Carnival 3Q16 Earnings Call Notes

Carnival Corporation’s (CCL) CEO Arnold Donald on Q3 2016 Results

Industry cruise capacity in China to rise 31% next year

“Our capacity growth in China is expected to be 26% next year compared to 66% this year. Industrywide growth in china is expected to be 31% in 2017 compared to 100% this year. Those numbers sound big, but keep in mind that the large year-over-year percentage increase is over a very small base. So these growth rates are directionally equivalent to adding less than one 3,000-berth vessels to our China fleet and roughly two 4,000-berth vessels to the industry fleet overall in 2017 in China.”

Booking curves in US look strong

” So no real guidance yet for 2017 on that except what David shared in his comment about where the bookings were for Asia overall. In terms of the North America brands in Europe, again our booking curves look strong, and look good as do our pricings, but you’re asking about third quarter 2017, obviously that’s ways off.”

Ships sailing full in China

“Yes. Right now, our charter activity is strong in China. Our occupancies this year were very good. We anticipated as we said in the opening comments that we would see yield decline, but China is profitable, occupancy levels are high, which means the increased capacity was absorbed in terms of having guests on the ships. The ships are sailing full. And chartering for next year at this point is in process, but solid. We don’t see any consternation around occupancy for next year.”

The Chinese government sees the cruise industry as an important industry

“cruise is in the 5 year plan for China. So that means the government has committed to developing the Cruise industry. The reason for that is pretty self-evident. We’ll employ, overall with port development and infrastructure, and supply chain, and training as well as ship building that will employ millions, and millions, and millions of Chinese. So the government is very interested and they see cruise as an economic engine going forward. So you’ve got the support of the central government and the various provincial municipal governments, so that’s very important”

China is an embryonic market

“Beyond that clearly as we anticipated, as you guys have identified through your assessments and stuff that yields declined, we see China as a unit volume, a unit growth story as ultimately accretive to earnings, which it has been for us and overall helping us optimize yields across the global fleet and it’s working really well. Having said that, there is a gap with distribution. It’s an embryonic market. Distributors are finding their way for the first time in cruise. It is a charter market, a B2B market, so then it reduces possibilities of discontinuities that you might not see if you had a direct to consumer kind of a market.”

No material impact from Zika

“We’ve seen no material impact from Zika. We didn’t get any cancelations or they’re not enough to mention. We didn’t see any impact on booking volume or timing or anything. So we have not seen an impact from Zika. Having said that, you know, could there be a little bit of noise? That is just overwhelmed by the great demand that there is for the Caribbean would have been even greater and hypothetically you can say that, but we have seen nothing to suggest there was impact from Zika.”

Historically there’s an election slowdown

“Also, we’ve anticipated a bit of an election slowdown, as historically there’s always been a little fall off in booking volumes around election time. And so there could be some of that, but in our case again, right now we’re doing so well, and we’re so far ahead and the pricing is strong. We’ve got great close-in pricing right now and so it’s been very good. But relative to what the other companies, other cruise lines, I wouldn’t have a comment, but other than to say I’m sure it’s a combination of the relative moves they made in deployments and stuff, but I have no idea.”

There’s always something going on

” every year there’s geopolitical tensions. There’s some kind of disease consternation. There’s macroeconomic malaise. There’s isolated or concentrated over-capacity in the cruise industry. Every year in some markets around the world, those things happen and it’s part of our business. So we manage that. We anticipate it. We change deployments. We do good revenue management practices, manage around it and that’s basically it. So to us it’s normal business. I wish it wasn’t that way. Every now and then hopefully we’ll get lucky and there won’t be those incidents because we think we would do better”