Agape

Carnival Eliminates Dividend to Preserve Cash

Actually, when I chose that name I had in mind my reaction to your article. It left me agape. I am agape that you would reference your own earlier article as a source for this article, without even mentioning that you are the author.

I am agape that you refer to Carnival's recent capacity growth as "explosive" when it is actually quite modest relative to the 2000-2004 period. And no new ships have been ordered in recent years because, in management's opinion, the anticipated return is not sufficiently high. It should be noted that Royal Caribbean has not demonstrated the same discipline. Richard Fain is going to build ships whether they end up being profitable or not.

Major discounting is occurring in certain brands and regions. I do not believe it is across the board. Yet. The Carnival short cruises out of Florida have tanked, but HAL has held up well. The voyager class ships of RCL have held up as has Disney. More importantly, look back to the round of discounting that followed 9/11. Travel agents started screaming, "Hurry and book a the lowest cruise prices in 20 years!" The public came running, and those that didn't run missed out on the deals. When the Caribbean was weak a year ago after a series of hurricanes, a little judicious discounting was done and the prices came back.

In most industries, discounting leads to more discounting and an ugly downward cycle. In cruising, discounting leads to travelers running back to book the ship or itinerary they've always dreamed of sailing on. It's not an attitude I condone, but there are many Americans who will give having a great cruise priority over securing their retirement.

Could this be what CCL management is thinking about when they estimate a rebound next year?

Since you have cruised a lot, you realize that there is a large subset of serial cruisers who do not consider the economy when they book. These are things you must be aware of but left out in your haste to construct a bearish case against CCL.

I am not a company insider. Just an investor and cruiser.

Carnival Eliminates Dividend to Preserve Cash

This writer does not know this company or this industry.

"The first consumer expenditure affected in economic downturns is vacations and holidays."

Yes, but this segment is huge, encompassing Las Vegas, Disneyworld, recreational vehicles, camping, hotels, land-based resorts, etc, etc. They all suffer in downturns, but not to the same degree. Cruises have done much better historically than any segment in leisure. Why doesn't he mention that? Cruises are a better vacation value than resorts or hotels, so people foregoing the former may choose the latter. Why doesn't he mention that?

"Right when Carnival’s expansion cash flow requirements peak, the world enters a recession coupled with destruction of the credit market."

Wrong. The capacity coming on now is peanuts compared to what it was after 9/11. Just after the Millenium, that was the peak. Capacity increases in the high single digits now versus the high teens after 9/11 when demand fell off a cliff. That was truly a scary amount of capacity coming on at the worst possible time. However, what happened? The company continued to fill its ships. It had over 100% load factors for both 2001 and 2002. And lower prices soon had people falling over themselves to book.

"In the past, ships could be repositioned to stronger markets. This will not happen this time as the markets are saturated."

Wrong. Europe is a long, long way from saturated. And Asia is just getting started.

"Whatever economic assumptions are being made, it is a guess."

Yes, but management has a history of guessing intelligently, based on facts and a knowledge of the industry. More than we can say for this writer.