The cruise industry is closing out a year of extraordinary
earnings, with several of the biggest companies enjoying their best profit
margins in a decade.
Two of the three publicly traded cruise companies, Royal
Caribbean Cruises Ltd. (RCCL) and Norwegian Cruise Line Holdings (NCLH), will
have to wait until the end of the year to close the books on 2017.
But Carnival Corp., whose fiscal year ends Nov. 30, is
already tallying the results and expects to report year-end results on Dec. 19.
A consensus of financial analysts who follow cruise lines is
that Carnival will earn about $2.69 billion in a year during which a good
economy, a longer booking curve, the right mix of deployment and a near absence
of geopolitical or self-inflicted disasters have cruise bookings hitting on all
Through the first nine months of its fiscal year, Carnival
earned $2.06 billion on revenue of $13.3 billion, a net profit margin of
Adding back the $392 million it subtracted from profits this
year to write-down the assets of its inefficient P&O Australia brand would
make those margins higher, probably more than the 16.9% recorded in 2016.
To find similar levels of profitability for Carnival,
investors would have to go back to 2007, before the housing-related financial
meltdown, when net income hit $2.4 billion and profit margins were 18.4%
Carnival Corp. CEO Arnold Donald, in a conference call with
analysts in September, said that despite that month's spate of hurricanes,
Carnival was in a strong enough position that it didn't plan any big
"At this point in time, we are well ahead on bookings
and well ahead on pricing," Donald said.
If anything, it is even better at other lines.
At RCCL, after the third quarter ended on Sept. 30, the
company reported net income of $1.3 billion on revenue of $6.8 billion,
yielding an eye-popping 19.7% margin. A decade earlier, in 2007, RCCL's profit
margin was 9.8%, a level that it didn't surpass until 2016.
CEO Richard Fain said, "2017 has been a particularly
strong year, with a good economy, good consumer confidence driving high demand."
He warned it wouldn't be surprising if 2018 was less profitable.
After posting record second-quarter results, Fain told
analysts that in a normal year there are lots of pluses and minuses that
usually balance each other out. "But this year, we are experiencing many
more positive forces than negative ones. Part of this appears to be
industrywide," he said.
Fain added: "All of our brands are performing at a
level we've simply never seen. Our guest satisfaction ratings are at the
highest point in our history, and they keep rising. Our onboard revenue figures
are doing well, both in terms of sales and satisfaction."
For NCLH, analysts are forecasting 2017 net income of $834.5
million, up from $633 million a year ago. Through the first nine months the
company earned $661 million on revenue of $4.1 billion, for a 15.9% profit
NCLH CEO Frank Del Rio said on a conference call after the
earnings were announced, "Sustained and robust consumer demand from all
our top source markets for major destinations has resulted in a booking curve
that is at an all-time high and that has yielded very strong pricing for voyages
throughout the third quarter and beyond."
He added that revenue, earnings and number of guests booked
were higher than in any quarter in the company's history.
Ten years ago, Norwegian, then a stand-alone cruise line,
lost $227 million on revenue of $2.2 billion. This month it was accepted for
listing on the New York Stock Exchange.
The cruise industry's 2017 profit margins are surpassing its
hospitality peers. Hotel/gaming companies are seeing an average profit margin
of 8.6%, according to a database maintained by the Leonard N. Stern School of
Business at New York University.
Cruise executives said the margins would have been higher,
possibly topping 20% at RCCL in the third quarter, had it not been for the
active and damaging hurricane season in the Caribbean.
RCCL calculated that 2017 net income would be $55 million
higher but for the expense of canceled cruises, port-of-call relocations and
weakened future bookings in September when potential customers were distracted
by the storms.
The robust year has been good for those associated with the
cruise industry, including investors, employees and travel agents. Carnival
Corp. has raised its quarterly dividend twice in 2017: 14% in April, then
another 12% in October. RCCL raised its dividend by 25%, to 60 cents a share,
NCLH does not pay a dividend, but some analysts expect it to
start in 2018.
Employees, too, have benefited. At NCLH's Norwegian Cruise
Line, gratuities on specialty dining and drinks packages were raised from 18%
to 20% earlier this month. And many travel agencies are having a banner year.
Mike Hanlon, in his third year as a Dream Vacations
franchisee in Wilmington, N.C., said he started as a land specialist but now is
selling more cruises than ever. "I've more than doubled my bookings from
last year," he said.
Ross Spalding, president of Crown Cruise Vacations, said
that although 2017 has been very good for bookings and produced higher yields
than he had anticipated, many of the sailings, and thus agency profits, won't
materialize until 2018.
Wall Street analysts said that by getting more of their
ships filled further out from departure, cruise lines have entered into a
virtuous cycle of relative scarcity, leading to increased demand and thus to
"Cruise companies have effectively locked in some of
this strength, as they have elongated their booking curves," SunTrust
Robinson Humphrey analyst Patrick Scholes wrote in a Nov. 8 report. "Near-in
bookings (always the wild card in cruise) are a smaller part of the mix today
versus recent history, and companies are avoiding last-minute discounting."
Scholes recommended that investors hold shares of NCLH and
buy shares of RCCL and Carnival. Of the 25 analyst ratings listed for Carnival
Corp. stock on a page of the company's investor-relations website, 24 are "strong
buy," "buy" or "hold" recommendations. Only one rating