Caribbean still a tough pricing environment but Europe is holding its ground.
RCL will likely report earnings next week. We expect management to comment on the bookings environment improving since the Grandeur of the Seas fire. However, based on our findings, Caribbean pricing has not improved since the incident. The pivot variable in its FY2013 guidance is once again determined by the outlook on Europe, which we believe continues to trend better than the company’s conservative forecast. Better than expected performance in Europe coupled with a weaker Caribbean leads us to forecast FY 2013 yield guidance narrow to 2.5%-3.5% from 2.0-4.0%. However, there remains risk to the downside, particularly on F3Q. FY 2013 expectations on the buy-side and sell-side have been lowered in the past month. 2013 FY net yield Street consensus is at 3.1% (Hedgeye: 3.0%).
While it has only been two weeks, pricing seems to be under even more pressure since management issued guidance – not only for the rest of the year but also for 1H 2014. Management indicated on their conference call that they do not expect the Carnival brand to show yield improvement until 2H 2014. However, unless Europe shows tangible growth, 2014 consensus for 2.5% net yield growth looks aggressive right now. It is early but we’re seeing no signs of regaining pricing power in the Caribbean and Mexico.
Here is what we’re seeing from our proprietary pricing survey of >12,000 itineraries for mid-July. We analyze YoY trends, as well as relative trends, which are determined by pricing compared to the last earnings/guidance date for a cruise operator i.e. RCL: 4/25, CCL: 6/25, NCLH: 5/6
- Royal Caribbean
- RC brand pricing for F3Q and F4Q has not recovered from the Grandeur of the Seas (5/27) incident. For example, Oasis of the Seas which had averaged over $1,000 per itinerary in early June had fallen close to $800 by mid-July (in the respective year ago periods, prices averaged close to $1,000). Yes, most of the cabins are filled but the lack of pricing stickiness is concerning. F1Q 2014 RC pricing was also moderately lower while F2Q 2014 pricing was moderately higher and trend was stable.
- Celebrity’s pricing trend for F4Q and F1Q 2014 was lower with lower YoY pricing.
- Pullmantur F3Q pricing fell in the mid-digits in early July and remained there in mid-July. Its F4Q 2013 and F1Q 2014 pricing trend was flat to slightly negative.
- Carnival brand
- While it’s only been two weeks since Carnival’s last guidance, pricing is losing ground fast. FQ4 2013, FQ1 2014, and FQ2 2014 pricing were all lower by double digits YoY. Pricing trend for FQ4 2013 and FQ1 2014 particularly weakened in the last two weeks. The Carnival brand accounts for 83% of CCL’s total capacity in the Caribbean.
- Norwegian's Caribbean pricing trend declined for Q3 2013, mainly due to a 16% tumble in Breakaway prices. Breakaway prices, which had been resilient in June, finally cracked under a tough pricing environment. Overall, NCLH Q4 2013 and Q1 2014 pricing trend was flat. Meanwhile, Getaway’s pricing for February/March 2014 itineraries remained steady, though 12% lower than that seen in May.
- Royal Caribbean
- Very close-in F3Q RC pricing was moderately weak. However, F4Q RC pricing crept into positive territory.
- Celebrity YoY pricing remained nicely higher in the double digits for F3Q and F4Q.
- Pullmantur Mediterranean very close-in F3Q pricing was stronger in the two weeks ago but F4Q pricing trend deteriorated.
- European capacity accounts for 49% and 25% of total capacity in F3Q and F4Q, respectively. Celebrity accounts for 33% of capacity in F3Q and F4Q, respectively, while the RC brand accounts for 48% and 35% of capacity in F3Q and F4Q, respectively.
- Costa F3Q pricing, which continued to fall since June, was unchanged relative to the beginning of July. Costa’s FQ4 pricing remained strong at double digit growth. Costa’s early FQ1/FQ2 2014 pricing did not change much. Princess, Cunard, and AIDA F3Q/F4Q pricing trend were fairly stable, while Holland America pricing declined slightly in the last two weeks.
- We estimate Costa accounts for 40-50% of total European capacity in F3Q and F4Q
- F3Q prices continued its downward trend since May. F1Q 2014 pricing improved slightly.
Not many itineraries left. Holland America continued to discount aggressively in F3Q and F4Q. Norwegian and the RC brand also slashed F3Q prices. On the brighter side, Princess pricing was impressively higher YoY.
Carnival brand’s pricing struggles in Mexico remain for F3Q, partially due to hard comps. Carnival brand’s F4Q 2013 and F1Q 2014 pricing both took a heavy hit in July and trend is declining.
1Q 2014 RC brand pricing strengthened in mid-July. Costa’s F4Q 2013 and F1Q 2014 pricing remained robust.