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Is the Carnival Triumph strike three for the Cruise Industry?

Unloading relief supplies on Carnival Splendor...

Unloading relief supplies on Carnival Splendor 2010-11-09 2 (Photo credit: Wikipedia)

The “Pop Tart Cruise” on Carnival Splendor November 2010 was greeted with curiosity and had little impact to bookings or ticket prices.  The Costa Concordia January 2012 incident was greeted with shock.  Bookings and prices did drop and while they have since recovered; public consciousness of the event still hasn’t gone away (and either has Captain Schettino).  I get the sense the “Cruise from Hell” on the Carnival Triumph February 2013 is being greeted with “enough is enough.”

Sure, with over 10,000 annual cruise sailings every year there are little things that can happen to cruise ships (pier bumps, rouge waves etc.,).  And with a seven percent compounded annual growth rate, the likelihood of such events simply continues to be multiplied.  Nevertheless, when a company dusts off the pre-Concordia advertising campaign themed “Land vs. Sea” to run in the subsequent year’s wave season, one is tempted to question good judgment.

I know.  Memories are short.  The media will move on to new stories.  Carnival obviously overcame the fact its first cruise ship, the Mardi Gras, ran aground on a sandbar during its inaugural voyage in 1972.  And don’t expect any instant drop in ticket prices. Prices for close-in sailings (those sold one to three months in advance of departure) took five months after Concordia to bottom in June 2012 .

The direct impact to the bottom line can be quantified by simply accounting for the 14 canceled Triumph sailings scheduled between Feb 11th and April 13th 2013, plus the ill-fated Feb 7th voyage.  The amount totals $20.8 million in revenue according to Cruise Pulse.  Based on the Splendor being off line 101 days, we believe Triumph guidance of 71 days is overly aggressive and the Triumph will likely cancel 7 more cruises up to the May 5th sailing, adding $9.8 million to lost ticket revenue.

But unfortunately the story may not end there.  On the margin, where cash from ticket revenues meet up with corporate expenses this event will continue to be felt.  Not exactly what an industry wants at a time when they are already being squeezed by a slowing European economy and the specter of inflation to costs for fuel and victualing.

When prospective cruisers hear Triumph passengers saying: “The credit, refund and $500 aren’t really important. It’s not about the money.  We will pay Carnival anything just to let us off the ship.”  You have to wonder, will this time be different?

Repeat customers and die-hard cruisers will just get more bargains.  And when prices get low enough, it is amazing how memories fade.  But no spin can turn this publicity into a good thing for the industry.  In order to attract the best talent to work aboard ships, continue to penetrate the large “never before cruised” market and stay the course with investors attracted to exponential passenger growth these events can’t continue.  With 10,000 more “at bats” over the next year, getting wood on the ball 99.99% of the time so 20.9 million cruisers all leave happy and share their positive experiences is critical.  In the interim, Cruise Market Watch will continue monitoring the ticket revenue and pricing trends.

Cruise Market Watch Announces 2013 Cruise Trends Forecast

Now in its fifth consecutive year, we are proud to release our 2013 cruise market statistics.  In that short span of time the industry has robustly managed both a “great recession” and a once in a century ship incident.

MS Ryndam in Cozumel. Royal Caribbean and Carn...

MS Ryndam in Cozumel. (Photo credit: Wikipedia)

The Costa Concordia and European sovereign debt crisis impacted all cruise line revenues by about -5.1% from our original 2012 estimate (made two months prior to Concorida in November 2011).  The actual revenue versus forecast difference was largest for Carnival Corporation (-9.2%) compared to -2.5% for Royal Caribbean Cruises Ltd. Passengers carried however continued to climb.  Compared to our original 2012 forecast of 5.6% growth, actual results were very accurate.  Carnival was down just -0.9% while Royal Caribbean was up 0.3% versus original estimates.  All-in-all, 2013 looks to rebound strongly from the year prior on all accounts.

Among the 2013 highlights:

  • - The worldwide cruise market is estimated at $36.2 billion, up 4.8% from 2012.
  • - Cruise passengers carried worldwide in 2013 is forecast at 20.9 million, a 3.3% increase over 2012.
  • - The top two cruise companies Carnival Corporation (NYSE: CCL) and Royal Caribbean Cruises Ltd. Co (NYSE: RCL) account for 71.7% of worldwide share of revenue
  • - Direct spending by passengers and crew at all cruise ports in the world is estimated at $17.5 billion.
  • - The top two ports are Miami, FL for embarkations and Nassau Bahamas as destination.
  • - Total worldwide cruise capacity at the end of 2013 will be 438,595 passengers (a 3.0% increase over 2012) and 283 ships.
  • - The average per passenger per day is projected to be $200.85, with $152.39 ticket price and $48.47 on board spending (average cruise duration 8.5 days, median duration 7.0 days).

A total of six new ships will be added in 2013 with a gain in passenger capacity of 14,074 (including the 3,600 passenger Royal Princess, the 4,010 passenger Norwegian Breakaway, 2,192-guest AIDAstella and 3,502 berth MSC Preziosa).  Looking out further, 13 more new cruise ships will add 39,297 lower births or 8.9% to passenger capacity by the end of 2015 – generating $3.2 billion more in annual revenue for the cruise industry.

By 2017, 23.7 million cruise passengers are expected to be carried worldwide of which 59.1% will originate from North America and 27.4% Europe.


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Is Royal Caribbean taking market share from Carnival?

Royal Caribbean International

Royal Caribbean International (Photo credit: lewishamdreamer)

Royal Caribbean Cruises Ltd. (NYSE:RCL) stock priced gained as much as 12 percent today after its third quarter earnings announcement, closing up over 8 percent.  The stock hit a new 12 month high.   Carnival Corporation (NYSE:CCL) was also up, and its stock is near the October 18th 12 month high.

The relative stock price gain between the two compared to the year prior (October 25, 2011), however, is what we find interesting.  Over that timeframe Carnival is up 10.0% while Royal Caribbean is now up 36.2%.  The reason is as obvious as a large rock of the coast of Giglio Island.

Which begs the question, is the second largest cruise company in the world taking market share from Carnival?  To answer that question, we took a look at the last two full earnings statements post Concorida.  RCL ticket revenue year over year (YOY) for Q2 and Q3 is down -2.1%, while CCL is down -6.7%.  RCL’s share of ticket revenue increased from 31.2% to 32.2%.  So in regard to revenue, one would have to conclude that yes, Royal Caribbean (while also clearly impacted from the tragedy in Italy) is growing revenue share in the current environment.

On the other hand, passengers carried for RCL is down -0.1% and CCL is up 2.6%.  How can this be?  Well Carnival added three new ships* into its sailings during Q2 and Q3 2012 while Royal Caribbean’s one 2012 entry didn’t set sail until after Q3 (the 3,030-passenger Celebrity Reflection, October 12th).  So despite the removal of the Concordia from its fleet, CCL still gained in share of passengers carried with new build additions.  RCL’s share of passengers carried went from 32.7% to 32.1%.

Dividing ticket revenue by Average Passenger Cruise Days (APCD) provides an approximation of the average ticket price per person per day.  In that case RCL is down -3.0% (from $182.44 last year to $177.02 this year) and CCL -9.0% (from $188.35 last year to $171.33 this year).

So in summary, cruise ships are still sailing filled over 100% occupancy (occupancy of RCL is basically flat and CCL is down – 1.7%).  However, passengers are setting sail at better prices than a year ago.  RCL has benefited from a relatively stronger pricing position and hence improved is share of revenues, while CCL was able to grow share of passengers sailed by adding capacity.  In the end, better pricing power translates to better margins, which translate into increased profits for shareholders – and hence the relative difference in the two cruise company’s stock performance.

One interesting side note, there was an increase in onboard spending for both lines; 2% for RCL and 3.2% for CCL.  Perhaps lower ticket prices and onboard credit incentives are prompting cruisers to free up their wallets a little more – transferring some of the ticket price savings back to the cruise lines.

 * 3,000-passenger Costa Fascinosa, May 2; 2,184-passenger AIDAmar, May 12; 3,690-passenger Carnival Breeze, June 3

Cruise Market Watch Announces 2012 Cruise Trends Forecast

Among the 2012 highlights:

  • ~ The worldwide cruise market is estimated at $34.1 billion
  • ~ Cruise passengers carried worldwide in 2012 is estimated at 20.3 million, a 5.6% increase over 2011
  • ~ The top two cruise companies Carnival Corporation (NYSE: CCL) and Royal Caribbean Cruises Ltd. Co (NYSE: RCL) account for 73% of worldwide share of revenue
  • ~ The 2012 Port PulseTM rankings place Miami Florida as the #1 cruise embarkation port in the world and Nassau Bahamas the #1 port of call
  • ~ Direct spending by passengers and crew at all cruise ports in the world is estimated at $15.5 billion

A panoramic view of Prince George Wharf, the f...

Image via Wikipedia

 While cruise lines have grown annual passengers traveled at a compound annual growth rate of 7.4% since 1990 – all the cruise ships in the entire world filled at capacity all year long still only amount to less than ½ of the total number of annual visitors to Las Vegas.  Cruise passengers carried worldwide in 2012 is estimated at 20.3 million, an increase of 5.6% over 2011.

On the heals of the several new ships to be added to the market in 2012 (including the 3,690 passenger Carnival Breeze, the 3,013 passenger MSC Divina,  3,012-guest Costa Fascinosca and 2,500 berth Disney Fantasy) eight more new cruise ships will launch by 2015. These ships will generate another $2.3 billion in annual revenue for the cruise industry. By 2015, 22.3 million cruise passengers are expected to be carried worldwide.

This is not only good for the cruise industry (of which two cruise companies dominate – Carnival Corporation (NYSE: CCL) and Royal Caribbean Cruises Ltd. Co (NYSE: RCL) with a combined 73% of worldwide market share) but also for the local economies of ports visited by cruise passengers.  Direct spending by passengers and crew at all cruise ports around the world is estimated at $15.5 billion.  The 2012 Port PulseTM rankings place Miami, Florida as the #1 embarkation port and Nassau Bahamas the #1 port of call.  North America and Europe serve as the source markets for 85.9% of worldwide passengers, but other regions of the world such as Asia are growing significantly.

The new ships continue to bring attention to cruising, creating interest, additional pricing power, economies of scale and bookings of first time cruisers.  Average cruise revenue per passenger per day for 2012 is projected to be $240.13.


Have cruise prices and revenues softened for European sailings?

Cruise stocks have been on some ride over last few weeks.  Both Royal Caribbean (RCL) and Carnival (CCL) touched new 52-week lows early this week, only to rebound with the overall market as stock prices whipsaw in reaction to the daily cycle of news out of Europe.

Headlines jump between “Greek Default Unavoidable” to “Greek Aid Likely,” and ”Eurozone Contagion” to “Banks are Stress Tested.”

Trying to predict and trade the swings boarders on madness, but one can predict the impact on cruise cabin prices for sailings with European itineraries.

Click on the interactive chart below.  One can see with each “Priced on Month” closer to a European sailing departure, the Total Weighted Average* price has come down – more so for the nearer term sailing dates.

Indeed, European pricing trends were confirmed by Carnival’s most recent 3rd quarter earnings conference call

 “In Europe, the sovereign debt issues and the related concerns about the strength of the European banks contributed to the slowdown in EAA brand bookings. These issues, together with related declines in consumer confidence in the various markets in which we operate, seem to have contributed to the softened booking activity during this August and early September period.”

Insights into how the cruise lines are performing in other regions of the world, and how pricing changes impact forward earnings can be accessed from our proprietary database.  It tracks daily ticket prices and passenger sailings to port destinations for over 8,000 annual cruises.  With an exclusive window into the pricing of virtually every sailing, every day, world wide (including Carnival Cruise Lines (CCL), Royal Caribbean Cruises Lines (RCL) and Norwegian Cruise Lines (NCL)) our subscribers can view cruise revenue and passenger trends in near real time.

* Cruise Market Watch’s proprietary weighted average of the daily advertised price for each ships cruise sailing for each cabin category (on a per sailing day basis).  Weighting based on the total number of cabins on each ship in each category.

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Will Royal Caribbean’s earnings be an Oasis?

Royal Caribbean Cruises Ltd. (NYSE: RCL) is scheduled to release the company’s fourth quarter financial results this week on Thursday, January 27, 2011.  This provides us an opportunity to compare “mega” ships current pricing (per person, inside cabin).

In the graph below one can see the average inside cabin asking price (during August to December 2010) for various sailing departure dates.  The Allure and Oasis have mirrored each other fairly closely, topping out at just over $1,400 per person.  Other than Allure’s inaugural sailings, you will pay roughly the same for either Royal Caribbean ship.

Interestingly, Norwegian’s Epic has maintained higher pricing than Carnival’s Dream.  The premium paid to sail Royal Caribbean mega ships diminishes during September to November 2011 (particularly compared the Epic) only to increase again in the later part of the year.  Albeit, one can currently book a cruise aboard the Allure or Oasis during January to March 2012 for about 11% less than January to March 2011.  The bottom line, Royal Caribbean managed to unleash two of cruising’s greatest buzz-worthy ships when it went super-sized.  If RCL can to continue to retain higher asking prices, larger margins and economies of scale from those investments will reward investors.

Royal Caribbean’s earnings call will be available on-line at the company’s investor relations web site, www.rclinvestor.com.

Our proprietary database tracks daily ticket prices and passenger sailings to port destinations from nearly 8,000 annual cruises.  With an exclusive window into virtually every sailing, every day, world wide (including Carnival Cruise Lines (CCL), Royal Caribbean Cruises Lines (RCL) and Norwegian Cruise Lines (NCL)) our subscribers can view cruise revenue and passenger trends in near real time.

 

Top 5 least expensive cruises

Our proprietary database tracks daily ticket prices and passenger sailings to port destinations from nearly 8,000 annual cruises.

This gives us a unique vantage point to spot unusual values.* Topping our “least expensive” list is the Norwegian Sky.  For a total of $109 you could sail round trip from Miami, FL to Grand Bahamas Island, Bahamas to Great Stirrup Cay, Bahamas and Nassau, Bahamas.

RankPrice Per DayCruise ShipSail On DateTotal Number of Days
1$27Norwegian Sky9/5/20114
2$35MSC Poesia1/30/20117
3$36Vision of the Seas11/18/201114
4$38Splendour of the Seas11/25/201116
5$39Monarch of the Seas1/31/20114
FORT LAUDERDALE, FL - NOVEMBER 10: Suzanne Sum...

Getty Images via @daylife

If you have more time sail the MSC Poesia.  For as little as $249 she cruises from Fort Lauderdale, FL to Key West, FL and Ocho Rios, Jamaica to Grand Cayman, Cayman Islands to Cozumel, Mexico returning to Fort Lauderdale, FL.

The last three in our top 5 least expensive cruises (per day per person) are all Royal Caribbean.  Of the three, two don’t sail until November 2011, so you have plenty of time to book.

The Vision of the Seas, which hit prices as low as $514 in December, is a transatlantic sailing.  It starts in Lisbon Portugal, moving to several stops in Grand Canary Islands; then Recife, Salvador and Rio de Janeiro Brazil.

Closer to home the Monarch of the Seas, pricing a round trip from Port Canaveral, FL at $159.  It stops in Coco Cay and Nassau, Bahamas.

Feeling even more exotic?  Try this low price Spain to Brazil cruise.  The Splendour of the Seas from $619 also crosses the Atlantic.  You will sail from Barcelona Spain with stops in Valencia Spain; Cadiz Spain; Lisbon Portugal; Tenerife Canary Islands and Salvador Brazil.

For more least expensive cruises visit World Cruise Watch.

With an exclusive window into virtually every sailing, every day, world wide (including Carnival Cruise Lines (CCL), Royal Caribbean Cruises Lines (RCL) and Norwegian Cruise Lines (NCL)) our subscribers can view cruise revenue and passenger trends in near real time.

* Lowest advertised inside cabin price from December 2010.  Price will vary based on actual date of booking.

 

 

 

Carnival delivers early Christmas present

Following yesterday’s upgrade to Overweight and a $51 price target, Carnival (CCL) released 4th quarter and year end earnings this morning delivering investors an early Christmas present.

Earnings were in line with analyst expectations, overcoming some of the expected costs associated with the Splendor engine fire.   Carnival posted net income of $248 million, or 31 cents a share.  Carnival also guided full year 2011 earnings in range of $2.90 to $3.10 a share versus analyst’s average estimate of $2.92.  The generally upbeat expectations mirrored the sentiment of travel agents in the recently completed fourth quarter Cruise Pulse Survey.  Agents reported average ticket pricing 14% higher ($1,639) than in the previous quarter ($1,406). Compared to the same quarter the year prior ($1,582), ticket pricing was 3.5% higher.  Agents stated cruises booked so far 2011 were averaging $1,718, a 4.8% increase over current quarter pricing.  Increased pricing power is not the only good news for the cruise industry.  Additional capacity coming online in 2011 will help drive more passengers aboard cruise ships of all brands.  Annualized total passengers carried world wide will be 19.2 million in 2011, a 4.1% increase over 2010.

The market responded with its own form of holiday cheer by driving Carnival’s price per share (pps) up 4.5% to a new 52 week high.  Not to be outdone, Royal Caribbean (RCL) itself rode the wave of news higher, with its stock price increasing nearly 8%.

 

Cruise line stocks are soaring

It may be odd to think of a ship soaring rather than sailing, but that is what cruise line stocks have been doing over the past six months.  In fact, Royal Caribbean’s (RCL) price per share (pps) has risen 87% from July lows of $23 to recent highs of $43.  Likewise Carnival’s (CCL) pps has risen from July lows of $30 to recent highs of $44.

Who are the captains at the helm of this stellar run?

1. A series of great earnings reports and positive forward guidance by the major cruise lines.

  • At RCL, net income increased 55% in the fiscal third quarter as compared to the same quarter the year prior.  A similar story at CCL, with a 22% increase in third quarter net income.
  • As for Norwegian Cruise Line (NCL), in addition to reporting it will build two more new cruise ships, it turned in a third quarter EBITDA improvement of 21.4% versus the same period the year prior.

2.  A sustained resumption of CCL’s dividend, thanks to improving margins as a result of a steady increase in demand and continued success in ongoing cost reductions.

3.  A series of analyst upgrades, including those for CCL by Wall Street stalwarts such as Barclays and Goldman Sachs.

4. And perhaps anticipation from the October 26, 2010 announcement of NCL’s own initial public offering (IPO).

Rudy Martin, Managing Partner at Latin Capital Management and frequent contributor to Forbes Magazine and TheStreet.com recently produced an intriguing video that discusses the positive long term fundamentals of the industry.

As with any investment, keep an eye out for “icebergs” such as increasing fuel costs, a potentially slower European market or unforeseen impacts at the margins.  For example, from on-the-fence potential cruisers giving the idea of a cruise a second thought after the Carnival Cruises’ Splendor was disabled by an engine fire (Carnival reported November 16th the total impact from voyage interruptions and repair expenses will impact fourth quarter earnings by a negative 7 cents).


Cruise Market Watch Announces 2010 Cruise Line Market Share and Revenue Projections

NYSE

Cruise Market Watch releases 2010 cruise industry market statistics based on current economic conditions and anticipated new ship builds.

Among the 2010 highlights:

  • Total worldwide cruise passenger capacity will increase 6.9% over 2009.
  • Annualized total passengers carried worldwide in 2010 are estimated at 18.4 million.
  • The total worldwide cruise market is estimated at $26.8 billion, a 7.4% increase from 2009.

The majority of the increases are attributed to cruise lines significantly increasing passenger capacity with the addition of new ships.  Additionally, pricing pressures to fill them in 2010 will be mitigated due to improved consumer confidence. Ticket prices and onboard spending are expected to improve modestly compared to 2009, although they will still remain below 2008 levels.  Average cruise revenue per passenger (APCD) for 2010 for all cruise lines worldwide is projected to be $207.68, with $156.80 ticket price and $50.88 onboard spending. In addition, growth of international passengers will outpace North American cruise passenger growth on a percentage basis, and a weakening U.S. dollar will strengthen overseas earnings.

The combination of an attractive vacation value and marketing buzz surrounding new ship designs will provide opportunity to introduce new cruisers to the cruising experience. This will stimulate market growth for the industry through 2013. The end of 2013 projects passengers carried to reach 21.3 million, a 15.7% increase from 2010.

With cruise line stocks Carnival Corp (NYSE: CCL) and Royal Caribbean (NYSE: RCL) trading over 50% and 150% above their price 52-weeks ago (and even further above March 2009 lows) most of these positives are already baked into current share prices although events are still bullish long term for the industry.  All the cruise ships in the entire world filled at capacity all year long still only amount to less than ½ of the total number of visitors to Las Vegas – that single city in the desert. The flexibility to move the ships to match demand and where the best yields can be achieved is a distinct advantage.

Photo Source: gabriele82 on Flickr