What happened
Shares of Carnival (CCL +2.15%) jumped 34.2% in January compared to where it closed out 2022, according to data provided by S&P Global Market Intelligence, as the cruise line operator, which is working to return to full capacity, said it would raise its prices.
The increase in certain rates suggests there is still strong, latent demand for ocean-going travel that bodes well for the cruise company's profitability.
Image source: Getty Images.
So what
Carnival's fourth-quarter earnings report at the end of December showed its full-year 2023 advance bookings for cruises were not only higher than its historical average, particularly when compared to pre-pandemic 2019 levels, but are also at higher prices in constant currency and normalized for the credits it had to give customers whose cruises were canceled as a result of COVID-19-related lockdowns.
Revenue per passenger cruise days for the period was up sequentially from the third quarter and ahead of 2019 even though occupancy was a full 19 percentage points lower than three years ago. Overall, revenue has climbed back to 80% of 2019 levels and the coming price hikes should help it narrow the gap further or even reach parity.
Carnival's ability to raise prices should also help it offset what are likely to be higher fuel costs this year along with higher debt and interest expenses.
It took a $40 million hit from fuel prices in the fourth quarter, which kept the cruise operator's adjusted losses before interest, taxes, depreciation, and amortization from being better than they otherwise could have been (they came in at a loss of $96 million, which was still within management's guidance range).
NYSE: CCL
Key Data Points
Now what
Carnival has nearly $32 billion in long-term debt on its balance sheet, mostly taken out during the pandemic to remain afloat while it was forced to stay in port. It has $2.4 billion in payments due this year, $2.6 billion coming due next year, and a further $4.4 billion due in 2025. The cruise ship company has about $4 billion in cash on the books.
Being able to service that debt plus interest (Carnival paid some $1.6 billion in interest expenses last year) is critical, and the higher rates it charges passengers can go a long way toward further stabilizing the cruise line company's finances.
