Carnival: cruise control

[dropcap]T[/dropcap]he modern seafaring renaissance is more concerned with charting a course to the nearest all-you-can-eat buffet than any strange new lands. A surge in cruises means an estimated 25m people set sail on floating package holidays this year — up a fifth in just five years. There is little reason to expect the direction of travel to change.

Carnival, the world’s largest cruise company, will reap the rewards. The Miami-based company reported full year revenue of US $17.5bn on Tuesday, up 7 per cent on the previous year and slightly ahead of expectations.

This in spite of some literal headwinds. Shares in the cruise giant, which is dual listed in London and New York, lost momentum when Hurricanes Harvey, Irma and Maria hit the Caribbean this autumn. The region is responsible for one-third of the industry’s capacity and bad weather depresses booking volumes.

Happily, cruisers seem to have deep pockets. Carnival can keep revenue up by raising ticket prices. Net revenue yields, a favourite industry metric that measures revenue minus costs per berth, rose in the last quarter of the year by 4.2 per cent.

Successfully raising prices can do wonders. So would next year’s industry plan to target a younger audience, including “voluntourism” and sustainability.

One thing the industry has yet to crack is the millennial market. For now that is not a problem. There are plenty of new customers in the older age bracket left to entice. Cruise Lines International Association, the trade association, projects a new high of more than 27m individual trips next year.

A potential problem lies in capacity. Carnival will add four new ships to its fleet of 103 next year. Older ships will be retired so the capacity increase will be relatively small. Later, however, it will start to climb — up 5.5 per cent in 2019 and 7.4 per cent in 2020.

This is ambitious growth given Carnival trades at 19 times enterprise value to earnings before interest and tax — a typical metric for cruise liners — an industry high. But advance bookings for the first half of next year are already ahead of last year, according to the company. Persuading younger passengers to come on board will mean filling those empty rooms is even easier.