Boosted by its traditionally strong third quarter, Carnival Corporation has reported net income of $152.2 million ($1.08 EPS) on revenues of $529.3 million for its third quarter ended August 31, 1993, compared to income before extraordinary items of $134.8 million ($0.96 EPS) and net income of $129.6 million ($0.92 EPS) on revenues of $487.8 million for the same quarter in 1992.

Analysts and travel agents surveyed by this newsletter said bookings and prices were up over last year, and analysts forecasted a year-end EPS of $2.25/$2.26.

All indications are that Carnival's growth trend will continue.

Statendam + Improved Yields

Cruise revenues were up $46 million in the third quarter of this year compared to the same period last year, with $28 million attributed to the Statendam and $18 million from a 4.7 percent increase in yields.

Cruise operating costs were 50.2 percent of revenues compared to 51.6 percent in the same quarter last year. Selling and administrative costs rose $9 million and were 10 percent of revenues compared to 8.9 percent last year, reflecting the company's increased marketing and advertising.

According to Micky Arison, Chairman and CEO of Carnival Corporation, Holland America Line has enjoyed an excellent summer in Alaska. 1993 also marked the introduction of the Statendam and its European program was said to have enjoyed strong demand.

Kirk Lanterman, CEO of HAL, commented that although 1993 was the most competitive season in Alaska ever, HAL achieved its sixth consecutive year carrying a record number of cruise and tour vacationers.

Arison also said that the Carnival Cruise Lines division's financial results showed increased operating margins resulting from improved yields and effective cost controls.

With an EPS of $1.08 for the third quarter, Carnival equalled most analysts' predictions that ranged from $1.04 to $1.10.

"Carnival was right in line with expectations." said Jim Parker. analyst with The Robinson Humphrey Company. "The 3rd quarter was really good and pricing is definitely up," he said.

Parker said that revenue yield per passenger, per day, was up 4.7 percent compared to the same quarter last year. He also noted that a portion of the increase was due to the premium priced cabins aboard the Statendam.

Peter McMullen, analyst with Southeast Research Partners, said that the cruise business looked good and that the cruise companies were at the "leading edge of fragile recovery."

"ln these dramatic times, holidays become mandatory, not discretionary." said McMullen, "and the public is increasingly recognizing cruises for the good value they represent."

Nine months

Net income for the nine months ended August 31, 1993, was $268 million ($1.90 EPS) on revenues of $1.231.2 million, compared to income before extraordinary items of $238.6 million ($1.70 EPS) and net income of $233.4 million ($1.66 EPS) on revenues of $1.162.7 million for the same period in 1992.

For the three months ended August 31, 1993, Carnival achieved an average occupancy level of 114.3 percent carrying 338.594 passengers compared to 324.650 passengers for an average occupancy level of 114.7 for the third quarter of 1992. The fleetwide occupancy level for the nine month period was 106.7 percent this year, compared to 106.8 percent for the same period last year. The passenger count for the nine months increased to 902.277 from 891.772 passengers.

To illustrate how important the third quarter is, in 1993 the Carnival cruise companies carried a little more than one third of its passengers (37 .5 percent) for the first nine months of its fiscal year in the third quarter. But the third quarter generated 56.8 percent of the company's net income and 42.9 percent of its revenues for the same nine month period.

In 1992, the third quarter generated 33 percent of Carnival's total revenues: 46.9 percent of total net earnings: and 28 percent of the total passengers carried.

4th Quarter

Analysts were generally supportive. Salomon Brothers, usually cautious, stated that the solid performance of the company during the third quarter should maintain a steady momentum through the final quarter of the year.

Promotional materials obtained from travel agents show that minimum rates for Carnival are up from $859 for 1992 fall cruises to $985 in 1993 (for comparable accommodations).

"The fourth quarter is shaping up to be very busy for both Carnival Cruise Lines and Holland America Line," said Arison. He pointed out that Carnival will take delivery of the 2,044-passenger Sensation on October 18, 1993 , and that on the same day, the new FiestaMarina Cruises, catering to the Hispanic market, will launch service. One week later, HAL is scheduled to take delivery of the 1,266-passenger Maasdam.

"The outlook is very good going into the fourth quarter," said Parker. "The bookings are very strong."

Jim Godsman, President of Cruise Line International Association (CLIA), said that bookings through the end of the year were "outstanding" industrywide and also very "encouraging for next year."

Godsman attributed the pick-up in bookings to a rebounding economy and the early booking discount programs. He also said that it was his impression that yields were up.

Bob Falcone, Chairman of Cruises Inc., said that his company was able to book cabins at an average price of $2,750 in 1993 for the several cruise lines the company sells, compared to $2,525 in 1992.

Falcone also noted that Carnival along with Royal Caribbean Cruise Line and Dolphin Cruise Line were virtually sold out for the rest of 1993. He added that other cruise lines, including Princess Cruises and Celebrity Cruises were doing well.

Godsman noted that another good sign for the cruise industry was the record number of travel agents attending CLIA educational functions. According to Godsman, in 1992 14,000 travel agents enrolled in class room training, while this number jumped to 22,000 in 1993, which took part in CLIA's certification program. CLIA has also launched advanced sales and management seminars for travel agents.


Carnival has just released a brochure for 1994 intended to make it easier for travel agents "to sell up".

According to Carnival its 1994 brochure features rate adjustments in all categories resulting in an overall price decrease for all "Fun Ship" cruises next year.

The new pricing includes significant fare decreases in higher cabin categories, along with some minor fare increases in lower categories, according to Bob Dickinson, President.

He said that the rate adjustments are based on the level of demand for each cabin category. "For example, in some of the lower categories, which tend to book fastest, we implemented some slight increases. However, in the upper categories, rates were significantly lowered to stimulate demand," Dickinson said.

In addition, Carnival has expanded its Super Savers early booking discount program to include categories 11 and 12 (demi-suites and suites).

Another feature of the new brochure is an increase in the cruise-only travel allowance on three- and four-day sailings from $100 to $250 per person.

Carnival's announcement is in line with announced 1994 fare reductions earlier this year by Princess Cruises.

The announcement also signals a continued competitive climate in 1994 and confirms the market's sensitivity to price.

Analysts Are Optimistic

Analysts are optimistic about 1994 and do not see anything that "will trip them (Carnival) up."

McMullen added that booking patterns and prices look better for the cruise industry than any time in the past two years.

Most expect strong growth from Carnival in 1994 through 1997. Factors contributing to this growth are the relative lack of new tonnage being introduced while Carnival will continue to introduce new ships and an expected upturn of the economy.

"Once the economy strengthens, the company will do even better," McMullen said.

Falcone said that his company's bookings will be up dramatically in 1994 compared to 1993, based on bookings already in, and that the average cabin price was up $100 over 1993. But they need to go up yet a little further to be where they ought to be, he added.

Analysts also speculated that discounting has stimulated additional demand and said they were very optimistic about demand but not necessarily per diems.

One analyst, who asked not be identified, said that if price competition has stimulated demand, continued demand will continue to squeeze margins.

If prices stay put, there will be even more demand, as cruises will represent an even better value in the future. But margins will suffer, he said.

Carnival, however, is in tile unique position that it will be adding significant new tonnage in the next few years as another means of increasing revenues and earnings.

At the start of 1993, the Carnival brand had nine ships with 12,536 berths and a capacity of 821,800 passengers. During the year, the Mardis Gras has been redeployed to a new venture in Europe and tile Carnivale has been redeployed in FiestaMarina Cruises operating in the Caribbean. In addition, the Fantasy will be redeployed to Port Canaveral while the Ecstasy is shifted to a three- and four-day program out of Miami. Later this year, the new Sensation arrives and will sail seven-day cruises from Miami.

Also later this year, HAL will take delivery of its second new ship, the Maasdam.

Thus, at year's end the Carnival brand name will include eight ships with 12,724 berths and a passenger capacity of 840,900, compared to nine ships, 12,536 berths, and a 821,800 passenger capacity in 1992.

It is also noteworthy that while Carnival will have six ships in the seven-day market and two ships in the threeand four-day market by year's end, market capacity will be 432,100 passengers in the seven-day market and 408,800 in the three- and four-day market.

In addition, Carnival's new division, FiestaMarina Cruises, will operate the 950-passenger FiestaMarina on three- and four-day cruises for a total annual passenger capacity of 95,000.

Holland America Line will have six ships witll a total estimated passenger capacity of 312,095 passengers, compared to four ships and a passenger capacity of 223,475 in 1992.

Seabourn Cruise Line and Windstar Cruises continue with two ships, 5,100 berths and a passenger capacity of 10,200, and three ships, 444 berths and a passenger capacity of 22,200 respectively.

Thus overall fleet capacity at year's end 1993 will be 1,280,395 passengers compared to 1,077,675 in 1992, an 18.8 percent increase.

ln 1994, with more new ships arriving, but without ships being redeployed in different markets (short versus long cruises), the Carnival fleet will see a further estimated 12.9 percent capacity increase of 165,500 passengers.

In 1995, Carnival will see a 8.9 percent or 102,200 passenger capacity increase; and 8.4 percent or 130,000 passengers in 1996.

Risk Factors

The cruise industry has been plagued by unforeseen incidents over the last few years, including airline bankruptcies, airline strikes, hurricanes, and wars, all of which are likely to strike again based on the historical track record.

The adverse publicity from the several tourists that have been killed in Florida has had little if any effect on cruise tourism, however.

The regulatory climate in Washington and to some extent in the Caribbean also seems to have softened and represents less of a threat to the industry than previously envisioned.

With increased competition in Alaska, tour revenues were $120 million in the third quarter this year comapred to $125 million last year. As a further indication of a tightening of the Alaska market, HAL has announced intentions to broaden its saialing program worldwide. ln the meantime, fall Caribbeana cruises for HAL are heavily discounted.

Other factors that could affect the premium market and upscale Carnival products, HAL, Seabourn and Windstar, are price adjustments. Several analysts felt that while premium cruise lines benefit from higher margins based on higher rates, they expected prices to come down.


"They are very smart," said one analyst, who would only speak off the record, referring to Carnival's involvement with Epirotiki Lines in Europe; its new division catering to the Hispanic market, FiestaMarina Cruises, and its experimentation with new itineraries, including homeporting and calling in New Orleans and Tampa, as well as the four-day Western Caribbean sailings of the Ecstasy.

The analyst also noted that as the Caribbean is getting crowded, it becomes increasingly important to find new areas of operation. The analyst added that as New Orleans will soon have its own land-based casino it will become even more attractive for passenger excursions.

Parker said that Carnival's involvement with Epirotiki allows Carnival to "get a toe in the water in Europe with a good operator." "I am sure they have studied this very carefully," Parker said. He also found the FiestaMarina to be a "very interesting idea."

"All Systems Are Go"

"All indications are that Carnival's growth trend will continue," said Janice Farmer at Raymond James & Associates. "The year-end looks strong too," she continued. "Travel agents' feed-back are that cruise bookings are up and that pricing is up five percent for the next quarter."

She said that Carnival's involvement in new projects was very positive and with limited risk. "Cruise companies have to look for different markets outside of the Caribbean," she said.

Farmer predicted continued EPS growth of 20 percent per year for Carnival and share prices reaching $53 within the next 12 months. "We'll see the stock move in the first quarter of 94," she said.

Parker forecasted EPS of $2.75 in 1994 and a share price in the low "50s" in 1994.

At press time, Carnival traded for $43 7/8 compared to a 365-day high/low of $44 1/4 - $24.