Ca$htag$: Fuel Costs & European Headwinds Cloud a Strong CCL Demand Picture

SPEAKER_1 (0:00)

Time now for our Cash Tag segment. For that, let's bring in our next guest, and that's Megan Brantley, Vice President of Research at LikeFolio, with new sentiment data on Carnival ahead of it. It's quarterly results. Been a bumpy ride for Carnival. I mean, it's not the only one in this sector. It's been trouble for Royal Caribbean as well this year. But take us through what your latest sentiment data looks like, and good to see you, Megan.

Megan Brantley (0:20)

Thanks for having me, guys. I'm glad to be here. So when we look at Carnival, this is a fun one to look at, or traditionally pretty fun to look at. When you look at our demand data for this name, and this is really focusing in on that English-speaking and North American consumer, we actually have a nice little peak in demand. We have consumer interests up about 15 percent year over year, and I'll say that this is an interesting kind of setup because we do see a lot of aspirational searches from consumers right now. So sometimes we're seeing people who are talking about wanting to partake in an activity or wanting to book a cruise, but maybe they don't quite pull the trigger. But this is one where we're actually are seeing some really nice signs of that strong forward-looking intent and this is really for the 2027 cruise season. It's interesting because Carnival, when you compare it versus Pierce, this is more of that value play. This is what people are booking whenever they want some fun and they want some entertainment, they're not necessarily going for luxury. So interesting to see it outperforming here some of those other names. But I think that it's impossible to talk this name without considering the headwinds that is facing this entire sector from fuel costs to just a stretched consumer budget at large and also persisting conflict that is impacting its European demand. So I think that unfortunately, since last quarter, not a lot has changed for Carnival whenever you consider those headwinds. And in fact, fuel may be an even bigger headwind than previously. So a little bit of a mixed bag here heading into earnings, but certainly an intriguing setup long term.

SPEAKER_3 (2:00)

Megan, I kind of wanted to hit on that because the fact that they don't hedge and they're the only major cruise line that doesn't hedge their fuel costs, they're going to get dinged on that probably pretty significantly. But the stocks pulled back 26% so far this year. So that's probably in the mix. Is there a difference in your data when you see RCL and Norwegian Cruise Lines? Maybe they're a little bit different demographic that's going on in those cruises. Is that maybe the caveat that you have where your data's outperforming there because maybe it's a little bit cheaper entry point and more people can actually take those cruises and maybe other people are pulling back from the more expensive or higher end cruise lines like the RCLs?

Megan Brantley (2:46)

Yeah, that's exactly what we're seeing right now in a lot of this forward looking search data. It's interesting because whenever you split up sentiment and you look at Carnival, this is a massive cruise liner and they have a lot of different options for consumers. We see a lot of consumers who are talking about the seven-day cruises being families who really enjoy being able to take their family on a week-long vacation for a perceived value. Then we also see a second subset of consumers who are opting in for the four-day cruises, and that's more along the party crowd, more of your bachelor, bachelorette parties, things like that.

The cruise line has a little bit for everyone, and I think that really that is the play right now, that's what's really driving that demand higher. I will say, as you mentioned, the stock has pulled back.

If we look back at last quarter, last quarter was actually decently strong, but now looking, now I think the stock is down about 30 percent from those June highs, so the bar is certainly lower. For us, we see Carnival is able to get consumers consistently to keep spending more. They seem to be doing a good job there. We've got ticket sales were only up by about two percent last quarter, but onboard spending was up by about nine percent. I think that that's really the driver is once it gets consumers onboard, they are spending more and also that focus on destinations. I think that that's been a really important strategy that Carnival is really invested in these private destinations that consumers like. So you get a little bit of that exclusiveness feel, but for a lower price tag versus some of those peers like a Royal Caribbean and Norwegian.