CCL F2Q CONF CALL NOTES

Caribbean pricing holding well at the expense of lower forward bookings for 3Q. Once again, CCL offered guidance that is beatable but the unchanged, ambiguous language concerning full-year yields is disconcerting.

CONF CALL 

  • Turn a bit of a corner; inflection point for the company
  • European yields turned positive in 2Q
  • Favorable pricing in North America and Europe
  • Making every effort to maintain pricing
  • Gave up some occupancy in Southern Caribbean segment to keep pricing
  • Aggressive pricing by competitors in Caribbean
  • In 2015, expect flat capacity in Europe and Alaska, and slight reduction in Caribbean deployment with notable double digit decline in 3Q 2015
  • Asia/Australia capacity will be up mid-high teens in 2015
  • (Ibero) Grand Celebration will become Costa Celebration 
  • 5 ships leaving or sold from fleet in 2014/2015 (including 3 Seabourn, 1 Costa); new ships in 2016 will replace this capacity loss
  • Remain on track to reduce fuel consumption by 25% in 2014 when compared to 2007
  • 2Q:  
    • Better performance driven by better net revenue yields worth $0.04 (split btw ticket and onboard and other)
    • Capacity increased 5%
      • NA brands +8%; EAA brands flat
    • Net ticket yields -4%; NA ticket yields -7%; EAA ticket yields: +2%
    • Net onboard/other yields: +2.6%
  • Overall booking curve continues to lengthen; anticipate this trend will continue
  • Cumulative bookings:
    • EAA brands significantly ahead on occupancy with flat prices, which bodes well for pricing on remaining inventory
    • NA brands ahead on price but behind on occupancy as a result of large increase in industry capacty in Caribbean
  • Epect EAA brand yields turned positive in 2Q and will be positive for rest of year
  • Don't expect NA yields to turn positive until 4Q
  • Forecasting slightly lower occupancies for 3Q
  • Back half of year forecast has not changed-with slight improvement in 4Q offset lower occupancy in 3Q
  • NA brands:
    • Caribbean: behind on occupancy but ahead on price; 44% capacity for remainder of year for NA brands; booking volumes have been good.
    • Alaska:  nicely ahead on both price and occupancy, which bodes well for remaining inventory
    • Seasonal Europe program for NA brands are strong - well ahead on both price and occupancy.
  • EAA brands:  
    • European program represents ~80% of EAA brands' capacity- significantly ahead on occupancy with flat pricing.  Recent book volumes are meeting expectations at nicely higher prices
  • Better FY NCC ex fuel guidance due to lower occupancy and greater collaboration amongst brands.
  • 2Q better yields (4 cents), improved cost guidance (6 cents), improved fuel consumption/items (4 cents), unfavorable currency/fuel (-6 cents)

Q & A

  • 3Q yield:  very small movement from a tad positive into slightly negative at this point.  More promotional environment in Caribbean than anticipated.  Carnival brand decides to hold price and give up occupancy; lower occupancy driving yields down.
  • EAA brands moving in positive direction
  • Capacity in Caribbean:  +22% (3Q), +13% (4Q)
    • For CCL, capacity in 4Q is only +5-6%  in Caribbean, compared with +19% in 3Q
  • Yields will be up slightly in Q4
  • Opportunities in reducing air expenses; fully expect to begin to see benefit in 2015
  • Ticket revenue at EAA brands performed a little bit better than expected.
  • Onboard Casino program doing well; didn't change onboard revenue for remainder of year despite lower occupancy because of improvements that they're seeing.
  • Lower occupancy in Caribbean, Japan, and other things impact 3Q yields
  • 3Q guidance a little worse than CCL anticipated
  • 3Q NA yields will not be worse than -7% seen in 2Q
  • Annual strategy reviews in Aug/Sept
  • 2015 capacity growth: little over 2%
  • Biggest promotional activity has been in south Florida market; making deployment changes
  • 2015 overall capacity increases will be in Asia/Australia/New Zealand
  • 2015 Industrywide:  where NA brands exist, flat capacity; where EAA brands exist, capacity +6%.  Asia-Pacific region will grow 16% for industry.
  • Carnival brand:  image has rebounded very well. 
  • But overall rebound has not been what mgmt had hoped because of Caribbean promotions.
  • Held price at expense of occupancy worked well last year
  • Ex payroll/fuel:  1% cost improvement yields $60 million
  • Costa:  continue to improve a few more points than prior year
  • Can see yield improvement in Caribbean at some point.  Inflection point in 3Q moving to 4Q.
  • Onboard:  positive signs in multiple categories but casino revenue growth most significant
  • Costa strong in Spain
  • China: overall yields slightly less than corp average.  Chinese love gambling but drink less.