It's clear to us that management is low balling Q2 - commentary didn't match guidance. Lofty expectations are a problem for the stock, however.




  • Brand perception is most of the way back
  • Brand loyalty is almost 
  • Cautiously optimistic - expect pricing to improve
  • Costa - up 50% YoY on bookings volume.  Doubling of trust in confidence in core European market
  • NA brands caught up on occupancy while European brands are pushing out the bookings curve 
  • Will turn corner in 2H 2014
  • Advertising expenses for 2014: $600MM  (+20% over 2012)
  • Princess/Costa in Europe/ P&O Cruises launched new campaigns
  • FQ1:  
    • better revenue Caribbean/Continental European brands (5 cents) better NCC (4 cents); 
    • Capacity: +1.7%; 
    • Net ticket:  
      • -3.5% for NA brands - driven by promotions at Carnival brand; 
      • -2.5% for EAA brands - Costa increases offset by other European brands
    • Net onboard:   EAA: +4%, NA: slightly down, driven by lower occupancy at Carnival Cruise lines
    • NCC:  higher advertising spend but less than previous guidance
  • 2014
    • NA/EAA: bookings ahead by 20% at lower prices.  Carnival Cruise Lines and Costa led the way in bookings
    • 1st time cumulative bookings for next three quarters are higher than prior year as booking window widen; although they're still at lower end of historical bookings curve
  • F2Q
    • Tough comps due to pre-Triumph bookings last year
  • 2H 2014:  positive yields for NA and EAA yields
  • Expectations for Caribbean unchanged for rest of year despite better close-in performance for FQ1
  • Japan:  below expectations with Princess having 2 ships there.  Deployment represents 1% of annual capacity.
  • NA brands:
    • Caribbean:  Behind on price and occupancy; represent 50% for reminder of year; catching up on occupancy 
    • Alaska:  Behind on price but well ahead on occupancy
    • Seasonal European:  Well ahead on price and occupancy
  • EAA brands:
    • Europe (70% for remind of year):  Behind on price but well ahead on occupancy and substantially ahead of 2013

Q & A

  • For all 3 coming quarters:  higher volumes at lower prices
  • Lower occupancy at Carnival brand:  giving up a points of occupancy to maintain price
  • Historical bookings curve: 80-90% (current), 50-70% (1Q out), 30-50% (2 Q outs)
  • Carnival brand:  previously guided down mid-to-high single digits in 1H 2014 and turn positive in 2H 2014;  in Q1, Carnival turned out to be a little better than expected.  Forecast for remaining quarters remain unchanged for Carnival.
  • Costa:  occupancy up a couple of points more than expected in FQ1.  Had less ships in South America for FQ1 due to high costs there so they give up a little in yield to drive profitability.
  • Capacity growth:  +10% in the Caribbean for Carnival brand; overall market +19% in the Caribbean
  • Lower pricing happened in 2009 but pricing recovered in 2010.  They are not concerned about the lower prices.
  • Lost 10% in yields in 2009, got back half of that in 2010/2011.  Today, about 11% behind 2008 yields.  Their competition is close to 2008 yields.  
  • Switchers (New to Cruise) more price and media sensitive but smallest part of the cruiser base
  • Carnival brands:  ships sail full or almost full (as do their competitors)
  • Carnival brand recovery faster than expected
  • Costa brand recovery:  European economy still choppy but has strengthened
  • Cost savings:  hold off on forecasts, overall see further efficiencies 
  • FQ2:  impacted by higher capacity and promotional rates in Caribbean
  • FQ3:  will be negatively impacted by Japan
  • Costa  up a couple of points in FQ1 (15% of overall capacity)
  • FQ4:  expect costs to be down
  • FQ1/FQ2:  increase in costs was mainly driven by advertising
  • FQ3:  50% booked
  • FQ4:  1/3 booked
  • 2015 Caribbean capacity:  For FQ1, small decrease for CCL brands (Carnival Legend moving to Australia)
  • Refurbed ships getting higher premium pricing
  • Japan EPS impact:  assume Japan will "lose some money" but overall bullish 
  • Ukraine: has impacted some itineraries; 0.7% of overall capacity; Costa replacing May itineraries with Bulgaria/Istanbul; AIDA/Seabourn in F3Q itineraries will change as well.
  • Had not advertised Princess brand in over 10 years
  • Do not expect ECA higher costs to have a material impact
  • Dallas oil spill:  if channel opened up this wk and future cruises operate as normal, it might cost CCL 1 penny in F2Q
  • 1Q European yields (ex Costa):  were down just a little bit; UK made changes to their pricing programs and commission structure.  CCL expects an improving trend in UK overall.

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