If a financial forecast for the cruise industry sounded like a marine forecast, it may be call for light winds with some small waves.
Despite worries about tariffs, waning consumer confidence, and the immigration enforcement crackdown, the cruise business is floating above the concerns. South Florida's cruise giants have been optimistic that the fair weather will continue.
Carnival Corp. and Royal Caribbean each reported better than expected financial results in their most recent quarters while Norwegian Cruise Line came up a little short of forecast.
The results show cruise passengers are looking for deals over indulgences.
Quarterly revenues were up at Carnival and Royal Caribbean but down 3% at Norwegian. It is more reliant on premium cruises. Revenues were down to begin the year and the company reported a small net loss for its fiscal first quarter due to weakness in its Norwegian cruises in Europe and Alaska.
"We had some concern it may spread over into competitive brands," said Assia Georgieva, founder and CEO of Infinity Research in Boca Raton. The firm tracks the cruise industry. "That hasn't really happened. Overall, the health of the industry is indeed remarkable given how many geopolitical and macroeconomic factors we have had."
Norwegian's next quarterly financial report is scheduled for late July. Investors will be listening to hear how the company is handling the softening demand from European and Alaskan cruise passengers. CEO Harry Sommer tried to assure investors in April that the cruise line wasn't interested in cutting its prices to fill up cabins.
"We keep price sacrosanct," he said. "We're guiding towards a high 4%, close to 5% price increase year over year for the back half of the year, which we think is fantastic."
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The three cruise operators took on billions of dollars of debt during the pandemic when they were banned from sailing. They have been paying down some of those loans and refinancing a lot of it at more favorable terms. Carnival is the largest cruise company and has the biggest debt loan totaling almost $26 billion at the end of its last quarter. That was up slightly from the previous quarter, but down more than $1 billion from a year earlier.
"We have taken decisive steps to strengthen our balance sheet and we continue to do so. We are in a very strong financial position," CEO Jason Liberty said on the company's June conference call with analysts.
Bond ratings for the cruise companies have been improving. That helps the companies refinance their loans at lower interest rates. All three have restructured their debt loads in recent months, bringing down their interest expenses and helping profitability.
" We are basically back to a normal banking environment for the industry," Infinity Research's Georgieva told WLRN.
Royal Caribbean is the only publicly traded major cruise company whose credit rating has returned to investment grade. "We have made a lot of effort over the last couple of years to make sure that we get to the place where the balance sheet is strong," said Naftali Holtz, chief financial officer at Royal Caribbean.
While Carnival and Norwegian have yet to secure investment grade credit ratings, Georgieva pointed out their financial statements reflect "investment grade metrics," helping make their borrowing cheaper.
" Sometimes these investment rating agencies can be slow to move, but we know what the benchmarks are," Georgieva said. "I think the investment community is happy that they've gotten the metrics, even if they haven't gotten the diploma. They have all done a fantastic job."
Land is also helping the finances of cruise ship operators. All three operate their own private islands in the Bahamas. Carnival is expected to open its newest this year, called Celebration Key. Passengers may leave the ships on these islands, but they're still spending money with the cruise companies.
"This is gonna be of growing significance and all three companies recognize that," said
Pete Larkworthy, director of cruise investment strategy at Infinity Research.
Even when it happens on the cruise shop-owned islands, it's referred to as on-board spending by the companies. It increased almost 10% last quarter at Carnival. It was up almost 6% at Royal Caribbean and fell 3% at Norwegian Cruise Holdings.
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