwegian’s 1‑year return is about 16.61%, trailing both RCL and the S&P 500.

• Year‑to‑Date (YTD) performance also favors Royal Caribbean:
• Royal Caribbean YTD return 24.77% versus NCLH 5.91%. Source: Yahoo Finance

“Norwegian Cruise Line is once again the worst-performing investment in the industry,” wrote The Motley Fool’s Rick Munarriz on Dec. 10. “…Royal Caribbean and Carnival — the country’s most valuable cruise line operator and the largest, respectively are clocking in with modest single-digit gains this year.

Norwegian has already replaced CEO Harry Sommer with board member John Chidsey, a former Subway and Burger King CEO known for his operational skills. Elliott, however, wants bigger changes.

Norwegian activist shareholder demands changes

Elliott Investment Management, the activist investor that forced Southwest Airlines to drop its signature open seating and bags fly free programs, has taken a 10% stake in Norwegian. The company shared its hopes for the brand in an open letter.

Elliott’s materials detailed the case for change, “including a decade of strategic misjudgments and poor execution, meaningful financial and stock-price underperformance and a long-term erosion of investor confidence,” the investor’s letter shared.

The letter also levelled some bold charges against the board of directors.

• In the materials, Elliott argued that the Board of Directors has failed to fulfill its fundamental responsibilities, including its most important obligation — to select the right leadership.
• Elliott criticized the Board for appointing successive CEOs who have each destroyed significant shareholder value and said the recent abrupt appointment of a long-tenured Board member with no cruise-industry executive experience continues this troubling pattern of poor judgment and insufficient process.
• The activist investor called for comprehensive Board change, including the addition of new, truly independent directors with relevant industry and operational expertise.

The investor believes that with the right changes, Norwegian stock has “a clear path to reach $56 per share, or 159% higher than current levels,” it shared.

Norwegian has not always communicated well with booked customers.

Shutterstock

Former Royal Caribbean CEO joins Elliott

Goldstein has joined Elliot as an adviser and plans to seek a seat on the Norwegian Cruise Line board. He worked at Royal Caribbean in various top executive roles, including CEO of Royal Caribbean International, from 2007 to 2020.

He pledged to be a truly independent director, despite his affiliation with Elliott.

“If appointed to the board, I would serve as a director for all of Norwegian’s shareholders, cruisers and travel agent partners – not any single investor,” he said in his open letter to the cruise industry, Fortune reported.

Goldstein has been out of the public eye since leaving Royal Caribbean. He’s returning to the industry because he sees a large opportunity for Norwegian.

“There are signs that Norwegian could be doing much better. Norwegian possesses industry-leading assets, leading the industry in investment-per-berth and featuring a premium cabin mix and compelling onboard amenities,” he wrote.

Financial results, he shared, follow a strong guest experience and differentiated product.

“Financial results follow the guest experience, not the other way around.”

MoreCruising:

• Another cruise ship destination adds ban impacting Americans
• What to know about Norwegian Cruise Line’s Free at Sea Plus package
• 3 Mistakes people make ordering alcoholic drinks on cruise ships

Vince Ciepiel, an analyst with Cleveland Research Company, reviewed the Elliott plan on the Royal Caribbean Blog, a blog not affiliated with the cruise line, and found the overall ideas strong. He believes the plan has merit, but it isn’t realistic with how quickly it could make changes.

“We view much of Elliot’s overall messaging in the plan as fair in general but likely too aggressive/optimistic on the solutions and timeline,” he shared

Experienced cruiser shares key differences between Royal Caribbean and Norwegian

Royal Caribbean has best-in-class hardware with its Oasis and Icon-class ships. These are ships that carry over 6,000 passengers, yet rarely feel crowded while offering every imaginable amenity.

In addition, the cruise line led by Royal Caribbean Group CEO Jason Liberty and Royal Caribbean International CEO Michael Bayley gets the little things right, too. It has the smoothest boarding process, communicates well with customers, and even handles pricing changes well.

Norwegian’s mistakes are small, but notable. It has missed out on the megaship craze, meaning that its ship designers have to make choices about what entertainment options are onboard. It’s also a little unclear, both from its ships and its marketing, whether it’s a family cruise line, as suggested by ships with go-karts onboard, or one mostly for adults, as reinforced by most of its other choices.

Norwegian mishandled recent changes to its drink packages on Great Stirrup Cay, leaving booked passengers confused and frustrated. Travel agents Dennis and Amy Post said customers were surprised by the abrupt policy shift.

“If you had already paid for something, they should not have changed pricing,” Dennis Post shared with TheStreet. “The changes are very frustrating and confusing for our customers.”

Postcard Travel Planning has two cruises booked on Norwegian with almost 200 passengers in March.

“It wasn’t clear, and it was abrupt. We love the product and understand why they made certain pricing changes, but the way they did it undermined trust with our clients,” he added.

“We told passengers, ‘this is the price,’ and then we had to go back to them and tell them that things that were included, like drinks on Great Stirrup Cay, were no longer included. It was past final payment day, and they never should have made changes that late,” added Amy Post.

Traditionally, most cruise fares become unchangeable after the final payment day unless the passenger bought a changeable fare.

Related: Popular tourist, cruise destination adds ban impacting Americans