Choppy Waters Ahead For Carnival Corp?

Amid significant swells in supply and rising threats to demand, cruise lines are preparing for foul winds ━ and some are cautious to board.

On Friday, Credit Suisse halved its 2018 yield growth estimates for Carnival Corp CCL from 3 percent to 1.5 percent, lowered its earnings per share estimates 10 percent, downgraded the stock to Neutral and dropped its price target 10 percent to $70.

Ebbing Demand

The cruise industry is plunging primarily under terror attacks and natural disasters.

Representing 39 percent of global passengers, the Caribbean market may see severe damages from Hurricane Irma, expected to sink 24 percent of the region’s bookings.

The Mediterranean market captures 14 percent of passengers, but terror attacks in Barcelona, the region’s No. 1 cruise port, have deterred reservations. The Eastern Mediterranean, particularly Greece and Turkey, has seen 60-percent volume declines since 2011.

The Chinese market, accommodating 12 percent of passengers, is threatened by 5-percent industry cutbacks in 2018 and travel bans to Korea.

These regional woes are further compounded by higher fuel prices.

Anchored In Hope

But it’s not all bad news.

Credit Suisse projects a five-year capacity growth of 6.1 percent, with the span of 2018 to 2021 double the rate of the last five years.

“We had been comfortable with that supply growth given strong near-term demand trends (with bookings at record levels) and structural opportunities for growth in [emerging markets],” analysts Tim Ramskill, Julia Pennington, Tal Grant and Arthur Truslove wrote in a note.

Despite perceived headwinds, Credit Suisse anticipates guidance beats in the Carnival’s third-quarter results released in mid- to late September.

Related Links:

Cruise Industry Embarks On ‘The Golden Age Of Cruising’

Can This Leisure Group Cruise Higher? Cramer Thinks So