In 2023, Carnival Corporation has made an impressive comeback, with its stock price soaring by 133%. This recovery comes after a challenging period for the cruise industry, severely impacted by the pandemic.
The recovery has been faster than expected, as many industry experts predicted a much more extended recovery period due to the near-total shutdown of cruise operations for over a year. With a new CEO and a strategic plan in place, Carnival is navigating toward stability and profitability.
A New Plan for Growth and Recovery
Post-pandemic, many industry insiders believed it could take several years, and in some instances, up to 2030, for the cruise industry to recover fully.
Carnival Corporation was one of the companies that took the biggest hits since 2020. The company took on a tremendous amount of debt and, as of 2021, had a total debt of approximately $31.52 billion.
The debt load and a stock price that dwindled to just $6,76 made the world’s largest cruise operator implement several changes, including bringing on Josh Weinstein as the new CEO of the Miami-based cruise company.
Weinstein has introduced a strategic plan called SEA Change, focusing on measured growth, improved profit margins, and significant debt reduction. The acronym SEA stands for sustainability through carbon intensity reduction, EBITDA per ALBD, and adjusted ROIC, three key performance indicators.
His three-year plan aims to achieve a 50% profit growth per available guest bed day (ALBD), which measures the company’s earnings relative to its capacity to accommodate guests.
The surge in the stock price (today, July 4, the stock price is trading at over $18) is a testament to investors’ confidence in Weinstein’s financial plans to bring Carnival back to profitability. It also reflects the strong year that Carnival is having so far.
In the second quarter earnings call, Weinstein said, “We reached a meaningful inflection point for revenue with net yields surpassing 2019 strong levels. And on top of that, operating income, cash from operations, and adjusted free cash flow were all positive.”
”Adding to those achievements, we hit all-time highs for bookings and customer deposits. And remarkably, we are still experiencing a phenomenal wave season, which started early, gained strength, and is still going strong midway through the year.”
Despite a rise in costs, Carnival has seen an improvement in its earnings relative to its capacity, reaching 73% of pre-pandemic levels. This improvement is driven by pent-up demand, leading to increased bookings and higher prices and higher profits.
Future Prospects for Carnival
Carnival has been working hard to attract new guests to its fleet of almost 100 cruise ships. And those marketing campaigns are paying off. Carnival surpassed the number of new-to-cruise guests in 2023, beating the previous record of 2019.
“Our cumulative number of new day crews and new brand guests who sailed with us in the second quarter have already exceeded 2019 levels. Our natural search performance is up across the board with an 87% increase over 2019, which is up from a 63% increase last quarter, affirming the success of our new marketing campaigns in driving awareness and consideration.”
However, Carnival badly needs the money that the ships are generating. The company plans to use this cash flow to pay down $8 billion in debt, easing the financial burden accumulated during the pandemic.
Downsizing and Upsizing
The significant debt load has been weighing down the company, prompting announcements that the cruise company would limit new builds and take action in several other places to reduce costs.
One such area has been downsizing the Costa Cruises brand and upsizing Carnival Cruise Line. Before the pandemic, Costa put all of its efforts into breaking into the Chinese cruise market. However, when China locked down, the Italian cruise line was stuck with over capacity.
Costa Luminosa and Costa Venezia are now sailing for Carnival Cruise Line as Carnival Luminosa and Carnival Venezia and Costa Firenze will be transferred in 2024. Carnival Venezia and Carnival Firenze are both part of the new ‘Fun Italian Style’ initiative.
So far, those changes have been highly successful and received positively by Carnival Cruise Line’s guests:
Weinstein: “So far, Fun Italian Style has generated 1.5 billion earned media impressions. The instant success of Carnival’s Fun Italian Style supports the entry of Firenze, the second Costa ship transferring over to Carnival Cruise Line next year.”
“These transfers are part of our portfolio management strategy, which contributes to Carnival Cruise Line’s capacity, growing 22% more than pre-pause expectations and Costa’s capacity being reduced by 36% compared to pre-pause expectations.”
So far, most of the changes Weinstein has proposed have been reasonably successful. Something that investors have started to notice.
Cruise ships are sailing full once again, demand and bookings continue to outpace every expectation for 2023, and the recovery of Carnival Corporation is happening at a much higher pace than what insiders expected.