With nearly the entire fleet back in operation, the third quarter business update for Carnival Corporation will be a good reflection of where the world’s largest cruise company currently stands.
Much has been said and written about the losses the company made in 2020 and 2021, and we have seen some improvement over the last two quarters.
However, did Carnival Corporation and its new CEO, Josh Weinstein, return the company to profitability again?
While earnings before interest, taxes, depreciation, and amortization certainly did, the bottom line still shows hundreds of millions of dollars in loss. No surprise then that Carnival’s stock price dropped nearly 20% after the markets opened.
Carnival Reaches 90% Occupancy Levels
The more relaxed COVID-19 measures that Carnival Corporation introduced throughout the fleet in the last months seem to affect several key factors positively. Occupancy in the third quarter of 2022 increased by 15% from Q2, with overall occupancy rates hovering around the 90% mark.
Booking volumes have increased significantly and are now considerably higher than the strong levels seen in 2019. Onboard revenue is also showing significantly higher numbers, and adjusted EBITDA for the third quarter of 2022 was over $300 million, turning positive for the first time since the resumption of cruise operations.
Carnival Corporation & plc’s Chief Executive Officer Josh Weinstein: “During our third quarter, our business continued its positive trajectory, achieving over $300 million of adjusted EBITDA and reaching nearly 90% occupancy on our August sailings. We are continuing to close the gap to 2019 as we progress through the year, building occupancy on higher capacity and lower unit costs.”
Carnival Corporation Stock Price Takes Big Hit
While all this may sound extraordinarily positive and certainly a lot better than where the company was just a year ago, Carnival Corporation is still showing heavy losses, where investors would have liked to have seen Carnival heading in a more promising direction.
The company shows a U.S. GAAP net loss of $770 million and an adjusted net loss of $688 million for the third quarter of 2022. As markets opened this morning, Carnival Corporation’s stock price went from $8.45 to $7.40 in just 45 minutes.
The pessimistic view comes mainly from the costs the company has to make this year, due primarily to the global economic downturn, but also the fact that Carnival believes EBITDA will turn negative again for the fourth quarter.
Also Read: What Cruise Lines Does Carnival Own?
While Carnival Corporation has benefited from the sale of smaller, less efficient ships in the last two years, bringing down costs, the benefits have been offset by the restart-related expenses, an increase in the number of dry dock days, the cost of maintaining enhanced health and safety protocols, inflation and supply chain disruptions.
How Does the Future Look for Carnival Corporation?
Luckily for Carnival and its nine brands, more than enough resources are available to bring the company back to good health. Carnival’s costs are primarily temporary and will likely not reoccur in the following years. And with several innovations coming online in the coming weeks and months, there is light at the end of the tunnel.
Weinstein: “Since announcing the relaxation of our protocols last month, we have seen a meaningful improvement in booking volumes and are now running considerably ahead of strong 2019 levels.”
“With a transformed fleet, an unmatched portfolio of well-recognized brands, unparalleled scale in an under-penetrated industry, and an incredibly talented global team, we have the ability to drive durable revenue growth through pricing improvements over time. We believe this will provide significant free cash flow and accelerate our return to strong profitability and investment grade credit ratings.”
Almost 9% of the global Carnival Corporation fleet is currently operating, with Costa Cruises being the outlier due to the cruise ban in China. The Italian cruise line has banked heavily on the Chinese market, which is currently making it lag behind the other lines in the company.
Yet, three cruise ships from Costa Cruises will see transfers to Carnival Cruise Line. Costa Luminosa (now Carnival Luminosa), as well as Costa Venezia and Costa Firenze, will make their way to the COSTA by CARNIVAL concept. And there could be more exciting news coming from Italy in the coming months, Carnival Corporation hinted in its press release.
Weinstein noted, “We believe the strategic changes we have already made to our fleet resulting in a younger and more efficient fleet, coupled with our recent portfolio optimization efforts including COSTA by CARNIVAL, will provide strong tailwinds along our path to profitability.”
Since announcing the company’s relaxed protocols in mid-August, aligning the company towards land-based vacation alternatives, booking volumes for all future sailings have been considerably higher than strong 2019 levels. For 2023, the cruise company sees higher bookings at higher prices, showing the popularity of cruises continues.
With new ships on the way, such as Carnival Celebration and Carnival Jubilee, the long term does look reasonably stable for Carnival Corporation. However, costs related to the global economy, exchange rates, fuel prices, interest, and inflation are a cause for concern, especially in the near term.