The order—split as five ships at Fincantieri and four at Meyer Werft—was 'definitely nothing to do with currency,' Donald told analysts during the company's earnings call. It has been surmised that with the weakness of the euro to the dollar, this would be an ideal time to lock in favorable pricing.
Instead, the Carnival chief said the agreement for ship deliveries stretching from 2019 to 2022 helps the yards to plan with their suppliers, and 'It was important for us to get out in front from a planning standpoint.'
That's especially true since Carnival is designing a prototype vessel, which takes extra time, Donald noted.
Carnival has not signed contracts with each yard for each ship because the specifics are still being worked out with the brands and the yards, he said, adding: 'Some ships will be purpose-built for China.'
Donald noted the order represents two to three new ships a year—'still measured capacity growth' in line with the company's stated strategy. And even with the additional capital expenditure, the company will stay on course to generate double-digit return on invested capital in the next three to four years while also generating excess cash for share buybacks and to be returned to shareholders in dividends.
CFO David Bernstein said the orders translate into an approximately 3% annual capacity increase, and that number may net out slightly lower as Carnival withdraws ships from service. Four vessels are exiting in 2015, and Bernstein said others will be removed in 2016, 2017 and 2018.
The 3% capacity increase breaks out to about a 1% to 2% increase in North America and Europe, but about a 20% increase in Asia on a much smaller base.