Carnival’s European Brands Face Headwinds

Following Carnival Corporation’s second quarter earnings call, the focus is on Europe as the company noted challenges with its European brand portfolio.

“Now our Continental European brands have been facing heightened geopolitical and macroeconomic headwinds, which has impacted operating performance this year,” said Arnold Donald, CEO, Carnival Corporation. 

“Our growth in these markets has continued to outpace general travel, but growing into a contracting travel market has put pressure on ticket prices this year.”

In Germany, land-based tour operator booking trends have been running significantly behind this year, Donald said. 

There has also been a notable cruise capacity increase this year, with year-round service from the new AIDAnova, the introduction of the Mein Schiff 2, as well as additional capacity from the Mein Schiff Herz, according to the 2019 Cruise Industry News Annual Report. In addition Cruise & Maritime Voyages added capacity to the market with the Vasco da Gama, Hapag-Lloyd Cruises is adding two small luxury expedition vessels and Phoenix Reisen is adding the Amera. 

“While our German cruise brand (AIDA) has grown double digits but not been able to hold price in that environment. Now despite these headwinds, our German brand, AIDA, has among the highest returns in our portfolio,” he added, noting that AIDA is one of the strongest brands the company has.

“And so while (AIDA) may not be a yield story, it’s an earnings and it is an accretive story, and it is helping us deliver overall,” Donald stressed, later in the call. 

“In Southern Europe, while the environment had been challenging for multiple years now, we have encountered a further deterioration in the economic environment in Italy with Italy experiencing recession,” Donald said.

In Italy, Costa leads the way for Carnival, while Donald also noted increased land-based competition.

“Prior to this year, despite what had already been a challenging economic environment particularly in Southern Europe, Costa was executing along the path toward double-digit return on invested capital. In fact, in the last five years, Costa more than doubled return on invested capital, albeit starting from a lower base,” Donald added.

Capacity growth should help Costa as the new Costa Smeralda will introduce 5,224 new berths this fall. New ships will garner higher ticket prices while providing more onboard revenue and being more efficient to operate.

“Now newbuilds are very important part of the path to double-digit return on invested capital, and given the inherent cost efficiencies gained by the greater scale and fuel efficiencies of our new ships. Now we’ve not taken delivery of a new ship in Europe for Costa in over five years, and that ship is still among the highest returning ships in our entire fleet,” Donald said.

The U.K. is performing well despite Brexit, Donald said, with the P&O Cruises UK and Cunard Line brands serving the British market. 

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