Mixed pricing but RCL leads the way
OVERALL SURVEY SENTIMENT
- CCL: NEGATIVE
- RCL: POSITIVE
- NCLH: NEUTRAL
CALL TO ACTION
Mid-July was another period of pricing strength in Europe with mixed pricing in the Caribbean. As we noted in “RCL: MOMO FROM EUROPE/QUANTUM” yesterday, we believe RCL is well-positioned for the rest of the year given its outperformance in Europe and a Quantum boost starting in November.
CCL pricing took a turn for the worse in mid-July, particularly in the Caribbean where Carnival brand pricing had been steady since April. 2H 2014 expectations have already baked in moderate YoY growth for the Carnival brand in the Caribbean. That could be at risk if this trend continues. Any upside to the stock following RCL’s release should be faded in our opinion.
For NCLH, the discounting in the Caribbean has abated for Q3 in mid-July but there are some worrisome signals peeking in Q4. We’re agnostic on the stock here but could revisit our negative thesis from the Spring again as we get closer to Q4.
We track over YoY and sequential pricing for 13,000 ship itineraries spanning across 8 geographic regions. We rely on sequential pricing trends (defined as how pricing has changed relative to pricing seen at the last time the company provided guidance) for price pivot signals.
For the 1st time since April, Caribbean pricing for the Carnival brand dropped sequentially. On a YoY basis, Q3 pricing remains higher on a moderate basis, although the YoY comparisons have been quite volatile due to all the ship incidents last year.
In Europe, Costa pricing slipped for the 4th consecutive month; but on a YoY basis, pricing continues to trend well up into the double digits. While CCL should meet expectations for 2014, we’re concerned with the 2015 setup in the face of heightened investor expectations. Pricing comparisons will be tougher in Europe and the China outlook is cloudy.
- Carnival brand: After relatively stable pricing in April, sequential pricing took a leg down in mid-July for the next three quarters. While it is only a couple of weeks since CCL gave guidance, we wonder if the strategy of holding price at the expense of occupancy could be ending. The next survey in August would be more telling. On a YoY basis, the discounting brought Q3 pricing back into the red for the mid-July period; on average, Q3 pricing is still trending in the high single digits. As of Q4 2014, pricing on a YoY basis is still in the double digits while an early read on Q1 2015 pricing shows modest growth.
- Princess/Holland America: Not much movement. Slightly lower pricing for Holland America’s winter itineraries.
- Pricing has picked back up for the Carnival brand, Holland America, and Princess.
- Costa sequential pricing slipped for the 4th straight month for the next three quarters
- Mixed picture for the other brands
- Cunard sequential pricing is slightly lower for the winter itineraries. On a YoY basis, pricing is modestly lower.
- Holland America pricing improved slightly
- For the 1st time this year, AIDA saw some pricing increases for Q3 2014 and Q1 2015.
- P&O Cruises UK – strong pricing across the fleet
- Fairly quiet
Although the Caribbean market remains highly promotional, RCL pricing improved slightly on a sequential basis in mid-July. RCL’s European pricing growth has trended +20% with fewer available itineraries relative to that seen in last mid-July. Alaska pricing has finally broken through to the green side, although summer pricing overall is slightly lower.
- While RCL is not yet out of the woods, we did see the RC brand pricing jump sequentially in mid-July for 2H 2014
- Celebrity pricing improved slightly; however, on a YoY basis, pricing remains lower - close to double digits
- Quantum pricing for Nov/Dec itineraries remain relatively unchanged
- Pullmantur pricing steady in Q4 2014 but a challenging start to Q1 2015 due to harder comps
- Pricing in Europe has been extremely robust and Q3 got slightly stronger in mid-July. For July, both the RC brand and Celebrity pricing are up +20% for Q3. Overall, Q3 pricing is +15%.
- Anthem pricing continue to creep up for summer/winter 2015 itineraries
- YoY comps is back in the green, with Celebrity leading the charge
- While this region will be more material in the 2nd half of 2015, pricing has been generally steady among the RCL brands
- YoY pricing is still significantly behind for winter 2014
Is there any end to the discounting in the Caribbean? Not yet. While Q3 Caribbean pricing has stabilized, we are seeing more price cuts for Q4 2014 and Q1 2015 itineraries. New ship premiums were lower for the fall/winter itineraries. On the positive side, European demand was even more robust in July, which bodes well for Q3. Unfortunately for NCLH, Caribbean will always steal the limelight as Caribbean capacity is 165% greater than its European capacity in 2014. July pricing confirms that Q4 could be the next red flag.
- It is still gnarly out there. But it looks like the discounting has stopped for Q3. However, Q4 2014/Q1 2015 pricing is weaker as new ship premiums shrank.
- Premiums (charts below)
- Breakaway’s Q3 premiums expanded in mid-July as its peer group pricing fell
- Breakaway’s Q4 premiums narrowed slightly. This is a key metric to keep an eye on as Quantum comes into the market in November.
- For Getaway, Q4 APD is averaging $83, compared with peer group APD of $71.
- NCLH has 49%, 40% and 62% of its capacity in the Caribbean (including Bermuda) for Q2/Q3/Q4 2014, respectively. Compared with last year, Caribbean (including Bermuda) capacity is up 6% points.
- Very strong pricing (+20%) in Europe for Q3
- Q4 pricing is modestly lower. Hawaii tourism has fallen in 2014 as visitation dropped - likely to do with the April 1st consumption (sales) tax increase from 5% to 8%. Side note, the last time the tax went up, in a slightly smaller jump, from 3% to 5%, was in 1997.
STOCK VS SENTIMENT
Now that the Street’s and CCL’s estimates have caught up to our expectations for FY 2014, it is more difficult to outperform.
If the Europe surge is sustainable and Caribbean can hold its ground, RCL should outperform in the intermediate term.
Survey has signaled a bearish pivot on NCLH for much of 2014 due to a troubled Caribbean market. While Q3 could be in-line, Q4 yield could be at risk.