Carnival Corporation: On Course for Recovery

Cash from operations is turning positive and the company has turned the corner of its recovery trajectory, according to Carnival Corporation CEO Arnold Donald, who spoke on today’s second-quarter business update call with analysts.

“We are aggressively ramping up to full operations, driving higher occupancy on our ships, and focused on increasing revenues,” Donald said.

Bookings are expected to continue to improve during the rest of the year and reach historical levels in 2023, according to David Bernstein, executive vice president and CFO. He also said that there is the potential that EBITDA will be greater in 2023 than it was in 2019. The wild card is the cost of fuel. The target for 2023 is to carry 14 million guests.

Contributing to the recovery will also be fleet optimisation, reallocating ships to the strongest markets, such as introducing the new Costa by Carnival brand in North America.

Donald noted that European markets are in many ways more challenging than North America from a consumer standpoint as it relates to travel and added that moving Costa ships was also about right-sizing the Italian brand. A big chunk of Costa’s capacity has been in China, he said, and with that market closed, it made more sense to expand the strong North American market than to put all that capacity in Europe.

Bernstein added that North America and Europe are headed in the right direction, but that the company’s North American brands are doing better than their European counterparts.

As for other headwinds, such as the impact of the recession, Donald said the industry is resilient, offering a strong value proposition and that people feel entitled to their vacations. In addition, there is a tailwind of pent-up demand, he added, and the relaxing of health protocols is also expected to attract more people who may have been on the sidelines.

As for any other allocation moves, Donald said: “We are very pleased with our portfolio of brands but will always have an open mind to do what makes sense for our shareholders.”

He also said that since 2019, the company has shed 23 less efficient ships while adding nine larger, more efficient ships, including more premium-priced staterooms, while reducing operating expenses, including fuel, on a per available guest day basis.

Data suggest that leisure travel has recovered

By Danny King

Girl on vacationU.S. leisure travel’s recovery appears to be widening beyond the wealthiest Americans, resulting in a 7% growth in the number of vacation travelers last year, PhoCusWright reported earlier this month.

In many ways, that figure explains industrywide metrics from sources as varied as ARC and hospitality analyst STR, both of which have reported data that suggest the industry is returning to prerecession levels, in some cases even exceeding them.

The growth reported by PhoCusWright came from across the demographic spectrum as baby boomers resumed prerecession travel habits while more young adults managed to free up enough discretionary income to travel last year.

PhoCusWright also reported that much of this additional travel spending was a result of travelers booking private homes and apartments, while preferred booking methods inched away from online travel agencies (OTAs) and suppliers’ websites and toward metasearch engines.

The overall 7% growth in the number of American adults who traveled for leisure purposes resulted from 65% of all U.S. adults traveling, according to PhoCusWright.

051914PHOCUSWROGHTCHART1Notably, the survey, which polled some 4,100 U.S. adults in early March, revealed that the biggest percentage increases came from millennials: Americans between the ages of 25 and 34 boosted their leisure travel last year by about 11%, while those in the 45-to-64 range increased their leisure travel by 9%.

In a May 13 webinar unveiling the research, Marcello Gasdia, PhoCusWright’s senior analyst for consumer research, reported, “The boomer generation made a huge comeback. This group had the most to lose out from the recession, and close to half of this age group was skipping out on vacations for the entire year.”

Gasdia and fellow analyst Colie Hoffman co-authored the 37-page report for PhoCusWright, whose parent company, Northstar Travel Media, publishes Travel Weekly.

From a retailer’s perspective, Eric Ardolino, president of A&S Travel Center in Wallingford, Conn., observed that many of those who were already spending on travel are now spending more lavishly. That is especially true among professionals whose best earnings years are still ahead of them, he said.

“If I say to them, ‘Do you want to do the $3,000 honeymoon or the $6,000 honeymoon?’ … most people are taking the better trip,” Ardolino said. “These young honeymooners are spending more now than ever.”

The widespread uptick in leisure travel saw the average travel spend for a U.S. household rise by 15% last year, to $3,311. In addition, the number of U.S. adults who took at least three leisure trips last year rose almost 20%, as did the number who spent at least $3,000 on leisure travel.

051914PHOCUSWROGHTCHART3Yet, while the overall picture of the travel economy painted by the research is clearly positive, details about how that money is being spent might cause some consternation among lodging companies and OTAs.

On the lodging front, the portion of U.S. travelers who stayed in a private home, apartment or condominium for leisure-travel purposes last year jumped to 14% from 8% in 2012, while the portion of leisure travelers choosing midscale hotels and all-inclusive resorts fell.

That type of jump in private home rentals turns the spotlight on so-called “shared economy” practitioners such as Airbnb and the car-sharing service Lyft. Both companies increasingly are the targets of demands from local governments and traditional hospitality companies for more regulation.

“There’s been a lot of industry attention, thrusting the sharing model into the mainstream,” Gasdia said. “Whether these accommodations are nibbling at traditional accommodations or creating demand is a highly debated issue.”

Booking methods are also shifting. While the portion of travelers who book travel exclusively online rose 2 percentage points, to 39%, last year, that increase is not necessarily helping the OTAs or suppliers who are hoping to increase direct consumer bookings on their websites.

In fact, a lower percentage of leisure travelers booked airline tickets and hotel rooms through OTAs and supplier websites last year than in 2012, PhoCusWright found, while metasearch sites like Kayak attracted a larger percentage of those bookings. And while overall online bookings continued to increase, the survey found that travel-agency bookings were also up for both air and hotel reservations.

Regardless, the overall rising tide is benefitting the U.S. airline and lodging industries. Moreover, bolstered by a record number of overseas travelers coming to the U.S. last year, hoteliers here recorded 1.11 billion room-nights booked in their 4.9 million hotel rooms, up 2.2% from 2012 and marking a 10% increase from three years prior, according to STR.

“The growth of the domestic leisure travel segment has been an important contributor to the ongoing recovery of the U.S. lodging industry,” said Mark Woodworth, president of PKF Hospitality Research. “While the persistently high levels of unemployment remain troubling, those that have the means to travel have continued to do so.”

051914PHOCUSWROGHTCHART4What’s more, 2013’s trends appear to be flowing over into this year. U.S. hotels boosted first-quarter revenue per available room by 6.8% from a year earlier as occupancy advanced 1.7 percentage points, to 59.2%, while average room rates rose 3.8%, to $112.45 a night, according to STR.

Meanwhile, through April, ARC’s travel agent transactions rose 2.1% from a year earlier, to 52.5 million, the highest January-through-April figures since 2008. Passenger numbers for American, Delta and JetBlue were all up more than 4% through April.

Last week, the trade organization Airlines for America forecasted that air travel this summer will rise 1.5% from a year earlier, to 2.3 million passengers per day, the highest number in six years.

And going forward, the FAA estimated that enplanements for the year ended Sept. 30, 2015 would increase 3.4% from the current fiscal year, to 771.4 million, beating the previous 2007 peak of 765.3 million.

All of which, Ardolino said, is giving the industry reason to believe that it can up-sell products to a wider swath of the U.S. population.

“I have a sign on my desk that says, ‘If you don’t travel first class, your heirs will,’” Ardolino said.