Carnival Corp. in late March reported solid bookings during Wave
season, clearing the path for inventory to be filled for the remainder of 2015
without resorting to close-in price discounts.
The multi-brand cruise company reported results for the
fiscal first quarter ended Feb. 28 that were more than double the $20 million
it earned in the first quarter of the prior year.
The world’s largest cruise company reported Q1 net income of
$49 million on revenue of $3.5 billion. In remarks to analysts, Carnival Corp.
CEO Arnold Donald used terms like “strong” and “nicely ahead” to describe the
start of the year.
Donald indicated that markets closest to North America were
particularly promising, at one point referring to the upcoming Alaska season as
“super-strong.”
He added that pricing in the Caribbean, which has been a
drag on much of the industry, should become a tailwind starting in the second
quarter.
And he said the company’s flagship brand, Carnival Cruise
Line, had “outperformed” for the second consecutive quarter.
Rachael Rothman, an analyst at Susquehanna Financial Group,
raised her price target for Carnival shares from $52 to $55 after the results
were released.
“We are encouraged by management’s commentary that the
Carnival brand enjoyed mid-single-digit yield improvement despite the
competitive Caribbean environment in the quarter,” Rothman said.
Carnival is the first cruise company to report results based
on activity during Wave season.
Arnold Donald
It raised its guidance for revenue yields for the rest of
the year to between 3% and 4% from the 2% to 3% it forecasted in December.
“Overall, our booking trends build confidence in our
increased yield guidance as much of the year is already booked at higher
prices,” Donald said. “Moreover, we have less inventory remaining for sale,
leaving us well positioned to strengthen pricing on the remaining inventory.”
While the prospect of fewer promotions to fill ships could
be encouraging for travel agents, another trend highlighted a continuing
frustration for agents selling the industry’s non-luxury brands.
Yields from onboard revenue advanced companywide by 8%
during the quarter, while yield from tickets — the portion of consumer spending
on which commissions are calculated — remained flat relative to the same period
a year earlier.
Donald said that after currency translation losses were
factored out, ticket yields were up 1%. He said that improved yields on cruises
in Europe and Asia were partly offset by lower yields in the Caribbean.
A long-awaited rebalancing in the Caribbean has begun, and
Donald said industrywide capacity would be down by double digits there in the
third quarter, the industry’s most lucrative earnings period.
While Caribbean and Alaska itineraries for the rest of the
year are “nicely ahead on both price and occupancy,” according to Donald, he
said bookings for North American brands on routes elsewhere, primarily Europe,
are ahead on occupancy but at lower prices.
Donald attributed the lower prices to currency translation.
The euro is at a 13-year low against the dollar, which reduces the price on
cruises purchased in euros when they are converted to dollars.
Carnival Corp. said it had reached strategic agreements with
two European shipyards to build nine ships in the 2019-22 timeframe, the single
largest shipbuilding pact in cruise history.
Donald said that currency did not factor into the decision,
but rather it was driven by the need to give the two yards, Fincantieri and
Meyer Werft, longer lead times to manage subcontractors.
Some of the ships will also be based on a new design
described as the most efficient ever, and Donald said, “That requires
additional forward planning as a prototype.”
Carnival has not actually placed orders for the ships, so
there is no detail about how big they will be, what they will cost, which lines
they will go to or exactly when to expect delivery.
Robin Farley, an analyst at UBS Securities, estimated that
the ships would average about 3,500 berths. Carnival has a ship being delivered
for its German Aida brand later this year with 3,250 berths and an estimated
price of $650 million, which by extrapolation would put a value of about $6
billion on the agreement.
Farley said that despite its record size, the agreement
would result in only two to three ships a year, and an addition to the berth
capacity in North America of about 2% annually.
CEO Arnold Donald said that pricing in the Caribbean, which has been a drag on much of the industry, should become a tailwind starting in the second quarter.
Carnival Corp.’s order “maintains the below-average
supply-growth rate that the industry has reached for the last three years,”
Farley said.
Donald confirmed that at least some of the ships would be
purpose-built for the Chinese market, so they would not represent additional
inventory in more mature cruise markets.
On a conference call with analysts, Donald was asked about
the impact of the terror attacks on cruise tourists in Tunis in mid-March.
He said Tunisia, which is visited by Costa, Holland
America Line and Princess among others, is about 2% of Carnival’s port
calls.
“But … whenever there are incidents like this, it affects
the psychology of travel,” Donald said. “We will just have to monitor and see
what the long-term effects are, but there has been a history of the market
response to these things, and historically it dissipates.”