Carnival’s predicament benefiting cruise lines

Carnival Corporation currently sells its cruises at extremely attractive rates, with prices considerably lower than other cruise lines and even land-based vacations.

While this is something Carnival passengers will welcome, the cruise line is making changes that mean cruises will become more expensive, especially in 2023.

While the stock price has been hit by a string of disappointing results over the past two years, Carnival is struggling to recover from the damage wrought during the pandemic. However, where many paint a picture that shows the world’s largest cruise operator is in bad shape, many factors paint an entirely different picture.

Carnival prices are significantly lower

As many will have seen if they have booked a cruise on Carnival Corporation’s ships, of which there are 91, the prices are significantly lower than those of competitors. Something that spooked investors and sent the stock price down significantly.

But with ships sailing at 90% occupancy or more and higher-than-ever onboard bookings and revenue, Carnival has taken a path that may not be the best in the short term, but certainly looks to be the right one in the long term.

Photo credit: JHVEPhoto / Shutterstock

The short term is great news for those looking to cruise, as it means a much cheaper cruise than what you would pay on Royal Caribbean and Norwegian Cruise Line. So low that cruising on a Carnival ship is now cheaper than a land-based vacation.

Cruises are sold at rates under $50 per person per day, while for some the rates are $25 per night. Good news indeed for cruisers. This is not good news if you are the head of the company:

Josh Weinstein, CEO of Carnival Corporation: “We offer an excellent all-inclusive vacation experience, convenient and excellent dining and entertainment choices, fantastic itineraries, beautiful and innovative ships and the most incredible onboard crews, providing a level of personal service that exceeds that you can find anywhere on land or sea.”

“We deliver a phenomenal product. The problem is that we are too valuable. We shouldn’t be priced with a big discount on land, which is exactly the case today, between 25% and 50% depending on the routes.

The long term shows a different plan, where Carnival raises prices significantly for 2023. And that hasn’t had a negative impact so far. Bookings are strong, onboard revenue looks promising, Carnival has a younger fleet than it did two years ago and customers are thrilled with the onboard experience.

Why is the stock price at an all-time high?

But if Carnival is doing so well, why is the stock price crashing and we only hear negative comments about the company? First, size matters. Carnival has 91 ships in all. Keeping these ships up to date when there was no revenue put huge strain on the business during the pandemic.

This meant taking out loans, which meant paying interest, which is what a considerable amount of money now goes to. The money that is paid out to the loans is not paid out to the investors in the form of dividends. Why would an investor pay for a stock that will yield nothing?

Carnival Fantasy-class cruise ships
Photo credit: 4kclips / Shutterstock

One area that caused the lower-than-expected revenue Carnival posted in Q3 stems from a huge amount of future cruise credits (FCCs) extended during the pandemic. With the easing of COVID measures in Q3, a massive influx of bookings made with the FCCs occurred.

This is money that has been collected over the past two years but does not reflect the current situation of the company. FCCs will likely decrease in the coming months and virtually disappear in 2023.

Carnival CEO Josh Weinstein expects that to be less than 1% of bookings in 2023: “For full year 2023, our cumulative advanced accounting position is slightly above the historical average and at prices significantly higher than FCC normalized 2019 record highs. Although I expect a impact on 2023 FCC returns, the impact will likely be less than one percentage point for the full year of 2023.”

So what’s the plan?

Carnival is suffering from the cruise ban, which remains in place in China. Costa Cruises had developed a massive investment in the Chinese market. With this plan falling through, the company was forced to make many changeswhich will only begin to bear fruit at the end of 2022 and until 2023.

Weinstein: “In light of the continued closure of cruise operations in China and the significant presence of our Costa brand there prior to COVID, we are reducing Costa capacity by 10% from 2019 levels while strengthening our brand. highly successful Carnival Cruise Line with the previously announced transfer of three ships.”

“Two of which are through our innovative Costa by Carnival initiative launched in 2023. All three ships will be placed on new itineraries, allowing Carnival to expand its cruise offering.”

    Josh Weinstein
Josh Weinstein

While this was a change the company was forced to make, it presents a great opportunity to increase capacity for Carnival Cruise Line, which has been sailing 100% and more lately.

Only now that the ships are sailing at full capacity will Carnival Corporation be able to take full advantage of the cruising urge that is definitely here. The company has a fleet with 10% higher fuel efficiency, 6% higher efficiency in remaining operating costs, a richer cabin mix, more berths and larger overall platforms to offer experiences on board than two years ago.

With new ships such as Mardi Gras, Carnival Celebration, Iona, Costa Smeralda, AIDAnovaand more Excellence-class cruise ships, Carnival has put itself in a position to be able to recover much faster than many expected.

It could very well be that Carnival Corporation unloads one of its nine brands to create more flexibility and financial space. And, to keep the ships full, a lot of money will be invested in advertising, marketing and promotions in the near future.

Weinstein:Throughout the break, we enjoyed the dedicated support of our loyal guests. Now, as we increase capacity in 2023 and beyond, we are redoubling our efforts to attract new cruise passengers. About a third of our customers have always been new to cruising. And as you probably know, two of the biggest drivers for newcomers to cruising are word of mouth and advertising. »

But there’s no doubt that Carnival Corporation is a company known for its massive profit margins, and it’ll want to get back to that point sooner rather than later. It will do this by targeting new cruisers at much higher prices while providing the right incentives to keep those customers coming back for the same price.

Carnival Mardi Gras cruise ship