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.