From the tones held in Q3, management seemed quite satisfied with the results achieved; however, as far as I am concerned there are still too many concerns related mainly to debt. The summer session is the most profitable period for cruise companiesand I would have expected better results.
Continuous losses and unsustainable interests
The goal of this paragraph is to understand whether from a profitability perspective Carnival (NYSE:NYSE:CCL) is returning to pre-pandemic levels, which is why I will compare thisQ3 2022withQ3 2019. Comparing this quarter with 2020 and 2021 I think is only misleading since the company was severely limited in its operations due to the pandemic-related restrictions. The results in 2020 and 2021 were awful and would overestimate Q3 2022 growth. Also, making a comparison with Q1 2022 and Q2 2022 would be unreasonable since Q3 has always been the best quarter of the year for cruises since it is the summer session quarter.
Carnival Q3 2022, Q3 2019
As we can see from this chart, $2.22 billion is still missing to achieve pre-pandemic results. In particular:
- Onboard and other revenues are lower than Q3 2019 by $344 million, not by that much after all.
- Passenger ticket revenues are still a long way from Q3 2019 results, missing another $1.88 billion.
The reason why ticket revenues are struggling the most to increase is due to the significant discounts that cruise companies have allowed passengers in this 2022 to fill vacant seats. More precisely, we are talking about a17% dropin average fares from June 1 to July 13 compared to the same period in 2019. Once on board, however, passengers did not limit their spending, which is why onboard and other revenues are not that different from 2019.
Carnival Q3 2022, Q3 2019
As for total operating costs, in Q3 2022 they were $4.58 billion while in Q3 2019 $4.64 billion. Overall, this is not such a noticeable difference even though $2.22 billion less was generated, which is why I am disappointed with this quarterly. Fuel costs increased by 66.58%, and the weight of inflation exacerbated the overall cost increase. With less revenue and similar operating costs, it is inevitable that this quarter is far from the results achieved 3 years ago. Q3 2022 operating income was -$279 million, compared to $1.89 billion in Q3 2019.
Having negative operating income is serious because it means that the company cannot generate a surplus through its core business: this situation is not sustainable over the long term. Moreover, even assuming that operating income in the coming quarters is positive, the problem of the cost of debt would remain. Operating income, in fact, does not consider the burden of interest expenses. But how much does this interest amount to?
TIKR Terminal
Last quarter $422 million was paid in interest expenses, $390 million more than Q3 2019. Covid-19 has forced this company to significantly increase its debt to stay afloat, but my hunch is that it has only postponed the sinking. The interest paid is about 10% of the revenue generated and the remaining debt to be paid is huge.
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