Carnival Results A Bright Spot In Challenging Cruise Year
North American travel agents pretty much agree on one thing: new cruise bookings made in the 1st 1/2 of 2016 were not as strong as those a year earlier. The degree of variance depends on the retailer - many report a decent 1st 1/2, just not as strong as last year's unusually robust start.
And now there's Brexit and the suicide bombings at IST. Regarding Brexit, spot checks with retailers suggest there won’t be much impact on North American sales unless there is a long-term drop in the stock market.
Cruise line stocks themselves were already down across the board in H1, with low visibility and mixed pricing blamed for lacklustre results. But the decline was minimal until the Brexit vote which saw cruise lines subsequently dropping by a bigger percentage than the overall market.
Carnival Corp. dropped 7.5% and entered Tuesday trading down 19.9% year to date. Royal Caribbean dropped 9.2% and for the year was down 34.8%. Norwegian Cruise Line Holdings dropped 8.7%, and for the year was also down 34.8%. All those year-to-date numbers significantly exceed the stock market decline for the year, and, looking ahead, analysts predicted more challenges, even before the IST bombings.
Then Carnival Corp. came out with its report beating Q2 expectations with stronger than expected net yield growth. The outlook portion was upbeat and didn't mention Brexit's potential impact on future business. The ensuing call to financial analysts was timely in terms of guidance, given the stock market plunge. President & CEO Arnold Donald’s emphasis was one of continued confidence: "We delivered the strongest 2nd quarter in the history of our company with record adjusted earnings per share nearly double the prior year. The 2nd quarter results combined with our strong book position has enabled us to maintain the midpoint of our full year guidance.”
Looking ahead, Donald said he expects there will be a 5% capacity reduction in Europe in 2017 and 5% increase in Caribbean capacity. "On the margin, these deployment changes should contribute to yield next year," he said.
Even with the Brexit vote, Donald says Carnival Corp. remains confident in its ability to perform well in the U.K. "Our local brands, P & O Cruises and Cunard, sold in British pounds, have an increasingly competitive advantage to land-based vacation alternatives.”
Driving Carnival Corp.'s continued confidence is that moving forward, Caribbean occupancy is well ahead of the prior year "at nicely higher prices." Indeed, the North American-sourced markets are the main driver of the yield guidance increase. U.S. ships are struggling with price in Europe, but the brands continue to do well due to locally sourced business. Execs noted that 90% of Carnival pax in Europe are European.
The big picture from CFO David Bernstein: "We're seeing strength in the North American market, and as a result of that, we took our yield guidance up for the back 1/2 of the year."