Carnival Corp. Q3 Earnings Call: Cheap Prices for Winter Caribbean Cruises?

September 21, 2010
Earnings Call (5:27 p.m. EDT) -- Cruise prices and profits continue to climb, five new-builds are set to launch in the next year and cruisers may be able to snag a deal on upcoming winter cruises in the Caribbean, where massive new-builds are saturating the region. That was the word this morning from Carnival Corp.'s earnings call for Q3 -- a roughly three-month summer period driven by sunny skies and school holidays -- that's traditionally been the industry's most lucrative.

Do the Math

The world's largest cruise company -- which operates 97 ships across 11 cruise lines that include Princess Cruises, Costa Cruises, Carnival Cruise Lines and luxury line Seabourn -- posted a net income of $1.3 billion on $4.43 billion in revenue during Q3 of 2010. The income is up roughly $230 million, from $1.07 billion, in the same period last year. The Q3 earnings handily beat the Street's forecasts, and the line responded by boosting its overall outlook for 2010.

Executives attributed the success to solidly improved ticket pricing nearly across the board, slightly lower fuel prices year over year (fuel costs were still $396 million), cost-controlling measures and a very low inflationary environment. There was also a one-time windfall of $17 million from a settlement related to Queen Mary 2's previous azipod issues.

The company's onboard revenue streams are also flat or up, with the exception of shore excursions and casino. One explanation for the casino downtick was the proliferation of onshore casinos in North America.

Deals or No Deals?

With so much capacity in the Caribbean this winter -- Royal Caribbean's 5,400-passenger Oasis-class twins and the monolithic 4,200-passenger Norwegian Epic will be cruising out of Florida -- executives noted that ticket prices for winter Caribbean cruises have fallen off from last year. Howard Frank, Carnival Corp.'s vice chairman and COO, noted that there was a 15 percent capacity increase industry wide. All this heavy supply could mean decent deals for bargain-hunting Caribbean cruisers. On the other hand, prices in just about every other destination -- including the previously struggling Mexican Riviera -- continue to climb.

Future Tense: New-Builds, Alaska, Farewells

New-Builds. On the near horizon, Cunard Line will launch its third ship, the 92,000-ton, 2,092-passenger Queen Elizabeth, on October 11. The ship, the sixth Carnival Corp. new-build to debut in 2010, will be named in Southampton by Her Majesty, Queen Elizabeth II. Four more ships, spread among Carnival's brands, will debut in 2011, including AIDASol (April), Carnival Magic (May), Seabourn Quest (May) and Costa Favolosa (June).

Looking further ahead, Carnival Corp. has 11 new-builds on the launch chart through spring 2014, but only two will debut in 2013 and one in 2014. Moreover, Arison said not to expect any new announcements for the rest of the year. The slowed new-build strategy remains in line with what executives have said during the last several calls.

Alaska. Asked about the situation in Alaska, where the company has been pulling ships over the past couple seasons as the cost of doing business has risen, executives noted that taking capacity out of the region resulted in solid yield improvement (not a surprise).

With the Alaska season winding down in the next couple weeks, Arison took a moment to wax philosophical. He noted that the head tax, which Carnival had cited as a major reason for pulling ships from Alaska in the first place, has been drastically reduced. Still that was just the first step. "We're going to do a very careful post-mortem of the season, and try to make sure the political leaders of Alaska know exactly how it went," he said. "It's very important to have as much transparency as possible, and [that]they fully understand the impact of the legislative changes they've been making." Arison promised more information on the next call.

Goodbyes. Favorite British line Ocean Village will officially retire in November when its last ship, and Ocean Village, is transferred to P&O Australia, which is also a Carnival Corp. brand (the line's other ship, Ocean Village Two, joined P&O Australia as and Pacific Jewel last fall). Readers can say their goodbyes in our Ocean Village Memory Book.

Interesting Moment: Shipyards Are Not Used-Car Lots

"There's a lot of talk about how the yards are under so much pressure now that pricing can't go much lower," said Robin Farley, an analyst for UBS. "Are you tempted to pick up your ordering activity a little bit to take advantage of pricing that you're not going to see again?" Micky Arison, Carnival Corp.'s chairman and CEO, quickly sunk the idea. "We don't make new-building decisions based on sales at the shipyard. It's not like used cars," he responded (we pictured him smiling). "It's long-term strategic decisions. We look at it brand specifically," he added, also saying that Carnival Corp. was probably done ordering ships that would debut in 2013. "We're always looking, discussing, looking at the future, but there's nothing imminent despite what is very aggressive pricing."

In Case You Missed It

Holland America took delivery of the 86,000-ton, 2,106-passenger Nieuw Amsterdam, and AIDA signed a new ship order with Germany's Meyer Werft for the construction of a 2,192-passenger cruise ship to be delivered spring 2013. This marks the seventh new ship ordered for the flourishing German cruise market in the past six years.

--by Dan Askin, Associate Editor

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