Carnival Corp. to unload three ships, including two from Costa

Carnival Corp. will shed three more ships as its weathers a rocky return to cruising in Australia and Asia and navigates the ongoing impact of the war in Ukraine. 

Given Costa Cruises’ significant presence in Asia, which has not yet fully reopened to cruising, Carnival Corp. has opted to sell two of the brand’s smaller, less efficient ships from the fleet, said Carnival Corp. CEO Josh Weinstein during the company’s fiscal Q4 earnings call on Wednesday.

A third ship from an unnamed Carnival brand will also be sold. The company declined to release details. 

“At this point, Australia’s reopening is where North America was a year ago, and Japan is closer to two years behind,” said Weinstein. He said he expects the impacts of those regions to affect deployments and guest sourcing through the first half of 2023. Meanwhile, China has yet to reopen to cruising.

When will China cruising return?

Asked whether Carnival Corp. sees a return to China, Weinstein said he is keeping an eye on China but would rather optimize demand and revenue in markets where its brands are doing well.

“If and when China opens up again, and opens up not just to domestic cruising but really opens up, we’ll certainly look at that, but we’re not relying on it. We’re not counting on it,” he said.

The move to sell ships will return Costa to its approximate 2019 capacity outside of Asia. The shift is an attempt to “right-size” Costa and keeps deployments closer to home in its core markets in continental Europe, he said. 

Carnival Corp. CFO David Bernstein said the company is under contract to sell two ships and is working on a contract to sell the third.

The shedding of the ships is in addition to the three Costa vessels the company is shifting to Carnival Cruise Line. The Luminosa began sailing for Carnival in September, the Venezia will begin in June 2023 and the Firenze in 2024.

The Ukraine war has hurt Costa and Princess

Instability in the region around Ukraine has led to uncertainty and more close-in bookings, namely for Costa and Aida, Weinstein said, leading the lines to homeport closer to where guests live and to sail shorter voyages.  

These interruptions have affected the full return of brands that rely on international guests, including Princess Cruises. In 2019, about one-third of Carnival Corp. guests from outside North America came from Australia, Asia and the Baltics. Weinstein said that amounts to about 2 million people. That represents about 40% of Costa’s guests and 25% of Princess’ guests, he said. To adjust, Princess will source more heavily than ever before from North America, Weinstein said.

A Q4 loss and more debt, but rising bookings

Carnival Corp. has had a rocky 2022. Although bookings have improved since Covid regulations subsided in late summer and several of the brands broke booking records for Black Friday and Cyber Monday, the company reported an adjusted net loss of $1.1 billion in its fiscal Q4 (the three months ending on Nov. 30).

The company expects it will return to 50% of 2019 earnings by mid-2023 and rival 2019 earnings by the end of next year. 

Carnival Corp. has $32 billion in long-term debt, up from $28.5 billion a year ago.

Occupancy in Q4 was 19 percentage points below 2019 levels. That was improved over Q3, when occupancy was 29 points below 2019 levels. Carnival Corp. expects total capacity to grow 3% above 2019 levels next year.

The company said booking volume in Q4 neared the 2019 level. The booking curve has lengthened across all brands and onboard revenue continues to climb, Weinstein said.

Carnival Corp. also is optimistic about its decision to increase marketing spending to drive demand. The company not only plans to utilize marketing during Wave season but plans to continue throughout the year to drive demand at higher prices, Weinstein said. In Q4, Carnival Corp. spent nearly 20% more on advertising than in Q4 2019. 

Patrick Scholes, a stocks analyst with Truist Securities, said the earnings were lower than expected due to lower-than-expected passenger ticket revenue on lower-than-expected occupancy, unfavorable fuel prices and currency rates.

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