Posts Tagged ‘Carnival’

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.

Word Cloud: Captain Schettino

A type of boomerang occurs for companies and victims that suffer tragic events.  First is the event itself, which is followed many months later by its reemergence in the news during subsequent trails and lawsuits.  And so it is with Carnival, Concordia passengers, crew and their families while the captain of the cruise ship finished his pre-trial hearings last week.  While no date has been set for the actual court case, we can expect the news flow to continue.

As demonstrated by the word cloud of that news flow below, the Captain remains squarely at the center of the discussion.

 

And the impact has been felt in the industry.  Three weeks ago on September 25th, the word "Costa" was mentioned 67 times in Carnival's Q3 earnings conference call.  That was more than “Executive” (66 times), but less than “quarter” (96 times).

In summary, earnings were reduced as a result of the Concordia incident by about $500 million, and Costa lost about $100 million in 2012.  In the most recent financial quarter – a quarter that booked revenue for sailings six to eight months after the accident, Costa accounted for over half of Carnival’s decline in net revenue yields.

The Costa brand’s occupancy drop was 5% in 2012, with an 11% decline in the second and a 6% drop in the third quarters.  In the fourth quarter of 2012 Costa’s ships are expected to match the occupancy rates of a year prior, albeit at lower prices.

Going forward, pricing and occupancy for Costa's bookings in Q1 2013 are tracking lower on a year-over-year basis.  However, these differences will narrow as year over year comparisons versus 2012 become easier.  According to Howard Frank, Carnival’s Vice Chairman and Chief Operating Officer “Based on consumer research, the brand perception in each of Costa's major markets is gradually improving so we are greatly encouraged by the resiliency of the brand.”

In fact, Carnival has a new build on order for Costa with expected delivery in the Fall 2014  The Costa brand is also helping to develop an emerging cruise market strategy in Australia and Asia.  Carnival has increased capacity by 8.5% in these markets and will be sending the Costa Atlantica to join the Costa Victoria in China in the spring of 2013.  Costa was an early entrant into the Chinese market and has a marketing history there.

Costa Concordia Impact to Cruise Prices and Bookings

Thus far pricing* for sailings on Costa (all Costa ships, all sailing departure dates) has not changed since the Concordia accident on January 13, 2012.  Click on graph below for advertised prices from January 7 to January 21, 2012.  Note little or no change to the booking prices.  With prices for Costa holding up, wave season for RCL and CCL are likely holding up as well (refer to Cruise Pulse for details).

This finding is backed up by responses from several U.S. travel agents in regard to booking demand.  Surprisingly, agents have indicated minimal to no demand impact.  Nevertheless, on 12/30/2012  Carnival guided loss a booking slow down in the mid teens.

Interestingly, travel agents are currently Carnival’s best marketing resource. While the “Land vs. Sea” campaign is off the air (given its theme the campaign does not “play well” with current events) thousands of travel agents are out in the community engaged in conversations with prospective cruisers on a daily basis.  It is these human one-on-one interactions that assure vacationers this tragic event is a “one off“ and in fact, given the renewed focus on safety and procedures, now is the safest time to cruise ever.

* Average price per day per person, inside cabin.


Costa Concordia impact

I’ve always been fond of the quotation “the law of flotation wasn’t discovered contemplating the sinking of things.”  This has certainly held true for the cruise industry – growing the annual number of passengers carried nearly 5 times over the past 20 years.  But with over 9,000 sailings worldwide in 2012 the odds of something going wrong somewhere do increase.

GIGLIO PORTO, ITALY - JANUARY 21:  People look...

Traditionally I have considered the media coverage of cruises ships to be somewhat lopsided.  I imagine there are plenty of things going on over the course of a year throughout hotel rooms in Las Vegas for example – but we tend not to hear these stories. By contrast, we do readily hear about the occasional sick cruise ship passenger, bad smell or overboard suicide.

My heart goes out to the passengers and families on Concordia’s sailing.  This is a terrible tragedy by any measure.  Without diminishing these human experiences, the recent events of the Costa Concordia will at the very least have an impact to Carnival’s near term bottom line, something Cruise Market Watch can measure.

For the Costa Concordia, remaining sailings in Carnival’s First Quarter (Q1) 2012 would have brought in an estimated total of $15.8 million in ticket revenue.  For Q2 the impact will be in the order of $47.4 million in ticket revenue, Q3 $63 million and Q4 $45.9 million.  Concordia was booking considerably higher prices during the summer (June, July and August).  In a “back of the napkin” estimate that assumes the lost ticket revenue falls straight out of the bottom line this would equate to about .02 cents in Q1 earnings per share and .05 cents in Q2.  The loss to earnings from the Carnival Splendor incident was .07 cents per share in a single quarter.  Things we can’t measure include – what will be costs of raising and repairing the Concordia and when will she sail again?  Will those who have already booked future sailings on Concordia transfer their vacations to other ships?  What will be the legal actions and operational changes? We will have to wait to hear guidance from Carnival. Update: 12/30/2012  Carnival guided loss be in the range of $155-$175 million after a booking slow down in the mid teens.  This news came after initially guiding $85 to $95 million lower (or .11 cents to .12 cents per share) on 12/16/2012.

Fortunately, ship builder Fincantieri has ship yards located right in Italy.  Any near term impact to ticket pricing across Costa and other cruise brands will likely correlate with the duration of time in which the story continues to garner news headlines and cruise brands keep their wave season ad campaigns off the television.  Pricing impacts will continue to be closely watched.


 

 

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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Carnival ready to launch new ad campaign with agency partner Arnold

Ad agency and media bible Brandweek magazine is reporting Carnival Cruise Lines will soon debut a new ad campaign under the tagline "Fun For All. All For Fun."   This has been highly anticipated, since Carnival dropped CooperDDB for Arnold in June 2008. Arnold was the agency of record for Royal Caribbean until December 2007.

The new campaign will start Oct. 26 in Dallas with a World Record attempt to create the biggest beach ball followed by the largest pinata Nov. 2 in Philadelphia (details below). According to Brandweek, footage from the events will be used to create national TV spots.

Carnival's signiture in room activityOther advertising includes a series of online videos based on Carnival's "get your pod chirping" in-room activity - the towel animals (pictured here with a soft toy friend who apparently wants to get in on the act).  The online clips are at www.carnival.com/funville undoubtedly with the hope of going viral on the likes of YouTube and other social networks.

Further event details:

The first event is Sunday, October 26th at 12 noon at Pegasus Park in downtown Dallas.  The World's Largest Beach Ball is 35 feet tall or about 3 stories. Senior Cruise Director John Heald will be in attendance tossing around the humongous beach ball.

The second event is in Philadelphia's City Center at North 20th and Market streets on November 2.  The World’s Largest Piñata is 62 feet tall and 55 feet long or about six stories - and filled with 8,000 pounds of candy. Click here for an on-the-spot account or here for an ad age video wrap up.

Updated 10/6/08.

 

 

 

 

 

 

 

View from under a cruise ship

Starting with the most recognizable object, the anchor.  It weighs more than 10,500 kilograms, or 23,00 lbs and is attached to 13 lengths of anchor chain. Each length is 15 fathoms or 90 feet.

The large "odd shaped" object protruding from the front of the ship is the "bulbous bow." Used in most large modern ships with long, narrow hulls such as navy vessels, freighters and passenger ships the bulb modifies water flow around the hull reducing drag and increasing stability and speed. It also improves the "islands per gallon" 🙂 extending range up to 15 percent.

The "fan things" on the side are the bow thrusters. They allow the ship to turn in port. Only used at slow speeds or when stopped, they have reversible propellers to push the ship’s bow to port (left) or to starboard (right). When the bow thrusters are operated together with the pods (located at the stern of the ship) the ship is able to move sideways or turn on a dime.

The last photo is taken from directly under the ship at the bottom of the hull. The 101,353 ton Destiny (the first passenger ship to have exceed 83,676 tons since the Queen Elizabeth launched in 1938) is carefully positioned and lowered on the resting blocks shown in the photo.  Then the formerly submerged portions of the ship are cleaned and coated with anti-corrosive and anti-marine growth paint. They've also been using a new hull paint that reduces the ship's drag in the water.

 

Increase onboard revenue with digital pictures.

Recently onboard the Carnival Destiny I was fortunate to be photographed several times by the friendly staff.

Pouring over the giant wall of fully developed photographs, I couldn’t help thinking of the I-phone. You know, the nifty screen where you flip through pictures with a short flick of the tip of your forefinger.

Had Carnival shifted to digital cameras, the entire photo developing and printing process could be limited to only the pictures actually desired by passengers. It might look something like the kiosk at your local Walgreens.

It would reduce expenses by:

  • Saving back-end labor processing, printing and placing the photos up on the wall
  • Cutting the cost of all those negatives and photo paper

It would increase revenue by:

  • Freeing up a lot of retail wall space for other product.
  • Freeing up passenger time spent squinting and scanning the hundreds of prints so they spend time in other profitable places
  • Making it more convenient and easier to find the pictures.   By displaying watermarked digital images (categorized by date and time taken) on a few widescreen kiosks, as well as searchable via shipboard TVs, cell phones and even for purchase on the Cruise company’s website would increase exposure and sales.  Even friends at home could see and buy them.  Bottom line, I know there were a couple of photos I couldn’t locate on the wall. It would have been nice to casually browse for them on the web later from home.

 

 

Cruise value will be enough to manage economic slowdown.

One can make an argument that the slowdown, over the long term, may actually help the cruise industry. Hear me out.

Yes, in recent weeks there has been a decline in bookings and some price drops as a response. Declines have also been noted here in our CruiseSearch and Cruise Price indexes.

Once the initial panic to the stock market fall stabilizes, vacationers will begin to feel less stressed, adjusted to their current economic circumstances and more comfortable to begin booking again. This will happen soon.

Over the longer period of a recession, I believe vacations (perhaps considered a luxury to previous generations) are now considered a necessity.  Even in this economic slowdown, people will still be looking for something to do – just searching for a better vacation value.

This will mean:

  • Families who were thinking 7 day cruises will now be booking 4 or 5 day cruises (shorter cruises in-fact, might prompt higher per-day per passenger on-board spending).
  • But most importantly, non-cruisers who were considering a different type (more expensive/less value) of vacation may now consider a cruise.

Where else can you find for as little as $100 per person per night?

  • Breakfast, lunch and a lobster tail sit down dinner – every day
  • Water-park
  • Nightly Vegas style entertainment
  • Hotel room accommodations
  • Travel to exotic destinations
  • Casino, shopping etc. etc.,

No doubt, the oncoming recession is serious. Cruise lines earnings per share will be impacted. To keep prices low and cabins filled cruise lines will make:

  • additional expansions to local ports of call (further reducing consumer's travel costs)
  • more pricing segregation on ships – meaning less access to fewer included amenities for lower priced berths.
  • fewer all-inclusive amenities overall and more charges for on-board services.

My point is the recession may actually stimulate some non-cruisers to try one for the first time due to the value.  Over the long term, this would further expand the market and positioning cruise lines for even more success in the future. To make this happen during these rough economic times, cruise lines must not back-off promotions, advertising the worry free escapism and value cruises offer.

 

Turmultous Ride for Carnival Stock Price

Carnival shares have certainly experienced considerable volatility the past few weeks, rebounding from 3-year lows in early July only to be knocked down a second time. Given an unusually aggressive analyst downgrade, possibility of high long-term oil prices and a stunningly scary national economy the pps is actually holding up pretty well.

The short-term technicals indicated a buy signal when the stock bounced after the downgrade news, moving back above the $34 mark.

PPS rode below the lower bollinger band, RSI turned up, MACD line turned up and Slow Stochastics headed above the 20 mark (note arrows in chart, click for details).

Today, CCL has resistance in the lower $37's and I would sell a move into that area.

In the mid-term range the stock is likely to test the $30 area again. A move below support at $34 indicates a short sell opportunity with a cover at $30.

Deutsche Securities massive one time -39% drop in price target for Carnival to $32 from $52.50 was intriguing.  He cited Carnival’s “need [for] a ‘strategic shift’ to cope with high fuel prices and shipbuilding costs.” Suggesting “with rising shipbuilding costs exacerbating this issue, we believe that Carnival needs to shift to a returns-driven philosophy, where the group raises cruise prices and reduces commissions.”

Interestingly with all the recent shipbuilding activity, there comes a danger of overbuilding - if one company adds a ship, then the other company needs to add one too just to maintain its market share. The challenge will be to know when to stop short of "mutually assured over capacity."

Long-term it is widely agreed there is much positive growth remaining for cruise lines. But with a tougher economy as a possibility over the next couple of years, and higher fuel costs cutting into margins, the danger remains that the more expensive cabins will not be filled or require discounting. Cruise lines need to increase the number of high ticket paying passengers through marketing. But higher end travelers tend to be more fickle, since they have many more options available to them.

In a related note, Susquehanna Financials monthly survey of cruise travel agents found that advance cruise bookings in August fell 6.1% year-over- year, the worst decline recorded since the survey began three years ago. Prices ticked up 2.9%.

This exactly mirrors and supports the findings from both the August 2008 CruiseSearch Index and Cruise Price Index.