Tag Archives: Federal Reserve

Cruise earnings as an economic outlook

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Carnival Corp. issues year-end earnings every December and looks ahead to the coming year. In some ways last year’s report looks just like this year’s. For example, in 2017 bookings were ahead of the prior year in both occupancy and price, which was also true of the just published report.

But what jumps out at me was that last year, Carnival was wrong both on how strong its pricing would be and how much costs would rise in 2017.

In December 2016, Carnival projected that its net yields from revenue would rise 2.5% in 2017 and cruise costs (excluding fuel) would rise 1%.

The actual results were a net yield increase of 4.5% and a rise in costs, measured to remove the effect of currency changes, of 2.7%.

That would appear to suggest a robust business, and perhaps the prospect for continued price and cost increases in 2018, as the extraordinarily low inflation of the past few years begins to heat up.

The Federal Reserve, which controls the money supply and thus interest rates, raised its target rate this month for short-term rates by one-quarter percent. Although it said inflation in the short term is below its 2% target, it sees the prospect of 2% inflation emerging over the “medium-term.”

In its December statement, it said “economic activity has been rising at a solid rate and the unemployment rate declined further. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters.”

The Fed will get a new chairman in February, and the economy will get at least a short-term boost from the comprehensive tax cut approved by legislators in the waning days of 2017.

All of which suggests that the current economic weather pattern of low interest rates, subdued inflation, modest price increases and little or no growth in wages may be on the brink of a change.

For cruise suppliers, that could mean higher nominal prices, but a decline in real revenue and income after inflation takes effect. Cruise retailers, while not immune from inflation, would benefit from higher nominal prices on which their commissions are based.

With higher inflation comes the risk of recession as policy-makers try to cool increasing prices by quickly escalating interest rates. That seems to be nowhere on the horizon. And yet, the expansion that began in mid-2009 already is the third-longest in U.S. history and if it continues into the second half of 2019 would exceed the 10-year record set by the 1990s economic boom.

It doesn’t feel to me like we’re in the midst of record-setting prosperity. Nevertheless, let’s hope as we head into 2018 that cruise prices and the economy stay in a Goldilocks zone – not too hot, not too cold – for the foreseeable future.

Travel Weekly Preview 2014: Pointed in the right direction

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By Bill Poling

The ingredients are in place for the travel industry to have a year of growth and prosperity in 2014. Demand is strong, the economy is improving, and the major supplier categories are beginning the year with their houses pretty much in order. 
With the consummation of the American-US Airways merger, the airline industry is getting reacquainted with profitability and is poised to push on. The cruise industry, buffeted by disasters and breakdowns in 2012 and 2013, is finally seeing the bad publicity recede.

Hotels and resorts, buoyed by rising rates and occupancies, continue to attract both guests and investors. The car rental industry, also firmed up by consolidation, is making itself more accessible every day. And tour and river cruise companies are beginning the year with momentum and product lines tweaked by innovation.

A quick scan of leading indicators suggests that, barring external disruptions, the economic environment will be good enough for every mode to do well. It even looks like the federal government might behave itself in 2014, sparing us the jolts of sequestration and shutdowns.

The recession knocked a lot of our abbreviations and acronyms on their ears: GDP, Nasdaq, etc. Most distressing for millions of workers, the typical IRA and 401(k) took a hit too. Most of these have regained their lost ground and some — the market indexes, for example — have picked up new momentum.

But early on, many experts honed in on two big data points that, more than any other, would tell the tale of this recovery: unemployment and housing. Both have been particularly stubborn, but as 2013 comes to a close there are signs that even these two laggards are finally getting traction.

Preview 2014According to the Bureau of Labor Statistics, the national unemployment rate dropped another notch, to 7%, in November, a level not seen since the index crossed that line on its way north in December 2008. The average work week and hourly wage are also trending up.

For 2014, the Federal Reserve is forecasting a continued drop in the unemployment rate, possibly to as low as 6.4%. Although the trend has been slow because of pockets of high unemployment in particular geographic areas and among certain demographic groups, the overall trend has been pronounced and positive.

On the housing front, there are still far too many homeowners dealing with foreclosure, and far too many homeowners are underwater on their mortgage (i.e., they owe more than the property is worth), but the tide has turned.

The National Association of Home Builders reported earlier this month that in 54 of the nation’s 350 metropolitan areas, activity in the housing market is at or above normal levels, based on an algorithm that factors in housing permits, home prices and employment levels.

More than a third of the metro markets were at 90% of normal, and overall the national housing market is running at 86% of normal, the association said.

October data from the Department of Housing and Urban Development put the number of underwater borrowers at 7.1 million, down from 10.8 million a year earlier. New foreclosure actions were down by a third.

The housing market and housing prices are particularly important markers because home equity is a major contributor to total household net worth and to many families’ sense of security and, consequently, their willingness to spend.

Notably, household net worth as measured by the Federal Reserve reached pre-recession levels in 2012, and total household equity in real estate, after sliding to $6.2 trillion in 2011, approached $9.7 trillion in this year’s third quarter.

Against this backdrop, optimism seems appropriate, and the airlines are apparently eager to oblige. IATA has forecast a 31% increase in global airline passengers during the five-year period between 2012 and 2017, which translates to nearly a billion new air travelers.

For the American travel market next year, the U.S. Travel Association is forecasting a 5% increase in total travel expenditures, to $940 billion, with $151 billion of that coming from a record 73.4 million international visitors.

This could go well. Unless something goes wrong.