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Carnival CEO assures investors jittery about cruise capacity growth

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Arnold Donald - 'We think we can grow demand at a faster rate than capacity growth'
With 16 new ocean-going ships set to join the global cruise fleet in 2018, investors are focused on the impact of capacity increases.

Analyst Steve Wieczynski with Stifel called supply growth 'the biggest overhang with investors' during today's Carnival Corp. & plc fourth quarter earnings call.

Management sought to allay those concerns.

The company's 2018 newbuilds are Carnival Horizon, Seabourn Ovation, AIDAnova and Nieuw Statendam. Two older ships will be exiting in the spring. Carnival's net capacity growth for the full year will be 1.9%.

'We're very comfortable with our capacity growth in the coming year,' Arnold Donald, president and CEO, said. He pointed out the new ships will be spread over a number of brands and geographical distributions.

Another analyst observed that for the first time in awhile, only established source markets—that is, not China—will be getting newbuilds. He asked if there's any indication the established markets are 'choking on' additions in the form of weakness in pricing trends?

No, Donald said. Currently, cumulative advance bookings for 2018 are ahead of the prior year at higher prices. Since November, booking volumes for 2018 have been running well ahead of the prior year at higher prices.

'We think we can grow demand at a faster rate than capacity growth,' Donald assured. He noted the supply increase across the industry is constrained by shipyard capacity, so it couldn't grow more than 7% a year.

With a whopping 22 newbuilds coming in 2019, then 16 more in 2020, how can investors think of yield benefits from the mix of newer ships?

'There is a lift for sure because of economies of scale and [richer] cabin mix, especially as we retire older vessels,' Donald said.

Bottom line: Donald assured Carnival Corp., at least, is 'totally focused on measured capacity growth.' He added that If, for some reason, the company doesn't meet its desired returns, 'we're fully prepared to accelerate [ship] retirements.'

An unprecedented nearly 90 ships worth $55bn are firmly contracted through 2025, with further options.