Summary & Takeaways from Q3 Earnings Reports (CCL, RCG, NCLH)

A Normalizing Environment Paving Way for Strong 2023

The theme for CCL, RCG, and NCLH on this quarter’s earning calls was each company’s focus which has fully shifted from return to service to a relentless focus on return to strong profitability.

“Our goal is to smash it in 2023… With pricing being up considerably higher on our books and all the other things indicated, we feel very good about 2023.” - Josh Weinstein, President & CEO

“The successful return of our business to full operations in the accelerating demand environment positions as well to deliver on our expectations of record yields, and record adjusted EBITDA in 2023.” - Jason Liberty, President & CEO

“On our current trajectory, each of these building blocks are expected to lead to record net yields and record adjusted EBITDA for the full-year 2023.” - Mark Kempa, CFO

A key driver and boost in bookings/demand was the removal of protocols (RCG and NCLH both confirmed; CCL’s update was pre-protocol removal). After protocols fell off (testing, vaccine mandates, etc.), each company saw a significant increase in the volume of bookings, which continues to accelerate today.

This is because protocols and requirements excluded a significant number of people from cruising. RCG estimated that with the removal of these protocols, in the American market alone, the potential cruise market expanded by about 35 million people almost overnight.

Globally, in the past few months, key countries like Canada, Bermuda, Greece, and all of South America have removed COVID testing requirements for entry, and many countries in Asia, with the exception of China, have begun reopening to cruise. In the Australian market, while some protocols remain, RCG is “pretty confident they’re going to fall away in the coming weeks and months”. These developments continue to pave the way for a very normalized environment as more ports around the world become accessible to cruising once again.

The table below summarizes some key return-to-service metrics for each brand, supporting the commentary on the slow and gradual return to normalcy.

Load Factors

Average load factors jumped significantly in Q3, though now each company is not anticipating pre-pandemic (triple digit) load factors until mid-2023 (RCG is the only brand that shifted this out, as last quarter they had reported they would be there by Q4 2022). Fourth quarter load factors should be aligned with Q3 (RCG), or slightly higher (CCL/NCLH), given Q4 historically is a seasonally lower-occupancy quarter.


RCG was the only company to break down occupancy by region for Q3: the Caribbean was at 105%, Alaska at 96%, and Europe just under 90% (a little bit better than expectations).

NCLH did confirm that starting in 2023, they will no longer have quarantine cabins out of service

Financials

With prohibitive protocols removed, full fleets back in service, and load factors steadily increasing, all three companies reported positive adjusted EBITDA since the pandemic (RCG in Q2, CCL, and NCLH this quarter, Q3).

2023 Deployment Focus 

North America is a key focus in 2023, as 80% (RCG) and 85% (NCLH) of guest sourcing is expected from North America. RCG’s deployment across markets is relatively unchanged compared to 2019 with Caribbean representing just over half of overall deployment, Europe at almost 20%, and Asia in the low single digits with no planned deployment in China market (though they did make the comment “It’s very minimal, but we expect that we will be in China before the end of 2025”).
However, NCLH believes Europe is poised for an incredible 2023 season and has increased capacity there by 6% of occupancy at the expense of the Caribbean.

Macroeconomic Environment

As we look to the future, each company is preparing for multiple scenarios given the current heightened uncertainty in the macroeconomic environment. RCG advised that they are actively managing inflationary pressures mainly relating to fuel and food costs, and that regarding fuel, they have seen fuel rates coming off the highs of earlier in the year, but they are still volatile.

NCLH said the impact of inflation and global supply chain constraints will put pressure on their margins in the near term, though they too confirmed they are starting to see some moderation of the hyperinflation in areas such as food costs and related. “Certain categories are trending down, and they’re starting to get into their historical averages. They’re not where we would like them to be or need them to be, but we are seeing continued momentum in there. But I wish it was quicker.” – Mark Kempa, Executive Vice President and Chief Financial Officer, NCLH

For CCL, due to the volatile environment, they are anticipating strong EBITDA in 2023, but not providing guidance as fuel and currency will be too much of a swing depending on how things unfold.

Despite the heightened concerns around the economy, operators are still saying that they have not seen any signs of a pullback from the consumer.

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A Normalizing Environment Paving Way for Strong 2023

The theme for CCL, RCG, and NCLH on this quarter’s earning calls was each company’s focus which has fully shifted from return to service to a relentless focus on return to strong profitability.

“Our goal is to smash it in 2023… With pricing being up considerably higher on our books and all the other things indicated, we feel very good about 2023.” - Josh Weinstein, President & CEO

“The successful return of our business to full operations in the accelerating demand environment positions as well to deliver on our expectations of record yields, and record adjusted EBITDA in 2023.” - Jason Liberty, President & CEO

“On our current trajectory, each of these building blocks are expected to lead to record net yields and record adjusted EBITDA for the full-year 2023.” - Mark Kempa, CFO

A key driver and boost in bookings/demand was the removal of protocols (RCG and NCLH both confirmed; CCL’s update was pre-protocol removal). After protocols fell off (testing, vaccine mandates, etc.), each company saw a significant increase in the volume of bookings, which continues to accelerate today.

This is because protocols and requirements excluded a significant number of people from cruising. RCG estimated that with the removal of these protocols, in the American market alone, the potential cruise market expanded by about 35 million people almost overnight.

Globally, in the past few months, key countries like Canada, Bermuda, Greece, and all of South America have removed COVID testing requirements for entry, and many countries in Asia, with the exception of China, have begun reopening to cruise. In the Australian market, while some protocols remain, RCG is “pretty confident they’re going to fall away in the coming weeks and months”. These developments continue to pave the way for a very normalized environment as more ports around the world become accessible to cruising once again.

The table below summarizes some key return-to-service metrics for each brand, supporting the commentary on the slow and gradual return to normalcy.

Load Factors

Average load factors jumped significantly in Q3, though now each company is not anticipating pre-pandemic (triple digit) load factors until mid-2023 (RCG is the only brand that shifted this out, as last quarter they had reported they would be there by Q4 2022). Fourth quarter load factors should be aligned with Q3 (RCG), or slightly higher (CCL/NCLH), given Q4 historically is a seasonally lower-occupancy quarter.


RCG was the only company to break down occupancy by region for Q3: the Caribbean was at 105%, Alaska at 96%, and Europe just under 90% (a little bit better than expectations).

NCLH did confirm that starting in 2023, they will no longer have quarantine cabins out of service

Financials

With prohibitive protocols removed, full fleets back in service, and load factors steadily increasing, all three companies reported positive adjusted EBITDA since the pandemic (RCG in Q2, CCL, and NCLH this quarter, Q3).

2023 Deployment Focus 

North America is a key focus in 2023, as 80% (RCG) and 85% (NCLH) of guest sourcing is expected from North America. RCG’s deployment across markets is relatively unchanged compared to 2019 with Caribbean representing just over half of overall deployment, Europe at almost 20%, and Asia in the low single digits with no planned deployment in China market (though they did make the comment “It’s very minimal, but we expect that we will be in China before the end of 2025”).
However, NCLH believes Europe is poised for an incredible 2023 season and has increased capacity there by 6% of occupancy at the expense of the Caribbean.

Macroeconomic Environment

As we look to the future, each company is preparing for multiple scenarios given the current heightened uncertainty in the macroeconomic environment. RCG advised that they are actively managing inflationary pressures mainly relating to fuel and food costs, and that regarding fuel, they have seen fuel rates coming off the highs of earlier in the year, but they are still volatile.

NCLH said the impact of inflation and global supply chain constraints will put pressure on their margins in the near term, though they too confirmed they are starting to see some moderation of the hyperinflation in areas such as food costs and related. “Certain categories are trending down, and they’re starting to get into their historical averages. They’re not where we would like them to be or need them to be, but we are seeing continued momentum in there. But I wish it was quicker.” – Mark Kempa, Executive Vice President and Chief Financial Officer, NCLH

For CCL, due to the volatile environment, they are anticipating strong EBITDA in 2023, but not providing guidance as fuel and currency will be too much of a swing depending on how things unfold.

Despite the heightened concerns around the economy, operators are still saying that they have not seen any signs of a pullback from the consumer.

CRUISE BULLETINS

How CII Could Impact Ports & Itineraries

The Carbon Intensity Indicator (CII), introduced by the IMO in 2023, measures the environmental efficiency of ships by evaluating CO2 emissions per nautical mile traveled…

Q1 2024 Earnings Report Summary

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Unveiling BA’s 2024 Comprehensive Cruise Itinerary Insights

BA unveils its expansive 2024 cruise itinerary database, spanning 13,700 sailings across 47 brands and 320 ships globally…

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With the final earnings report for Q3 2023 released by the last of the big three public Cruise Corporations yesterday…

Shore Power Adoption in the Cruise Industry

One key technology and noteworthy initiative is the adoption of Shore Side Electricity (SSE) or shore power. In BA’s previous bulletins…

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With the last of the big three public companies wrapping up their Q2 2023 earnings reports in the past weeks, it’s time for BA’s summary of the key takeaways and themes trending today.

The Port’s Role in the Decarbonization of the Cruise (& Shipping) Industry

In our last bulletin, we talked about the cruise industry’s push toward decarbonization, and the exploration of various alternative fuel options such as LNG, methanol, and biofuels. The key takeaway was that decarbonization will be a collaborative effort across the entire maritime industry…

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