Q3 2024 Earnings Summary
- Strong and broad-based demand across all brands and regions, with booking trends showing the company is about 2/3 booked for the next 12 months, allowing for increased pricing power . Onboard per diem spending increased by 6.7% year-over-year, an acceleration compared to the previous quarter . New-to-cruise customers increased by 17% year-over-year, indicating successful demand generation efforts .
- Effective cost-saving measures leading to improved margins, including crew travel savings, port savings, sourcing savings, and better leveraging of scale across brands . EBITDA flow-through was almost 60%, stronger than expected . The company is focused on debt reduction, aiming to achieve investment-grade metrics by the end of 2026 .
- Superior value proposition compared to land-based alternatives, potentially benefiting from shifts in consumer behavior . The company is capturing market share with remarkable value offerings and is doing a better job of getting the word out, leading to increased demand . With the cruise industry representing only 2% of the overall vacation market, there is significant room for growth .
- Increasing competition in key markets, such as Galveston, Texas, where a competitor is building a new terminal, which may impact CCL's market share.
- Rising costs due to inflation and operational expenses, including expected increases from dry docks and the cost of Celebration Key, with uncertainty about future inflation levels.
- High debt levels with costly debt issuances, including two double-digit interest rate issuances callable in 2025, indicating financial strain and the need for debt refinancing.
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2025 and 2026 Bookings Outlook
Q: Are bookings for 2025 and 2026 off to a strong start?
A: Yes, bookings for 2025 are even better than for 2024, which is shaping up to be a record year. We are higher in occupancy and price, and our brands are optimizing the booking curve and revenue generation. -
Cost Savings and Margin Outlook
Q: Can you discuss cost savings and margin opportunities?
A: We achieved around $100 million in cost savings, mainly from hundreds of small items across brands like crew travel and sourcing savings. About half of this came from such initiatives. Additionally, there were some one-time benefits of about $20 million related to pension credits. -
Debt Reduction and Capital Priorities
Q: What are your capital priorities given free cash flow?
A: Our top three priorities are debt reduction to achieve investment-grade metrics by the end of 2026 as part of our SEA Change program. We expect to reduce debt levels and improve EBITDA to reach this goal. -
Demand Trends and New-to-Cruise Growth
Q: Are you seeing acceleration in new-to-cruise and younger demographics?
A: Yes, new-to-cruise was up 17% year-over-year this past quarter. Brands like Carnival Cruise Line have an average guest age of 41 years, attracting millennials. However, we also value boomers and Gen X across our brand portfolio. -
Impact of Middle East Conflict
Q: How will the Middle East conflict affect your business?
A: Our business isn't contingent on the Middle East. It's not a major source market, and we're not operating there. Unless the conflict escalates significantly, we don't expect an impact. -
Fourth Quarter Yield Guidance
Q: Is there any change to fourth quarter yield guidance?
A: There is no change from June guidance on the fourth quarter yield. We always aimed for a 5% increase, and we feel good about that. -
Occupancy Levels and Yield Opportunity
Q: Is there room to improve occupancy and yields?
A: We're back to historical occupancy ranges but may push a little higher. However, increasing price will be the main driver of revenue improvement going forward. -
Fleet Expansion and Ship Orders
Q: Any plans to order new ships for 2027–2028?
A: No, our order book is set through 2028. We feel good about it and will focus on reducing capital expenditures to pay down debt. -
SEA Change Program Progress
Q: Are you ahead on your SEA Change targets?
A: Yes, we're outperforming expectations. We anticipated an 8.5% yield increase and 4.5% cost increase for a 9% ROIC, but now see yields up 10.5% and costs up only 3.5%, leading to a 10.5% ROIC. -
Advertising Spend Outlook
Q: Will elevated advertising spend continue next year?
A: Advertising decisions are part of our ongoing planning process. We'll provide guidance in December, but it's about balancing short-term bookings and long-term demand generation. -
Competition in Galveston
Q: How do you feel about a competitor building in Galveston?
A: We don't view it as an encroachment. We're only 2% of the overall vacation market, and as long as we focus on our world-class brands, we'll be fine. -
Celebration Key and Halo Effect
Q: Is Celebration Key creating the halo effect you expected?
A: Yes, we are seeing a premium and interest from guests, even though it hasn't opened yet. We expect more impact once it's operational. -
Plans for Half Moon Cay
Q: Any plans beyond a pier for Half Moon Cay?
A: Yes, we have plans to enhance it as a naturally beautiful private destination, but we don't plan to add a water park. More details will be shared in the coming months. -
Asia Pacific and Chinese Consumer
Q: Any update on Asia Pacific trends and Chinese consumers?
A: China was a small part of our capacity before the pandemic, and we're not pursuing it currently. In other regions like Japan and Taiwan, cruising is going well. -
Fuel Costs and Shore Power
Q: Are higher fuel costs related to shore power usage?
A: No, shore power costs are included in port expenses, not fuel. So shore power doesn't impact fuel expense. -
Hurricane Impact on Costs
Q: What's the cost impact from recent hurricanes?
A: The financial impact is insignificant for us, just a few million dollars. -
Impact of Land-Based Leisure Trends
Q: Are softer trends in land-based leisure affecting you?
A: No, we continue to see strong demand. We offer remarkable value compared to land-based alternatives, and our new-to-cruise is up 17% year-over-year. -
Upcoming Investor Event Topics
Q: What are key topics for the upcoming investor event?
A: We'll update on our progress across the board, showcase the Princess brand and Sun Princess ship, and provide insights from our brand presidents. -
Dry Dock Cost Increases
Q: Can you provide granularity on dry dock costs next year?
A: We don't have details handy, but you can follow up with our team for more information. -
Strategy for Increasing New-to-Cruise Penetration
Q: How are you increasing new-to-cruise penetration?
A: Through better advertising, improved websites, and leveraging popular destinations like Alaska, which attracts many new-to-cruise guests.