QUOTE AND NEWS
New York Times  Dec 1  Comment 
Carnival Corp's Princess Cruise Lines will plead guilty to seven felony charges for polluting the seas and deliberate acts to cover it up, and pay a record $40 million criminal penalty, the U.S. Justice Department said on Thursday.
Benzinga  Nov 23  Comment 
Despite challenges in the cruiseline space, Carnival Corp (NYSE: CCL) has maintained or raised its net revenue yield growth guidance through the year, while Norwegian Cruise Line Holdings Ltd (NASDAQ: NCLH) has been dealing with structural...
Benzinga  Oct 27  Comment 
Citing limited upside in net yields/pricing, JPMorgan has downgraded Royal Caribbean Cruises Ltd (NYSE: RCL) and Norwegian Cruise Line Holdings Ltd (NASDAQ: NCLH) to Neutral from Overweight, while maintaining its Neutral stance on Carnival Corp...
Forbes  Oct 26  Comment 
The most recent short interest data has been released for the 10/14/2016 settlement date, which shows a 4,728,588 share increase in total short interest for Carnival Corp (NYSE: CCL), to 26,264,726, an increase of 21.96% since 09/30/2016. Total...
Benzinga  Oct 19  Comment 
There is “little to like” in the data revealed by the latest cruise pricing survey, SunTrust Robinson Humphrey’s Patrick Scholes said in a report. He added that there seemed to have been a broad-based slowdown across all global...
Clusterstock  Oct 10  Comment 
During earnings season, executives of public companies not only lay out the results of the prior quarter, but also have an opportunity to explain why they may have fallen short or what hurt their businesses. Typically, companies have a stable of...
Benzinga  Oct 4  Comment 
A number of Street analysts released coverage on cruise line stocks Tuesday. Macquarie is relatively cautious initiating coverage in an industry that just experienced a downgrade cycle and is susceptible to other industry downturns and...




 

Carnival Cruise Lines (NYSE: CCL) is the largest operator of vacation cruise ships in the world. With 81 cruise liners carrying over 7 million passengers worldwide, the company commands around 49% of the global cruise industry[1]. The company makes money from ticket sales as well as on-board revenue from gambling, shore excursions, bar revenues, and other amenities across brands including Carnival Cruise Lines, Princess, Costa, Holland America Line, P&O, AIDA, Cunard, and Seabourn.

Surveys estimate that there are some 127 million potential passengers for cruises in North America alone (defined as members of households with a minimum income threshold of $40,000, headed by a person at least 25 years old), and that half of these individuals have expressed an interest in taking a cruise. Yet, only about 17% of this captive market has ever taken a cruise, meaning there is room for greater market penetration and maturity. This represents a tremendous growth opportunity for CCL in the future. Europe also represents a large growth opportunity, as cruises currently make up a very small percentage of the overall vacation market in Europe.[2]

Furthermore, over 60% of worldwide cruise passengers are over the age of 40. Despite the risks associated with terrorism, rising oil prices, and natural disasters, then, cruises have and may continue to become increasingly popular as Baby Boomers enter retirement.

Company Overview

CCL operates in the multi-night vacation industry. Approximately 63% of the cruise passengers in the world are sourced from North America, where cruising has developed into a mainstream alternative to land-based vacations.[3] Between 2008 and 2009, this market has grown from 10.3 million customers to 10.4 million. However, only 48% of CCL's total revenues are earned from North American cruise customers- therefore, there is strong potential for CCL to further develop and expand its North American revenues.[2]

Business Financials

In 2009, CCL earned total revenues of $10.4 billion, a slight decline from its 2008 total revenues of $11.6 billion. This in turn had a negative impact on CCL's net income. Between 2008 and 2009, CCL's net income decreased from $1.8 billion in 2008 compared to its net income of $1.4 billion in 2009.

Trends & Forces

Disposable income

Cruise lines compete for the discretionary income of consumers. Cruises and vacations are discretionary purchases, luxury goods enjoyed only when income is available for spending after necessities are covered. Thus, the discretionary income levels of the company’s customer base can have a material effect on the company’s sales. Not surprisingly, the company operates in places like the United States and Western Europe, where the per capita discretionary income is on average substantially higher than in many other countries.

CCL is superior in brand diversity, price discrimination, and international exposure

CCL's strategy has been to leverage its extensive brand portfolio to price discriminate and capture various market segments and demographics. CCL has more brands (also more well-recognized brands) than chief competitor, Royal Caribbean Cruises (RCL), which gives it a leg up in capturing global market share. It also makes more of its money from international operations and has been in non-North American markets for more time than RCL. This gives it greater international market penetration and brand awareness, and the geographic diversity helps partly shield against isolated economic effects in any one of its markets.


Terrorism, Pirate attacks and Geopolitical Risk

The company is at risk of declines in its business from terrorist attacks and geopolitical unrest, even if not targeted specifically to its ships. Cruise-goers may be frightened by the possibility of an attack on their ship, leading to declines in ticket sales. An example of this was the pirate attacks on cruise ships near Somalia during 2009 and 2010. Generally, travel at large declines notably in the wake of a terrorist attack, and cruises are no exception. To be sure, consumer attitudes matter. The market, of course, realizes this: in just days after September 11, 2001, the company’s shares lost around one third of their value.

Aging baby boomers

As the baby boomers continue entering retirement, the company stands to benefit from the tailwinds of an increase in senior traffic, as it derives a large percentage of its income from passengers over 55. It is likely that seniors may continue to gravitate toward warmer-weather vacations. Coupled with the fact that retirement means more time to one’s self, and for many baby boomers, time to travel, the company has significant demographic tailwinds working in its favor.

Hurricanes, natural disasters, and weather patterns

The company can be adversely affected by particularly bad hurricane seasons, natural disasters, and inclement weather patterns. Many of the company's cruises are to Caribbean destinations, where hurricanes pose a major threat to business. Consumers are less likely to buy, for instance, a Caribbean cruise if a major hurricane is anticipated. Furthermore, the company depends upon the availability of ports, so coastal weather patterns can limit CCL’s ability to procure ports. If inclement weather or disasters hit port areas, the company can struggle to call on vital ports, which would adversely affect its business.

Continued financial viability of travel agents

The vast majority of the company's sales come from travel agents who arrange cruises on behalf of clients. The travel agency business is not necessarily what it used to be. Given the emergence of internet-based travel bookings and direct to consumer models of selling airline tickets, their business in general has declined. Because the company depends on a broad base of going-concern travel agents, any prolonged slump or major consolidation in the travel agency business could adversely impact the company. Furthermore, if travel agents force the company to increase commissions in order that they compete successfully, the company can see major pressures on margins. The approximate 10% commissions offered to travel agents now is the company's largest variable cost,[4] so changes here can have big effects on the company's bottom line.

Competition and Market Share

The company competes against a number of smaller cruise line operators, but as the market leader, with a 44% market share, it enjoys certain competitive advantages and economies of scale that competitors do not. With the largest number of ships and the greatest capacity, the company spreads much of its corporate overhead over a larger cruise liner base and has heftier margins, since it can do things like leverage size for more favorable purchases of on-board equipment and supplies. Its largest competitor is Royal Caribbean Cruises (RCL) which commands a nearly 23% market share. Other notable competitors include Star Cruises (which operates Star Cruise Line and Norwegian Cruises) and Mediterranean Shipping Company (which operates MSC Cruises).

Footnotes

  1. [1]
  2. 2.0 2.1 CCL 10-K 2009 Item 1 Pg. 4
  3. CCL 10-K 2009 Item 1 Pg. 5
  4. CCL 2007 10-Q, Q3, "MD&A," pg 11
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