The latest set of interim financial performance figures of the three major listed cruise groups demonstrated the sector’s strong and rapid recovery. They are also an unambiguous sign of the industry’s robust health.
By Alan Lam
So far this year, the trio – Carnival Corporation & plc (CCL), Royal Caribbean Group (RCG), and Norwegian Cruise Line Holdings Ltd (NCLH) – have continued to experience sustained strong demands and firm ticket prices. This trend resulted in better-than-expected business performances.
The momentum of an accelerated recovery continued to build in the second and third quarters of 2023, to a point where the line between recovery and expansion began to blur. In fact, in most regards, the cruise business has moved beyond the recovery stage to the growth phase.
This development has resulted in some record-breaking financial performance figures for the three cruise giants.
Trend restoring
After three consecutive years of disruptions and survival struggles, the successive record-breaking revenue development trend has been restored to the pre-pandemic trajectory, with the trio’s total nine-month 2023 revenue increasing by 13% over that of the same period in 2019.
More remarkable is the fact that, compared with the first nine months of 2022, there was an 86.3% leap in the trio’s total revenue, with NCLH reporting as much as a 97.4% increase, followed by CCL at 94.5%, and RCG at 69.5%.
Source: CCL, RCG, & NCLH
The main revenue drivers were larger passenger volumes, higher passenger cruise days (“cruise nights” in the case of RCG), and firmer prices. When compared with the same period in 2019, with overall passenger numbers increasing by only 1.8% yet total revenue rising by 13%, firm prices, more cruise days, and probably stronger onboard spending played bigger roles in the revenue increase.
Like the revenue trend, the passenger number and cruise-day developments have largely returned to the established pre-pandemic trajectory. For RCG and NCLH, their nine-month figures have exceeded those of the same period in 2019. CCL was still lagging slightly because its financial year ended a month earlier than that of its two smaller peers, so it did not benefit as much from the later acceleration. However, CCL’s passenger number for the full-year 2023 is expected to surpass its 2019 level. Reflecting its latest revenue growth lead position, NCLH again was the best performer in terms of both passenger numbers and passenger cruise days. The group recorded nine-month improvements of 85.9% in passenger numbers and 107.5% in passenger cruise days compared to 2022.
Source: CCL, RCG, & NCLH
Source: RCG & NCLH
The trio’s performances seem to have effortlessly exceeded their own guidance, and they have consistently reported “better than expected” results quarter after quarter so far this year. This trend is expected to continue into the fourth quarter and beyond, on account of the unusual vigour in most geographical source market areas.
“The outperformance was driven by strength in demand, with both our North America and Australia segment and Europe segment equally outperforming expectations,” said Josh Weinstein, CEO of CCL. “Our demand generation efforts are working across all regions, as we have consistently been achieving quarterly net per diems well in excess of 2019 levels, while closing the occupancy gap by eleven points over the course of the year.”
The group carried 9.3 million passengers during the period, 3.6 million in the third quarter alone. So far, it has recorded a nine-month average of 100% occupancy rate, with the third quarter registering 109%.
Weinstein and his peers saw no sign of demand slowing. “We are maintaining strong momentum and continuing to build demand through our improved commercial execution,” he said. “Booking volumes during the quarter were running nearly 20% above 2019 levels and multiples of our capacity growth, which has continued into September. This has helped us extend the booking curve even further, with our North American brands exceeding historical highs and our European brands essentially achieving pre-pause levels.”
Turning positive
After three years of deep losses, it was comforting to see all of the trio’s operating and most of their net results, at last, turning positive so decisively in the first nine months of 2023, especially in the third quarter. All three groups’ nine-month operating results turned positive for the first time since 2019, with RCG exceeding its 2019 record by nearly 30%.
RCG staged a dramatic turnaround in its operating result, from the previous $779 million loss to a $2.3 billion income in the first nine months of 2023, a colossal 324% improvement, with more than half of this attributable to its third-quarter earnings. The group’s net result also turned considerably positive, from a nearly $1.7 billion net loss to a more than $1.4 billion net gain, with just below 71% of this figure attributable to its third-quarter performance.
For the same period, NCLH achieved an adjusted EBITDA of approximately $515 million, with net profit of $86.1 million. The group also conclusively turned its net result positive, from a negative of nearly $1.8 billion to a positive $807 million.
The trio’s net result recovery paces were noticeably slower, with CCL still languishing in the negative territory (partly because its financial year-end and quarter-end dates are a month earlier than those of its two peers), but it is anticipated that these figures will improve further and more quickly in the final quarter of this year.
In the third quarter 2023, for the first time since the resumption of operations, CCL saw its net income turning positive. This reduced its nine-month net loss from $4.5 billion to a mere $26 million. The group is on the threshold of full-year net profitability.
The trio’s performances seem to have effortlessly exceeded their own guidance, and they have consistently reported “better than expected” results quarter after quarter so far this year. This trend is expected to continue into the fourth quarter and beyond, on account of the unusual vigour in most geographical source market areas.
“The outperformance was driven by strength in demand, with both our North America and Australia segment and Europe segment equally outperforming expectations,” said Josh Weinstein, CEO of CCL. “Our demand generation efforts are working across all regions, as we have consistently been achieving quarterly net per diems well in excess of 2019 levels, while closing the occupancy gap by eleven points over the course of the year.”
The group carried 9.3 million passengers during the period, 3.6 million in the third quarter alone. So far, it has recorded a nine-month average of 100% occupancy rate, with the third quarter registering 109%.
Weinstein and his peers saw no sign of demand slowing. “We are maintaining strong momentum and continuing to build demand through our improved commercial execution,” he said. “Booking volumes during the quarter were running nearly 20% above 2019 levels and multiples of our capacity growth, which has continued into September. This has helped us extend the booking curve even further, with our North American brands exceeding historical highs and our European brands essentially achieving pre-pause levels.”
Turning positive
After three years of deep losses, it was comforting to see all of the trio’s operating and most of their net results, at last, turning positive so decisively in the first nine months of 2023, especially in the third quarter. All three groups’ nine-month operating results turned positive for the first time since 2019, with RCG exceeding its 2019 record by nearly 30%.
RCG staged a dramatic turnaround in its operating result, from the previous $779 million loss to a $2.3 billion income in the first nine months of 2023, a colossal 324% improvement, with more than half of this attributable to its third-quarter earnings. The group’s net result also turned considerably positive, from a nearly $1.7 billion net loss to a more than $1.4 billion net gain, with just below 71% of this figure attributable to its third-quarter performance.
For the same period, NCLH achieved an adjusted EBITDA of approximately $515 million, with net profit of $86.1 million. The group also conclusively turned its net result positive, from a negative of nearly $1.8 billion to a positive $807 million.
The trio’s net result recovery paces were noticeably slower, with CCL still languishing in the negative territory (partly because its financial year-end and quarter-end dates are a month earlier than those of its two peers), but it is anticipated that these figures will improve further and more quickly in the final quarter of this year.
In the third quarter 2023, for the first time since the resumption of operations, CCL saw its net income turning positive. This reduced its nine-month net loss from $4.5 billion to a mere $26 million. The group is on the threshold of full-year net profitability.
Source: CCL, RCG, & NCLH
What was also noticeable was that the trio’s operating costs and expenses continued to increase at a much slower pace than their revenues, at an average of 30% compared to the first nine months of 2022. This has been the phenomenon throughout the year. It bodes well for increasing profitability.
But somewhat concerning is that, compared to 2019, there was a substantial increase of 28.9% on average in operating costs and expenses, with NCLH experiencing a 49.4% increase. Inflation and fuel costs were the main factors in this development. Through careful strategic manoeuvring and fuel price hedging, the trio’s focus on this issue remains sharp.
“The performance of our business continues to accelerate, driven by strong demand and excellent operational execution,” said Naftali Holtz, RCG’s chief financial officer. “Our formula of moderate yield growth, strong cost discipline, and moderate growth of our fleet delivers a strong financial profile and enhanced margins.”
Source: CCL, RCG, & NCLH
Debt reducing
One of the most positive outcomes of the strong financial performance has been debt reduction. By the end of the third quarter 2023, the trio have been able to reduce their gravity-defying long-term debt by about 6.9% since the end of the third quarter 2022. CCL was able to reduce it by as much as $4 billion during this period.
Although still sky-high, both CCL and RCG were able to reduce long-term debt levels by more than 8% from their peaks recorded in August/September 2022.
In the wider economy, interest rates are now showing signs of stabilising. This, together with improved financial performances, means the trio should be able to further reduce their debt burdens in the coming months via refinancing, repayments, and, more importantly, removing the need for excessive borrowing.
Few things build confidence better than being able to manage debts well. Confidence is no longer lacking in the sector. “Looking ahead,” said Harry Sommer, NCLH’s president and CEO, “while we are prudently moderating short-term expectations and keeping a close eye on rapidly evolving global macroeconomic and geopolitical events, we remain encouraged by our strong forward booked position and robust pricing and are focused on sustaining this momentum as we close out 2023. I am confident that we are taking the right steps today to best position us to deliver on our goals of rebuilding margins, generating outsized returns on our disciplined capacity growth, reducing leverage, and maintaining best-in-class product and service offerings which we believe will drive value for all of our stakeholders.”
Source: CCL, RCG, & NCLH
Profitable business
With such a positive forward momentum, from the current standpoint there is little doubt of profitability having returned to the cruise business. The undiminished booking trends and perceived strong and continuous demands suggest an even better future earnings trend, which will in turn drive investment and expand the sector.
Of course, as Sommer noted, there are risks ahead. The recent exodus of cruise lines from the Holy Land served as a reminder of the unstable geopolitical context in which the sector operates. But having weathered the biggest storm for a century, the Covid-19 pandemic, the industry can be forgiven for not being so perturbed by other crises.
In the final analysis, the trio’s latest nine-month figures indicate that the sector has recovered faster than expected. Once again, cruise is a profitable business.
