As the tide slowly turns around, Carnival may be left behind



CCL investors will have to continue to wait for a definitive inflection point in Europe.   Royal and Norwegian has kept yield guidance unchanged.  Moreover, our monthly pricing survey suggests that CCL pricing remains under pressure.  Aggressive promotions by Carnival indicates that to fill capacity, it needs to offer dirt cheap prices to potential cruisers.  Carnival needs to repair its image worldwide—a tall task at a hefty price.  


As the summer season revs up, a barrage of promotional deals should be hitting your inbox if you've shown a tiny bit of interest on going on a cruise.  While we’ve seen some usual promotions post Wave Season, one recent promotion was particularly striking.  Princess, one of Carnival’s premium cruise lines, announced a special sale running from May 1-8, offering up to 50% off on more than 200 cruise itineraries throughout Europe and Alaska in addition to an onboard credit ranging from $25-$100.  This Princess sale is not only early for Alaska (they did something similar for June last year) but it shows Carnival’s aggressive price discounting strategy to desperately fill up cabins in the critical FQ3 period.  


While the Carnival brands continue to cut prices in its effort to regain loyalty, we've seen the competition capitalize on CCL’s misfortunes.  Royal & Norwegian pricing and bookings are doing particularly well in the Caribbean and MSC Cruises recently saw its April UK bookings almost double due to a successful promotional strategy of its newest ship, the MSC Preziosa. 


Here is what we’re seeing from our proprietary pricing survey for May in Europe and North America.  We analyze YoY trends as well as relative trends, determined by pricing relative to those seen near the last earnings date for a cruise operator. 




RCL recently mentioned on its conference call even though Europe still was struggling, the market was performing better than its expectations in February.  Based on our survey, we saw that the RC brand pricing is improving YoY in Europe.  For FQ3, we estimate average pricing YoY for the RC brand has been trending higher in the mid-single digits in May, up from low single-digits in April.  NCL’s European pricing fell moderately for FQ2 on a relative basis but its FQ3 pricing gradually improved.  This is consistent with management's commentary on a very slow recovery in European pricing.


Carnival is lagging way behind.   With the exception of Costa and a handful of Cunard itineraries, Europe pricing for other Carnival brands (e.g. AIDA, Princess, Holland America) are lower for the rest of the year and the trend is worsening.  In addition, Costa’s +30% YoY price gains in March for FQ3 have shrunk to +15% in May; on the brighter side, FQ4 prices remain up 30% YoY .


As for Princess, YoY pricing has slipped into negative territory in May, falling in the mid to high single digits—a substantial decline in trend from April due to the aggressive promotion mentioned above. 


North America

We continue to believe Carnival’s biggest concern should be the Caribbean due to the multiple operational failures.  The Caribbean accounts for roughly 34%, 23% and 29% of Carnival’s total itineraries for F2Q, F3Q, and F4Q.  The Carnival brand pricing suffered a sharp decline sequentially (~10%) in May for F2Q, F3Q, and F4Q.  We also saw early F1Q 2014 pricing exhibiting weakness.


There was not much change in RCL’s pricing for the region.  It continues to be robust particularly in F2Q and F3Q.  Norwegian pricing picked up slightly in May.  This divergence suggests that Carnival continues to lose share to Royal and Norwegian in the Caribbean market.


Alaska may not be as strong as people expect in 2013.  Summer prices were discounted substantially in May across most brands.  It seems the discounting in Alaska is earlier than usual this time of year.  However, the expected record bookings should alleviate that.  Carnival is also struggling in Mexico for F2Q and F3Q due to hard comps as the pricing trend remains lower. 

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more