The latest business performance figures of the three major listed cruise groups will gladden the hearts of even the most hardened and sceptical of investors. With growing financial strength, memories of the recent crisis are receding further into the past.
By Alan Lam
Almost every aspect of the recent nine-month financial results of the trio of majors – Carnival Corporation & plc (CCL), Royal Caribbean Group (RCG), and Norwegian Cruise Line Holdings Ltd (NCLH) – showed decisively the continuing growth and confidence of the contemporary cruise sector.
More importantly, the strengthening demand and firm prices have enabled the contemporary ocean cruise sector to rapidly improve its financial solidity after the recent assault by the Covid-19 pandemic. We now see much better cashflows, rising revenues, and reduced net leverage, among a host of other cheerful outcomes.
All-time high
The trio have achieved all-time-high figures in their latest nine-month revenue performances, collectively recording an 18% increase compared to the same period a year earlier. The star performer was once again RCG, with an impressive 20.4% improvement on what had already been a much enhanced nine-month 2023 figure.
Source: CCL, RCG, NCLH
CCL reported an all-time-high third-quarter 2024 revenue of $7.9 billion, up by $1 billion on the same period in 2023, and recorded a corresponding net income of $1.7 billion, a 60% increase on the previous year.
Its nine-month (to 31 August) revenue amounted to more than $19 billion, an 18% increase on the same period in 2023. The operating income almost doubled to more than $3 billion, a 92% increase. Its net result improved from a $26 million loss to a $1.6 billion gain. Diluted earnings per share rose from a negative $0.02 to a positive $1.27. Putting it moderately, this was altogether a very satisfactory result.
“We delivered a phenomenal third quarter, breaking operational records and outperforming across the board. Our strong improvements were led by high-margin, same-ship yield growth, driving a 26 per cent improvement in unit operating income, the highest level we have reached in fifteen years,” stated Josh Weinstein, CCL’s CEO, in the company’s interim report.
Source: CCL, RCG, NCLH
Source: CCL, RCG, NCLH
This was also the first nine-month review since the pandemic when all three major cruise groups reported positive net results, with RCG’s figure being a historic high. The trio recorded a 65.3% improvement in operating income.
Effective cost management played a key part in the positive financial outcomes. Average operating expenses for the period rose by only about 10%, with NCLH reporting just a 5.6% increase compared to the same period in 2023. NCLH’s lower figure in this regard can be attributed to its strong focus on cost management and margin enhancement, according to the company.
In the recent past, in general, revenue increases have been substantially faster than operating cost rises. This positive trend should continue as newer assets are deployed and operational efficiency continues to improve.
Source: CCL, RCG, NCLH
Firm demand
While cost management played an important role in these improvements, firm demand was undoubtedly the main driver. Revenue increases are driven by the sheer volumes of passengers flocking to the cruise ships.
Building on already much-enhanced figures, the trio reported an average 11% increase in passenger numbers in the first nine months of 2024, with a corresponding increase in passenger cruise days.
Capacity utilisation rates were consistently above 100%, with CCL reporting 106% occupancy for the nine-month period (112% for Q3), RCG reporting the highest figure of 108.8% (111% for Q3), and NCLH reporting 106.2% (108.1% for Q3). Some of these impressive third-quarter percentage figures had never been seen before.
Source: CCL, RCG, NCLH
In the near term, forward demand continues to be firm. CCL’s cumulative advance booking position at the end of August for the full year 2025 was above that of 2024, with prices, in constant currency, ahead of those of the previous year.
Based on this trend, the company justifiably raised its full-year adjusted EBITDA guidance to $6 billion, 40% above that of 2023. “Strong demand enabled us to increase our full-year yield guidance for the third time this year, and we improved our cost guidance, driving more revenue to the bottom line,” said Weinstein. “Looking forward, the momentum continues as our enhanced commercial execution drives demand well in excess of our capacity growth, leaving us well positioned with an even stronger base of business for 2025.”
RCG shared this view, based on a similar experience. The group also reported strong forward bookings momentum. “We see elevated demand patterns continuing as we build the business for 2025, and although the yield comparable will be a high bar, our proven formula of moderate capacity growth, moderate yield growth and strong cost discipline is expected to continue to deliver strong financial results,” said Jason Liberty, RCG’s president and CEO.
Liberty’s stance was echoed by Naftali Holtz, RCG’s chief financial officer, who was more specific in laying out the company’s plans: “The performance of our business continues to be robust, driven by strong demand and excellent operational execution. Our strong booked position is exactly where we want to be to further optimise our yield profile and deliver on our formula of success – moderate capacity growth, moderate yield growth, and strong cost discipline – positioning us to continue to deliver margin expansion and strong financial returns. Our strong balance-sheet position allows us to further support our growth ambitions and expand capital allocation, while delivering strong cash flow and maintaining investment-grade balance sheet metrics.”
All three major cruise groups have repeatedly raised their forward performance guidance. “Our exceptional third-quarter results, with record revenue, net income, and adjusted EBITDA, surpassed guidance across all key metrics, underscoring the strength of our business, the attractiveness of our product offering across all brands, and the superior execution and delivery by our teams both shoreside and shipboard,” said Harry Sommer, NCLH’s president and CEO. “Fuelled by robust demand and our relentless focus on cost control and margin enhancement, we’re raising our full-year guidance for a fourth time and expect 2024 to be our best year for revenue, net yield growth, and adjusted EBITDA.”
Investment grade
The only falling trend in the performance figures is that of debt. Gradually the burden is lightening. This not only improves the sector’s credit rating but also makes it more attractive to investors.
Through refinancing, healthier cash generating, and other effective debt-servicing measures, the trio have managed to reduce their long-term debt by about 5%, with CCL reducing it by 10%, in the 12 months leading up to the end of Q3 of the current fiscal year. While this may appear to be a painfully slow process in a high-interest, high-cost environment, it is nevertheless a significant step in the right direction. This resilience has produced a positive outcome for the sector in the investment market.
“We have continued to improve our leverage metrics and balance sheet with strong cash generation and continued debt reduction,” said David Bernstein, CCL’s chief financial officer. “We are pleased these efforts were recognised by both S&P and Moody’s with their recent credit rating upgrades. For 2024, we expect better than a two-turn improvement in net debt to adjusted EBITDA compared to 2023, approaching 4.5 times, well on our way to investment grade.”
Source: CCL, RCG, NCLH
Outside of the trio, the performance of Viking Cruises, the robust newcomer recently listed on the stock market, is another indication of the expansive cruise industry being a sound part of an investment portfolio.
Since its IPO at the end of April 2024, Viking’s expansion programme has not slowed. Quite the contrary: in October, it ordered another two new ships at Fincantieri for 2030 delivery, with options for four more units for 2031–32. Its strategy of raising funds in the stock market seems to have worked. Its share price has performed resolutely, rising by nearly 52% in just six months of trading.
Source: NYSE
If all goes according to plan, by 2030, Viking will operate a fleet of 20 relatively new ships with a total capacity of about 19,000 lower berths, making it one of the biggest single contemporary cruise brands in the world. It has achieved this in less than 10 years. We believe that by the middle of the next decade, it could be one of the top 10 ocean cruise brands in capacity terms.
Meanwhile, its business performance has been consistent with the general trend. In the first six months after its IPO, the company reported a 10.6% improvement in revenue, a 44% increase in operating result, and a 25% lift in adjusted EBITDA, compared to the same period a year earlier.
Unfortunately, because of high interest expenses, a private placement derivative, and other financial losses, Viking reported a $338 million net loss for the period, rising from $24 million net loss for the same period a year earlier.
Source: Viking Holdings
Source: Viking Holdings
We believe Viking’s net-result setback will be temporary. The company’s passenger numbers are rising, and its debt level is falling. Its private placement derivative loss is likely to be a one-off event. Its next set of interim figures should be much more palatable.
But Viking’s business does have a big river cruise component, which may follow a different trend. This could affect its overall business performance differently. Viking’s business operations, therefore, cannot be compared fully with those of the three major ocean cruise conglomerates.
General implications
The cruise majors’ ongoing sterling business performance means a steadily strengthening financial position of the sector. It can be argued that the trio’s finances are now sturdier than they ever were before the pandemic.
This can only mean further expansion of the sector. Shipbuilding will be the first to feel the benefit, as demand continues to exceed capacity growth, balance sheet position strengthens, and cash flows improve.
