Cruise Lines Navigate War Disruption With Caribbean and Alaskan Demand

SPEAKER_1 (0:01)

We're back on Morning Trade Live, looking at some major cruise lines this morning. Royal Caribbean is higher by three tenths, but the rest are lower. Carnival, set to report earnings next, is tracking marginally lower right now. Norwegian's down 1.2, Viking down one and a half, as we stand. Let's go inside out on the cruise line industry. A lot going on. Joining us is Assia Georgieva, CEO and founder of Infinity Research. Assia, thank you so much for your time this morning. It's been a tough ride for a lot of these cruise line stocks this year, obviously contending with higher oil prices and I guess shifting consumer trends to some degree.

How would you characterize the group right now?

Assia Georgieva (0:43)

Sam, good morning. You're absolutely correct that it has been a tough year. And in addition to higher oil prices and some shift in consumer demand, we had a pretty significant shift for the cruise space specifically about in North American demand, not wanting to go to Europe during the summer months. The war in Iran started on February 28th, so that was the end of wave season. And since then, basically bookings for some of European sailings by North Americans really dried up. So all of a sudden, the companies needed to fill their European voyages a lot more from the local source markets, the European source markets. But what was interesting is that consumer demand was still there, except people preferred to stay closer to home. So what we saw was this really significant rotation during the summer months, with people preferring to go to the Caribbean and to some extent Alaska. And in a way that was silver lining, because this year, the industry had a 20% capacity increase in the Caribbean. And we had known this, you know, the industry, everyone involved with cruising for at least a year now.

But we didn't expect that there would be this rotation, which would help absorb that demand. Alaska, the other market that benefited during the summer months, also had a pretty big capacity increase there. That hasn't been really talked about as much, but about 14% including MSC, one of the tougher competitors in there. So tomorrow on Carnival Reports, we'll get the first indications as to how really the Q3 has ended up doing for the industry. I do expect a slight beat out of them.

So again, we did have some European softness, but that was offset by North America. Carnival is also in a unique position because it has three brands that source locally. Aida, which sources in the German-speaking countries, and is one of the two top performers at Carnival. We also have Costa, which sources out of Southern Europe, and then Cunard, which is a UK-US brand. So Carnival is unique in its exposure to Europe.

SPEAKER_1 (2:58)

Okay. Just looking across the space here, I mean, Carnival is down about almost 30 percent here to date. I'm not faring as badly as Norwegian, but RCL certainly seems to be the better one that's faring here across the bunch.

I'm just wondering then what you suspect the outlook will be for, say, 2027, what we're likely to hear from some of these companies around the guidance.

Assia Georgieva (3:23)

You're absolutely correct. Royal Caribbean has fared better on an absolute basis and on a relative basis. They have been putting up the strongest numbers, especially in terms of extracting yield, et cetera, and they did announce a new deal just last week. So a lot of new things happening there.

In terms of 27, the street seems to be pretty aggressive at 3 percent yield expectation for Carnival and about three and a half for Royal Caribbean. So well above the historical range.

We at Infinity do not see any structural changes that would warrant that big of an increase above the historical norm. We also pull pricing on about 40,000 voyages, and I think we are unique in terms of sell side by side for having that amount of data. Ticket pricing, while it has been stable, going into the sloppy winter quarters, certainly doesn't suggest a huge increase for 27 It is also early because the cruise industry does get a significant percentage of its bookings. This proportionate amount come in the months of January and February, the so-called wave season, and obviously that's not going to be happening for another couple of months. But tomorrow we expect to get some qualitative color out of Carnival. Again, I expect them to caution against 3% plus yield expectations for them in 27

SPEAKER_1 (4:53)

Everybody sitting at home when they're freezing, hoping to book their next summer holiday and very much looking forward to that. Interesting color. Assia Georgieva there. Thank you so much for your time, CEO and founder, Infinity Research. Let's try Royal Caribbean now with Tom White, host of Fast Market. Good morning, Tom.