This quarter’s earnings reports from Carnival Corp. (June 24), Royal Caribbean Group (July 28), and NCLH (August 9) have sent stocks down, up, and back down again, but overall, the business seems to have taken positive turns, including each company’s operating cash flow for the quarter.
Other positive news is that RCG and NCLH’s fleets are in full operation, while CCL, the largest of the three, (as of June 24), had 91% of its capacity sailing. Also, all operators have started reducing protocols (more below), which will open cruising back up to everyone.
A few key highlights are compared in the table below, followed by a summary of the biggest themes and takeaways for the industry’s current status and future outlook.
Q1 Key Highlights by Corporation
Looking (More) Positive for Financial Recovery
While profits are still anticipated to be negative next quarter, not to mention the debt each company has on its books, revenues are steadily increasing for all operators. Looking at Q2 revenues versus Q1 revenues:
• NCLH: revenues more than doubled (from $522 M to $1.2 B)
• RCG: revenues doubled (from 1.1 B to 2.2 B)
• CCL: revenues increased by nearly 50% (1.623 B to 2.401 B)
RCG attributed its successful quarter (which outperformed its expectations) to high onboard revenues and accelerating load factors. RCG and NCLH both confirmed they achieved higher total revenue per guest versus 2019 levels.
NCLH provided an exact figure for Q2: onboard revenue per passenger cruise day was ~30% higher than during the comparable 2019 period.
Operators all agreed that 2022 will be a transition year, all striving to pre-pandemic net yields and adjusted EBITDA in 2023.
Load Factors Increasing with the Caribbean Pulling Up the Average
As anticipated, onboard occupancy levels continue to rise. Average levels ranged from 80% to 90% in June and were a little lower for the quarter, overall. The region helping drive occupancy levels up: the Caribbean.
RCG confirmed its Caribbean itineraries’ average occupancy was 103% overall, with some ships sailing as high as 107%. The Northeast and West Coast products, including Alaska, sailed around 90% in June.
For NCLH, they saw strength in the Caribbean and Bermuda markets, with numerous sailings across key markets achieving 90% and 100% occupancies.
CCL confirmed that its Carnival brand, which is heavily focused in the Caribbean region, is expected to reach nearly 110% occupancy during Q3.
Europe, due to the travel restrictions which were in place this quarter, along with other geopolitical events, is still seeing below-average performance/demand.
RCG said occupancy on European sailings averaged just 75% in June. However, all brands confirmed the positive development of the CDC removing testing requirements for reentry into the U.S. for air travel; going forward, this removes some of the friction from North American brands deployed outside of the US, albeit a little too late to capitalize for this summer. These itineraries should expect real benefits to be realized in 2023 and beyond.
“During COVID or the early days, [guests] were very locally minded. Now, they’re becoming much more regionally minded as we’re seeing them being comfortable booking in different products in North America, booking products in Europe as they kind of now move more and more toward back being globally minded, which is where they were pre-COVID.” – Jason Liberty, CEO, RCG
It is worth noting that this past quarter, CCL announced a reallocation of capacity to capitalize on markets where demand is strongest. Three Costa vessels will transfer to the Carnival brand, two catering to American guests, and the other to Australian guests.
They explained this was a ”rightsizing” of Costa, as “Europe in many ways is more challenged from consumer demand as it relates to travel than North America… the European environment has been complicated by COVID and macroeconomic conditions… But overall, we still see strong demand in Europe, the U.K. in particular, and continuing strength in portions of Germany.”
Demand (for Experiences) is Strong
“We continue to see a financially healthy, highly engaged consumer with a strong hunger to dream and seek experiences, and they are willing to spend more than ever with us to create those memories.” – Jason Liberty, President & CEO, RCG
“We are encouraged by the continued strong consumer demand we are experiencing which is reflected in our record pricing, accelerating booking volumes, especially for 2023 and beyond, and highest ever onboard revenue generation.” – Frank Del Rio, President & CEO, NCLH
“It is reinforcing to see the continued strength and demand for cruise.” – Arnold Donald, former President & CEO, Carnival Corp.
RCG said that based on its consumer data, cruise interest is now “basically” back to 2019 levels (including new to cruise). They’ve attributed the strong demand to a combination of items:
• Consumers’ strong propensity to travel
• Accelerating demographic trends that generate more bucket list & multigenerational travel
• A compelling value proposition
• Easing of travel protocols
Need some numbers to back this up? RCG & NCLH provided some key figures and data points that prove strong demand in today’s market.
Guests spending at least 30% more onboard across all categories/customer bases when compared to 2019 (RCG)
Pre-cruise revenue APDs are up over 40% (RCG) and 50% (NCLH) versus 2019 levels
Websites receiving almost double the visits vs. 2019 (and generating a record level of direct bookings) (RCG)
Trade partners are generating bookings above 2019 levels (RCG)
Cancellations are at pre-COVID levels (RCG)
2023 sailing ticket sales are 40% higher vs. the same time in 2018 for 2019 sailings, taking into account 20% capacity growth and “significantly higher” pricing (NCLH)
Q2 advanced ticket sales balance reached a company all-time high (NCLH)
Booking pace in recent weeks reached the level needed to consistently sail full (NCLH)
Relaxing of Health Protocols will Help Reach a Wider Cruising Population
Last month, the CDC discontinued its voluntary COVID-19 program for cruise ships. This was a strong signal of confidence by the CDC that the industry’s mitigation and management plans are robust and effective. This very positive development has paved the way for all three operators to relax COVID-related protocols and align with the rest of the hospitality industry.
Operators have confirmed they will start transitioning to the point where everyone will be able to cruise, which will further drive demand and open up the cruise market to everyone.
NCLH made the most dramatic change – effective September 3 – they will be the first cruise U.S. cruise company to allow unvaccinated guests to cruise without restrictions across its three brands (subject to local regulations).
“To put it simply, vaccinated individuals… will no longer have any pre-cruise-related protocols. And those who are unvaccinated or choose not to provide proof of vaccination will be required to test negative within 72 hours prior to embarkation.” – Frank Del Rio, President & CEO, NCLH
As a result of this announcement, Del Rio confirmed it resulted in one of their top three best booking days of the year.
RCG and CCL confirmed they will begin with the removal of pre-embarkation testing for vaccinated guests on short voyages (5 or fewer nights) in the next week, and longer-duration voyages in the next 45 days or so. Right now they confirmed they will continue to test all unvaccinated guests. The operators will introduce further changes in phases.
CCL, cautioned, however, that while vaccination and test requirements are starting to relax, they are still facing constraints in the pool of potential guests due to ongoing requirements in several destinations.
Along the same lines, Del Rio commented that “there remain a few jurisdictions with strict requirements, including Canada, Greece, and Bermuda where we will continue to comply with local mandates.”
Regardless, these protocol modifications are meaningful and gives the industry additional flexibility to reach a wider cruising population, reduce friction and travel-related hassles for guests and bring greater variety to itineraries.
Inflationary Impact on Business Calming
Food and fuel are the main categories susceptible to inflation. RCG and NCLH both confirmed that they see prices moderating. RCG said their most recent month-over-month F&B inflation indicator has increased at the slowest pace thus far in 2022; indicative that inflation levels are peaking, and they may see some relief in the coming months.
NCLH is also seeing costs coming down, including fuel and food costs. Taken together with other cost reductions across operations, they expect adjusted net cruise cost, excluding fuel per capacity day, to decrease approximately 10% in the second half of 2022 compared to the first half.
Looking Ahead
With these updates, it is clear that the industry continues to push forward, and cruising as we once knew it will be here very soon.
Demand is at record levels. The full fleets have returned to operation (with CCL to follow soon). Protocol relaxation will lead to a larger share of potential cruisers, which will further drive demand and build occupancies back up to pre-pandemic levels by early 2023.
With this clarity and understanding of where the market is today, versus the uncertainty of just a few months ago, RCG and NCLH both provided forward-looking financial statements, the first time since the start of the pandemic.
This, as our bulletins continue to express, is further proof that the industry is normalizing and tracking well towards its pre-pandemic growth course.
