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I recently came back from my second cruise, and while I was on the cruise, I of course thought about cruise stocks. The company I took my cruise with, Norwegian is privately owned. However, the two largest cruise lines, Carnival (NYSE:CCL) and Royal Caribbean International (NYSE:RCL), are both publicly traded. Below are some basic stats for each company.

CCL

RCL

Price Per Share

$31.91

$29.37

52 week high

$41.95

$42.30

52 week low

$28.52

$18.70

PE Ratio

14.2

10.6

2011 EPS

$2.05

$2.77

2012 EPS Projected

$1.57

$2.08

2013 EPS Projected

$2.36

$2.70

Dividend Yield %

3.14%

1.36%

As most of you are probably aware, Carnival owns the Costa Concordia brand, which has now had two recent issues (the fatal capsizing, and the loss of power in the Indian Ocean). Possible liabilities on Carnival have driven the stock down close to a 52 week low. Also, a reported first quarter loss for Carnival has not helped the stock prices. Carnival has one new ship coming out here in 2012, the Carnival Breeze. The Breeze is a 3700 passenger cruise liner which closely resembles its sister ships, the Dream and Magic. These new boats command higher prices per stateroom, which helps the profit margins, which I will talk about later.

Royal Caribbean does not have any new boats coming out in 2012, but they have recently built two Oasis Class ships, the Oasis of the Seas and the Allure of the Seas. These are 6,000 passenger beasts with every imaginable amenity on these boats. They also have two smaller classes of boats which are just as big as the new large Carnival ships that are getting built. I'm not saying that bigger is always better, but if a traveler wants it all, RCL has that part of the industry cornered.

Let's talk about the important part of stocks, though: profitability. Projected 2012 worldwide cruise market is at 34.2 billion, with the number of passengers estimated to be 20.3 million, a 5.6% increase over 2011. This is lower than the average growth rate over the last 20 years, which has been 7.4%. By 2015, the passenger estimates go to 22.3 million people. The other number that is big is that the average cruise revenue per passenger is estimated to be $240.13 a day.

In this chart below from CruiseMarketWatch, it breaks down the revenue and expenses for a typical cruiser.

A financial breakdown of typical cruiser (worldwide, across all cruise lines)

Revenue

Expenses

Ticket

$1,286

Onboard Spending

$378

-Casino & Bar

$208

-Shore excursions (cruise line portion)

$76

-Spa

$38

-All other onboard spending

$57

Total spending

$1,663

Other operating costs

$241

14.5%

Agent commission

$217

13.0%

Ship fuel costs

$213

12.8%

Corporate Operating Costs

$193

11.6%

Payroll

$183

11.0%

Depreciation/Amortization

$160

9.6%

Victualing (food)

$100

6.0%

Onboard and other

$73

4.4%

Other and transportation

$54

3.3%

Interest Expense

$51

3.1%

Total Expenses

$1,485

Profit before taxes

$179

10.7%

I found a couple things very interesting about this breakdown. The first is that the average ticket price does not even pay for all the expenses that the cruise line has. Second is the average amount of casino/bar spending per person. Of course anyone that has taken a cruise before knows, there is an insane profit on alcohol on a boat. You can't bring your own, and you pay anywhere from $6 for a regular beer, to $10-$12 or more for a mixed drink. Days at sea are a large moneymaker for cruises.

The other major item that pops out at me is the fuel cost. I cannot find any reference on what calculate that on, such as price per barrel of oil. However, comparing these to 2010 costs, the fuel cost has doubled, from $102 and 7% of the total costs to $213 and nearly 13% of the total costs. Oil at well over $100 a barrel will not help these costs.

Looking at the breakdown above, I do not believe Norwegian made any money on me. We booked our own excursions, not through the ship, we did have a couple drinks, no casino, and ate at one of the upsell restaurants. However, my ticket cost was significantly less than the average (even for a mini suite) and we did not even come close to the $350 per person spending for our cruise, which was 7 days. I guess I'm not the typical cruiser, so to speak, but I do know others that spent even less than I did on our vacation.

Conclusion: While cruises are wonderful vacations, cruise ship stocks aren't great investments, in my opinion. This is an extremely competitive market in which new ships are continually being built (at a large cost) to one up their own current ships or other cruise line ships. These large ships also cost more to operate, and cruise lines want the ships completely full to make the most money possible. The more supply you have, the demand may not keep up, as we see with smaller increases in passengers from 2010-2015. Earnings are down for both Carnival and Royal Caribbean for 2012, so there are better companies to sink your money into.

Source: 2 Cruise Ship Stocks To Sink Or Sail