Muted Russia impact in Carnival call; occupancy, spending on the rise

CEO Arnold Donald opened the call by expressing heartfelt concern for those affected by the invasion of Ukraine, including thousands of Carnival team members and their families.

Russia sailings were a 4.6% sliver of capacity

Russia accounted for 4.6% of the company's capacity this year, and Carnival is avoiding Russia altogether. St. Petersburg is a marquee port so this has an impact. The close-in deployment changes have led to some volatility, and the war hurts consumer confidence.

But Donald tallied the many difficulties Carnival has weathered in the past and said: 'Time and time again, we have seen guests travel through challenges.' He added Carnival Cruise Line 'recently enjoyed its three best weeks of bookings since resuming operations.'

Occupancy nearing 70% in March

Carnival Corp. occupancy in March has been nearly 70%, up from 54% in the first quarter, with more than 40 sailings exceeding 100% occupancy.

Those high-occupancy sailings are 'more North American-oriented, not only the Carnival brand,' Donald said, on 'more traditional itineraries' instead of those revised for COVID-related reasons.

'The most important aspect is a lot of sailings at 100%, which shows things are coming back and we have the ability to sail at 100% with good outcomes,' Donald told analysts.

No second thoughts about not hedging

Carnival Corp. is addressing fuel cost spikes by 'aggressively managing fuel consumption and stepping up efforts to further reduce consumption.'

Historically, the company hasn't engaged in fuel hedging, as competitors do, and Donald indicated Carnival will be sticking to that.

Hedging gives an 'optics benefit of smoothing earnings. Over time, prices have gone up, but they've also come down,' he said. 'There is an economic cost to derivatives. Over the past few years, we're very glad not to have speculated on derivatives because it would have been a further drain on cash.'

Robust onboard spending

Turning to whether there's any sign of consumers pulling back on spending due to inflation, Donald said Carnival hasn't seen that. Onboard spending is up and 'continues healthy' wherever the company's ships operate around the world.

In the first quarter, revenue per passenger cruise day increased approximately 7.5% compared to a strong 2019, driven by 'exceptionally strong' onboard and other revenue.

In fact, Carnival is raising onboard pricing. 'There is strong demand,' CFO David Bernstein said. 'There's been an opportunity to raise price, and we're capturing that opportunity.'