LEISURE LETTER (03/18/2015)



  • March 16-19: Cruise Shipping Miami Conference
  • March 18: 9am IGT Investor Day: (1877) ; pw: 1325073
  • March 19: 5am Galaxy FY 2014 results
    • (), Passcode: 712943


RCL/CCL/NCLH: Cruise shipping Miami Day 1 tidbits and other news 

  • Pricing remains a top challenge. Cruise companies have yet to achieve double digit ROIC growth, the US-based execs concurred.
  • Europe
    • 6,387,000 European passengers in 2014 (+0.5% YoY)
    • In 2014, Germany overtook the UK to become Europe’s first source country with 1.77m passengers (+5% YoY), while France consolidated itself as the fourth largest source market in Europe, with an impressive growth of 13.7%.
      • UK/Ireland passengers dropped 4.8% due to ‘reduced capacity’ in the region
      • Number of UK and Irish passengers taking fly cruises increased 3% in 2014
      • German growth had been driven by capacity increases from German cruise lines AIDA and TUI Cruises.
    • Italy remains the third largest source market, despite a 3.1% decrease that is explained by the decrease of capacity deployment in the Med.
    • Spain has continued to decline (–4.5%), due to the decrease in capacity in the Med and the closed operations of Iberocruceros, although this year’s decrease was much softer than the previous two years.
    • The Scandinavian market has increased by 5.6% this year.
  • China
    • With China’s potential as the world’s largest ‘nation of tourists’, annual industry growth should be double-, rather than single-digit, Donald indicated.
    • Cruise lines hosted nearly 1.4m Asian vacationers in 2014, a 34% compound annual growth rate since 2012.
    • Since 2013, passenger capacity grew at a 20% compound annual growth rate and is expected to reach almost 2.2m in 2015. The Asia region has quickly progressed to fourth in passenger capacity deployment, tied with Australasia.
    • This year, 52 cruise ships will operate in Asia, a 10% compound annual growth rate since 2013. 
    • In 2014, 697,000 passengers were from mainland China which is almost as many passengers as all other Asian markets combined (701,000).
    • In four of the largest cruise markets – China, Malaysia, Indonesia and Philippines – more than 4 out of 10 passengers were under 40.
    • More than nine out of ten Asian passengers (91%) cruised within Asia. The remaining 9% flew to cruise destinations outside the region, primarily in Europe, followed by Alaska and Caribbean.
    • 48% of Asian passengers choosing 4 to 6 day cruises in 2014, 38% choosing cruises of 2 to 3 nights, and only 12% opting for 7 to 13 night cruises.
  • Bookings for Alaska are strong. The CEOs for Holland America andCelebrity said they are adding capacity in the region for 2015.
  • South America - because of chaotic politics and economies and labor issues that impact logistics -remains a challenge  
  • Costa
    • In 2014, five out of ten guests in the major Continental European markets spent their vacation on board a cruise ship operated by the Costa Group, says Michael Thamm, ceo of the Costa Group (Costa Cruises and AIDA Cruises).

    • The Costa Group claims to be the market leader in Italy, Germany, France and Spain in 2014.

    • Last year German passengers booked every second cruise with the Costa Group brands, in France it claims a market share of around 45% and 40% in Spain.

    • In China around four out of ten bookings in the rapidly growing market are made for Costa ships, the group says. Costa Atlantica, is currently on the first 86-day round-the-world cruise for Chinese passengers and in April 2015, Costa Serena will be the third Costa vessel offering cruises from China. 

  • MSC Cruises
    • Seaside prototype ship in 2017—with its open-to-the-water design—will be based at Miami year-round, joining MSC Divina, which is to continue seasonal Caribbean operations.
    • Seaside newbuild has a revolutionary design with the engine room positioned in the center of the ship and a 'completely novel shape' that resembles shoreside more than marine architecture
      • Water park: five water slides including 'slideboarding,' which combines racing slide features with video gaming elements.
    • A stronger presence in the world's leading cruise market, North America, is a priority for MSC
    • And though MSC will position a ship in Asia eventually, it's currently not the line's No. 1 focus.
  • CLIA chairman Adam Goldstein, citing statistics released by CLIA in February, forecast 23m people will cruise globally this year, up 4% from 22.1m in 2014. 

    Takeaway: China obviously was a key topic. CCL/RCL need to understand that the reason the average cruiser age in China is much lower than US/Europe is because the older generation there has little interest in cruising. Anemic growth in Europe last year was blamed on capacity shifts; while capacity will be higher in 2015 (e.g. Allure), we think European-sourced demand will be weaker than expected. Alaska is the hot spot in 2015 while Bermuda is also on the upswing.


    CZR - Caesars Entertainment Corp (CEC) has issued a “going concern” warning in relation to bondholder lawsuits – some of them linked to the fact of the bankruptcy proceedings of its operating unit. The casino group said in a Nasdaq filing on Monday: “We have concluded that the material uncertainty related to certain of the litigation proceeding against CEC raises substantial doubt about the company’s ability to continue as a going concern.”


    FCH - sold Embassy Suites San Antonio International Airport Hotel for $29.5m

    Takeaway: This UUP hotel changed hands at only $113k/key.


    March Forecast - Local casinos are expected to close in March with a YoY revenue drop of at least 35%, with one gaming operator even expecting a fall of over 40%.


    “We are in a new phase of adjustment, readapting to a reality where the VIP gamblers are not coming to Macau and are looking for new places [to gamble],” a SJM source told Lusa news agency. “Macau is a preferred place for the Chinese gamblers. The money transferences must be controlled, but we can’t scare the gamblers as if all of them were doing something illegal. We must bet in a sustainable market and growth, which should also benefit the local society.”


    Takeaway: On average, -40% sounds right for March GGR


    Prostitution ring - Macau police break up prostitution ring, arrest 42.  All those arrested were from the mainland, with the youngest aged 17. The syndicate was operating in a Macau hotel.


    China February new home prices (0.3%) m/m vs (0.2%) in January - MNI


    Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

    Takeaway:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015.

    Another French Revolution?

    "Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

    read more

    Cartoon of the Day: The Trend is Your Friend

    "All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

    read more

    A Sneak Peek At Hedgeye's 2017 GDP Estimates

    Here's an inside look at our GDP estimates versus Wall Street consensus.

    read more

    Cartoon of the Day: Green Thumb

    So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

    read more

    Europe's Battles Against Apple, Google, Innovation & Jobs

    "“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

    read more

    An Open Letter to Pandora Management...

    "Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

    read more

    A 'Toxic Cocktail' Brewing for A Best Idea Short

    The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

    read more

    Energy Stocks: Time to Buy? Here's What You Need to Know

    If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

    read more

    McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

    What are even some of the smartest investors in the world missing right now?

    read more

    Cartoon of the Day: Political Portfolio Positioning

    Leave your politics out of your portfolio.

    read more

    Jim Rickards Answers the Hedgeye 21

    Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

    read more

    Amazon's New 'Big Idea': Ignore It At Your Own Peril

    "We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

    read more