Cruise giant Carnival’s caught in choppy waters
CRUISE ship operator Carnival has been hammered by the pandemic. Whether its ships leave port or not, their very high costs can’t be flexed.
That fed into the group announcing a £1.4billion net loss for the first quarter.
Available Lower Berth Days – a measure of capacity – stood at 60 per cent, and the Omicron variant saw the group held back by lower bookings and increased cancellations.
Adding to its problems are skyrocketing fuel prices, as well as wider political uncertainty. Cruise ships need a lot of fuel, so this headwind is a real sticking point at a time when Carnival is trying to ramp operations back up.
The firm’s debt position is also a concern. Refinancing efforts will help the situation, pushing back repayment dates and reducing interest expenses, but even so, its level of debt is much higher than we’re comfortable with.
Getting the balance sheet under control will be the main priority and will hold the business back for years.
Commentary on bookings has flip-flopped a little. The most recent update suggested recent bookings have been held back by Omicron, and trends don’t look particularly spritely until 2023.
That also plays into disappointing dividend developments. Carnival can’t currently pay one due to terms set by its lenders. This means investors aren’t being paid for their patience.
But there are some positives. As of March 22, 75 per cent of its capacity had restarted guest cruise operations, and the full fleet is expected to be back in action for the summer season.
We’re also supportive of efforts to streamline operations. Smaller, less efficient ships are being cast aside and permanent cost-savings are being uncovered. Ultimately, Carnival is navigating a sea of uncertainty. As tourism travel, and cruising in particular, comes back into fashion, Carnival should in theory benefit.
It will be very important to see how the group does over the crucial summer season. Another disappointing round of results would likely cause a harsh reaction from the market.
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