Cruise line pricing is poised to head mildly upward in the second half of 2014, as itineraries in Europe and Alaska that dominate the third quarter take center stage and the weaker Caribbean recedes in importance.

That’s the rough consensus of several Wall Street analysts who track pricing across the industry.

But when broken down by cruise region and cruise line, the pricing picture looks mixed. Cruises in Europe are definitely showing the best price improvement over last year, while the Caribbean lags.

Among the major cruise companies, Royal Caribbean Cruises Ltd. (RCCL) appears to be enjoying the strongest pricing power, with Norwegian Cruise Line struggling and Carnival Corp. starting to put last year’s troubles at its flagship Carnival Cruise Lines brand behind it.

“Demand is improving,” Susquehanna Financial Group analyst Rachael Rothman wrote in a June 12 report. “We believe that net yields will be positive for all operators over 2014, demonstrating that demand has exceeded supply even in spite of the meaningful capacity increase in the Caribbean.”

Other analysts said the industry was benefiting as it gets further from the Carnival Triumph slump of a year ago, but they cautioned that a strong recovery in 2015 is by no means assured.

The first official glimpse at how pricing played out over the past few months will come on June 24 when Carnival Corp. releases its second-quarter results.

For the past year, Carnival officials have been predicting that revenue yields for the company as a whole would turn positive in the third quarter. Rothman said it might have already happened.

“Europe is showing the stronges062314CruisePricingChanges-Chartt pricing, and Carnival is benefitting the most from significant exposure (29%) and easy compares,” Rothman said.

Within Europe, the Costa Cruises brand is Carnival’s biggest. It is seeing strong pricing in comparison with the precipitous declines it suffered after the Costa Concordia accident in 2012.

A similar comparison effect is at work for Carnival Cruise Lines, where close-in prices fell 12% to 15% from April to September 2013. Now it is starting to lap those weak months. In April 2014, the brand’s prices on cruises sold within three months of departure rose 11.6% from a year earlier, according to SunTrust Robinson Humphrey analyst Patrick Scholes.

The increases for Carnival’s other main brands in April were 22% for Costa, 7.8% for Holland America Line and 13.2% for Princess.

To be sure, the pricing climate remains very promotional, especially in the Caribbean. But in comparison with a year ago, it is poised to improve.

Cuts in capacity and a long-awaited economic recovery have finally boosted 2014 prices on cruises in Europe. If current trends continue, prices there are on track to be up from a year ago by 14% in the third quarter and 43% in the fourth quarter, Rothman said.

“As we move into the summer months, and the Caribbean becomes a much smaller piece of the overall pie and longer-haul, higher-priced destinations like Europe take center stage, we would expect continued strength in pricing trends to be a positive catalyst,” she said.

In the past, Norwegian Cruise Line had a big presence in Europe, but that share has declined, relatively, with the introduction of the 4,000-passenger Norwegian Breakaway and Getaway in North America.

In their reports, both Rothman and Scholes noted a drop in prices at Norwegian since January.

Scholes said prices at Norwegian have trended downward in the last two months over all time frames, with fares in May off 4.9% for departures within three months, 6.4% on sailings four to six months out and 5.8% on sailings seven to 12 months out.

His analysis suggested problems for Norwegian on two fronts in particular.

Although the Norwegian Breakaway and Getaway debuted with big price premiums relative to older ships in the fleet, that gap has narrowed and may have even reversed in the case of the Getaway, according to Scholes.

In a snapshot taken May 14, per-person prices were $130 and $125 a night for the Breakaway and Getaway, respectively. Those prices were up 1% and down 3% respectively, when compared with other Norwegian ships that sail in neither Europe or Alaska.

Secondly, onboard spending at Norwegian has been “surprisingly modest” over the past three quarters, “suggesting either the newer ships are not as productive as planned or the older ships are fading faster than expected,” Scholes said.

Carnival Sunshine VeniceThe analyst reduced his estimate of 2014 earnings at Norwegian and downgraded his recommendation to investors from “buy” to “neutral.”
A spokeswoman for Norwegian said the company had no comment on the SunTrust report.

The pricing outlook for the second half of 2014 is strongest at RCCL, Scholes said. Pricing is up 12.2% for cruises departing within three months and 18.1% for those four to six months away.

Short-term pricing at RCCL turned positive in April, after being mostly in the red for six months.

Scholes said he expects RCCL’s revenue yields and earnings to exceed its guidance thus far for the second half. Other analysts, including Rothman, found less dramatic price gains in their surveys.

Beyond the fourth quarter, RCCL prices flatten out again, according to Scholes. None of the analysts were willing to say that the price recovery in the second half would continue to build next year.

In a report on Carnival Corp., William Blair & Co. analyst Sharon Zackfia noted that its stock trades at about 25 times its 2014 earnings, which she estimates at $1.60 per share.

“At current valuation, we believe a strong recovery is built into expectations for 2015, for which we continue to see scant evidence as of yet,” Zackfia wrote in a June 12 note to clients.

Rothman, in her report, said the Caribbean would face additional pricing pressure starting in November with the debut of the Quantum of the Seas, which Royal Caribbean International will sail for six months from New York before moving it to China and replacing it in the U.S. with sister ship the Anthem of the Seas.

She said presales for the Quantum of the Seas are likely putting pressure on prices for the Norwegian Getaway and Breakaway, the two newest ships sailing in the Caribbean this year.

Follow Tom Stieghorst on Twitter @tstravelweekly.


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