As the world attempts a return to normal, pent-up demand for travel continues to snowball. Cruise line stocks are showing signs of recovery, but operators still face inflation, recession fears, and ongoing geopolitical conflicts.
As for Carnival Corporation (CCL 0.27%) (CUK -0.04%), I personally think the company's potential outweighs its challenges. Here's why.
1. Passenger revenue outpaced pre-pandemic levels last quarter
In the fourth quarter of fiscal 2022, Carnival earned more revenue from onboard passengers than in pre-pandemic 2019. Not only that, it did so with 19% fewer passengers aboard.
Although passenger-derived revenue crept past 2019 levels by just 0.5%, the accomplishment reveals a potential momentum shift for Carnival -- especially since the company did so with 19% less money-spending cruisers onboard.
Another positive indicator appears on the horizon when you compare Q3 versus Q4 onboard revenue. While Q3's occupancy was only 8% below 2019 levels, revenue for the quarter ended nearly 30% below the 2019 baseline. In other words, Carnival's passengers have been spending more lately.
Image Source: Carnival Corporation.
2. Occupancy is expected to reach 2019 levels by this summer
Speaking of passengers, Carnival forecasts occupancy levels to reach and even exceed 2019 levels by this summer. And if these cruisers keep spending like they have been, upcoming quarterly reports could impress analysts and investors alike.
Amid geopolitical woes, COVID-related concerns, and a slowed global economy, demand remained high for Carnival cruises. The Miami-based carrier broke records with its Black Friday and Cyber Monday promotions last quarter, and full-year 2023 advanced bookings accelerated beyond historical averages -- at significantly higher prices.
Carnival has also enjoyed reduced cancellations, along with cruises being booked further in advance. A longer booking window allows for better cruise preparation and also helps forecast future financial performance. Carnival CEO Josh Weinstein cited "a measurable lengthening in the booking curve" across the board during last quarter's earnings call.
The company anticipates Q1 occupancy to hit 90% or more of 2019's baseline level, with onboard passenger revenue expected to exceed 2019 levels by 5.5% to 6.5%.
3. Carnival keeps breaking booking records
Most importantly, the future looks bright for Carnival, which seeks to expedite its "return to strong profitability" in upcoming quarters. And recent bookings indicate that might happen sooner than later.
Earlier this month, Carnival partner P&O Cruises set a new record for its "biggest ever booking day" during wave season 2023, a period when discount cruise packages are offered to entice buyers. In fact, four out of P&O's five best-ever booking days occurred during "Wave 2023," which runs through March.
Aida Cruises, a German cruise line owned by Carnival, just announced that the first few weeks of 2023 were the most successful in its history, and Aida forecasts strong demand for cruises throughout the year. Last but not least, Carnival's luxury British cruise line Cunard booked more guests in the first week of January than any week in the past decade.
Thanks to improving performance and a healthy outlook, I consider Carnival stock a buy at its current levels. After all, the share price remains more than 85% below its all-time high of January 2018.
