The earlier stages of the pandemic were particularly difficult for cruise lines. Cruises were put on hold and that meant revenue stopped. Today, more than a year after the ships returned to the water, things are looking brighter for the heavyweight industry Carnival (CCL 3.31%) (KKK 0.23%).
The world’s largest cruise ship operator may have even reached a key turning point. Carnival’s cash from operations turned positive in the second quarter and bookings show that people are excited about the launch of the cruise. Let’s take a closer look at why everyone is talking about Carnival.
Increase in occupancy
Carnivals are making significant progress after some very difficult years. Now, about 90% of the company’s fleet is back in service. Occupancy increased to 69% in the second quarter from 54% in the previous quarter. And cruises closer to home have even reached 100% occupancy.
Looking ahead, bookings for future cruises nearly doubled from the previous quarter, Carnival said. In fact, the second quarter was the strongest for bookings since the health crisis began.
All of this is significant because it shows that travelers are back — and they want to cruise. The pandemic did not change their feelings about this popular type of holiday.
Of course, the problem today is that rising inflation can hurt customers’ purchasing power. And they can delay cruise vacations. But cruises can also win over some customers who want to travel but are watching their budgets. Cruises usually offer great value compared to other types of vacations.
As for Carnival’s finances, things are looking up, too. The company forecasts positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter of this year. This is because housing rates continue to rise. In the second quarter, revenue increased by 50% from the first quarter.
Interest rate headwinds
Of course, potential increases in interest rates could affect Carnival’s variable rate borrowings. This represents another headwind in the coming months. But it’s important to note that Carnival has been able to manage through much tougher times — like when the pandemic kept its ships in dock. So it seems unlikely that the current economic situation will destroy Carnival’s recovery.
Carnival also has what it takes financially to weather potential headwinds. It ended the quarter with $7.5 billion in liquidity.
What is ahead of the carnival? The company has made some changes that should help it return to profitability more quickly. It has replaced smaller and less efficient ships with nine larger ships. They include a better mix of premium-priced balcony cabins and other features that can bring in more revenue for the company.
Now let’s take a look at the rating. The price of carnival in relation to sales has fallen since the end of last year. It has fallen to about twice the sales.
CCL PS report data by YCharts.
That’s a steal, even considering the headwinds Carnival is facing right now. Why do I consider the price cheap? Because Carnival has made its way through the worst of the crisis and has shown us that demand for its cruises is growing.
That said, carnivals still remain dangerous. The pandemic is not over and economic problems could make it difficult for the company in the coming months. So Carnival stock is best left to aggressive investors. In any case, though, as Carnival continues down the road to recovery, it’s sure to be one of the companies everyone’s talking about.
