Tag Archives: Arnold Donald

Carnival and Costa see improvement in Q1

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By Jerry Limone
Carnival_BreezeCarnival Cruise Lines and Costa Cruises are doing better, according to Carnival Corp.’s first-quarter financial report this week (see bottom of this report), but the company’s largest brands in the U.S. and Europe still have a steep hill to climb.

How steep? CFO David Bernstein said that based on the guidance of Carnival Corp.’s competitors, those companies are at or near 2008 levels for net revenue yield, a key cruise industry metric similar to revenue per available room (RevPAR) in the hotel industry.

Conversely, Carnival Corp.’s yield is down about 11% from 2008, Bernstein said.

Delving further, Bernstein said the company took a 10% hit from the global financial crisis of 2009, gained about half of that back by 2011, but lost those gains after the Costa Concordia accident in 2012 and the much-publicized stranding of the Carnival Triumph in 2013.

“Hopefully, as our brands recover, both Carnival Cruise Lines and Costa, we can recoup, getting back to 2008 yields,” Bernstein said. “Hotel RevPARs are also back to those levels, so we have every reason to believe we can get back there, as well.”

There were good signs from Costa and Carnival in Carnival Corp.’s first quarter, the three months ended on Feb. 28. Costa’s yield was up, Carnival Corp. CEO Arnold Donald said, aided by a 50% increase in booking volume.

However, Costa’s gain was more than offset by a yield decrease for the company’s other European brands, which struggled largely due to a stagnant economy in Europe. Carnival Corp. said that net ticket yield fell 3% for all European cruise lines.

Carnival, too, had strong booking volume. Donald referenced the brand’s single-month record for bookings in January, when 565,000 people reserved space on a Carnival cruise. Attractive promotions and increased advertising spending helped make that happen.

ArnoldDonaldDonald said the company will spend $600 million on advertising in 2014, a 20% increase over 2012. He said Carnival’s TV ads during the Sochi Winter Olympics and Princess’ first TV ad campaign in 10 years were vehicles to attract first-time cruisers.

But because of discounting, particularly in the Caribbean where most of Carnival Cruise Lines’ ships operate, Carnival Corp.’s yield fell 2.1% in Q1. The company forecasts that yield will fall 3% to 4% in Q2, compared with a year earlier.

The improved performance of Carnival and Costa “builds confidence that we are tracking to turn the corner beginning in the second half of 2014,” Donald said.

But until that corner is turned, discounting will continue. Donald said that increased capacity in the Caribbean industrywide puts pressure on pricing.

The company is “behind on both price and occupancy” in the Caribbean, Bernstein said, despite the Carnival brand’s record-breaking January.

The North America brands are best performing in Europe for their seasonal program, where they are “well ahead on price and occupancy,” Bernstein said.

Carnival Corp. beats expectations, reports Q1 loss

By Jerry Limone
Royal Princess shipCarnival Corp. said Tuesday that the company had a $15 million net loss for its fiscal first quarter, the three months ended Feb. 28.

The results beat the company’s December guidance, thanks to ticket prices that were better than expected.

The loss compares with a $37 million net profit in the previous year’s first quarter.

Revenue was essentially flat at $3.59 billion. Carnival Corp.’s net revenue yield, a key metric for cruise companies that measures revenue generated per unit of available accommodations, fell 2.1%.

At the same time, operating expenses rose 1.9%, to $3.51 billion, driven by increased spending on advertising. Fuel prices declined 3.4%, to $654 per metric ton.

CEO Arnold Donald said first-quarter results exceeded the company’s December guidance because ticket prices were higherArnoldDonald than expected for Carnival Cruise Lines and the company’s European cruise brands, and due to the timing of certain expenses.

Looking ahead to the second quarter, Carnival Corp. expects that net revenue yield will fall 3% to 4% compared with the prior year.

The company also anticipates an increase in net cruise costs per available lower berth day (excluding fuel) of up to 3.5% because of higher selling and administrative costs.

Carnival Corp. eyes interbrand cooperation

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By Tom Stieghorst

Carnival Corp. will step up efforts to have its 10 brands cooperate to produce cost savings and take advantage of the company’s scale of operations to boost profits, CEO Arnold Donald told analysts last week.

In a conference call to discuss fourth-quarter earnings, Donald indicated that strategy would be a cornerstone of his management of the $30 billion company.

“We do plan to change the focus of our efforts and how we work together,” Donald said. “The brands were fiercely independent in the past and even protected information from each other. So it is a culture change.”

But he reiterated that he will not merge any of the brands.

“Operating our brands independently has been successful, and it has led to our industry-leading position,” he said. “The brands will remain independent, especially at the guest-interface level as they become increasingly distinct in the psychographics of the guests they service.”

ArnoldDonaldDonald made his comments as Carnival reported a 29% drop in Q4 net income, to $66 million. Revenue fell to $3.6 billion, from $3.7 billion.

Carnival forecasted that 2014 profits will be in the range of between $1.08 billion to $1.39 billion after falling 16.8%, to $1.1 billion, this year.

Carnival Corp. Chairman Micky Arison said that having both Carnival Cruise Lines and Costa Cruises in recovery mode led to a fairly wide range in potential profitability in 2014.

“How Wave season shakes out becomes increasingly important,” Arison said.

To date, 2014 bookings for all Carnival brands are running behind the same period a year ago at comparable prices. Carnival said it expects revenue yields in the first quarter to be down 3% to 4% and to recover throughout the rest of the year, entering positive territory in the second half.

In Q4, ticket prices were down 3% and onboard spending was up 1%, producing a 2% decline in yield.

But yields from North American brands, primarily Carnival Cruise Lines, were down 6%. Donald said that public perception and recognition of the Carnival brand have recovered 75% from their low point, according to surveys.

He said the recovery has been faster than originally anticipated. A 6.5% jump in cruise costs in Q4 throughout Carnival Corp. was attributed partly to higher advertising.

Donald said Carnival will continue greater-than-usual marketing expenditures in 2014.

One analyst asked about a critical CNN report on the Carnival Triumph that aired last week. The story, based on discovery in a negligence lawsuit filed by Houston lawyer Frank Spagnoletti, alleged that Carnival officials knew the ship had a “propensity for fires.”

Donald called the lawsuit “frivolous” and said the CNN report “mischaracterized the situation.”

Asked about installing scrubber technology to reduce air pollution, Carnival Corp. CFO David Bernstein said the company now expected that the technology would save a “majority” of the $265 million Carnival had previously estimated it would cost to comply with 2015 requirements of the North American Emissions Control Area.

The company didn’t quantify savings from its planned interbrand collaboration initiatives but said onboard spending and price optimization would be two areas where revenues could be enhanced, while procurement, inventory management and port planning were among cost centers being studied.

Preview 2014: Cruise

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By Tom Stieghorst

A rendering of the Costa Diadema.It’s been five years since the cruise industry has enjoyed anything like a historically “normal” year.

Starting with the 2008 financial meltdown and continuing through last year’s setback with the Carnival Triumph fire, the headwinds have made profit growth a struggle.

But 2014 could prove to be the breakout year for cruise earnings.

Norwegian Cruise Line Holdings CEO Kevin Sheehan is predicting a 60% rise in earnings before items like interest and depreciation. A Wave season that doesn’t put the industry in an early hole would improve pricing power throughout the year, a boon for agents as well as suppliers.

To be sure, forecasts are more measured at Royal Caribbean Cruises Ltd., and Carnival Corp. isn’t expecting positive year-over-year price comparisons until the second half of 2014.

But if prices do rebound, several factors will be working to keep them moving upward in 2014.

One is the increasing value that suppliers are placing on the travel agent distribution channel. It is likely, for example, that following Carnival Cruise Lines’ Carnival Conversations program, more agents are motivated to sell those ships today than they were a year ago.

Norwegian recently debuted an “Ask Away” monthly video chat with its top sales executives, while Princess Cruises has unveiled a rash of changes in 2013 designed to make selling that line easier.

An energized agent force can only stimulate demand for cruising, which supports improved pricing.

Cruise lines are also being more disciplined about buying new ships, to keep pricing power from eroding. Carnival, for example, is restricting growth to two to three ships a year across its 10-brand fleet. New deliveries scheduled for 2014 include the Costa Diadema, effectively a replacement for the Costa Concordia, and the Regal Princess, a sister to this year’s Royal Princess.

Also taking a sister ship next year will be Norwegian Cruise Line, which is adding the Norwegian Getaway in late January as a Miami-based version of the Norwegian Breakaway.

The most anticipated ship of 2014, however, will be Royal Caribbean International’s Quantum of the Seas, which will debut in the fall in New York. It is a new class for Royal, its first since the two successful Oasis-class giants.

Quantum will include several “wow” elements such as simulated skydiving and a London Eye-style observation capsule.

Another innovation debuting in 2014 will be “virtual balconies,” which are floor-to-ceiling screens on the wall of interior cabins onto which exterior views are projected. The Navigator of the Seas will get some in February in drydock before they are introduced on the Quantum.

Other innovations in 2014 come in itinerary planning, such as the Oceania Cruises world cruise, which debuts at an unheard-of 180-day length.

Below deck, new backup generators and air scrubber devices are being installed on some vessels to make cruises safer and cleaner next year.

On the service side, Carnival Cruise Lines rolls out two new main dining room programs in 2014 that will emphasize American cuisine.

In communications, several lines are upgrading to provide faster Internet access, with the most dramatic speeds promised for the Oasis and Quantum of the Seas, which will access a network of lower-orbiting satellites starting next year.

But not everything is going high-tech. Printed brochures are back at Carnival Cruise Lines in 2014 for the first time in five years.

Next year will be Carnival Corp. CEO Arnold Donald’s first full year at the helm, following his surprise appointment in 2013. Meanwhile, Edie Bornstein takes over as president of Crystal Cruises, and Cunard Line has new leadership, as well.

Two big anniversaries will be celebrated in 2014: The pioneering Queen Mary 2 will be 10 years old next year, and the Panama Canal will turn 100, leading to more interest in canal transits.

Challenges for 2014 will include crowding in the Caribbean, which will get the large MSC Divina and Norwegian Getaway ships as year-round additions to the market, as well as more short itineraries from Princess Cruises.

In Asia, expansions by Princess into Japan and by Royal Caribbean and Costa into China should continue, although the rise in tensions between those two countries might prevent the most desirable itinerary options.

And in Europe, signs of a turnaround in demand in the second half of 2013 could mean a better year in 2014. Although a weak economy in Spain has drained the life from that country’s cruise industry, Pullmantur will further redeploy in 2014 to Latin America, where it appears to be finding a second wind.