Could Rising Interest Rates Sink Carnival?

by Christopher Palmeri (Bloomberg) US companies had a lot to overcome in the latter half of 2022 with rising interest rates, more budget-conscious consumers and a sagging stock market. That’s left some of them in very tough spots at the start of the new year. Carnival Corp. entered 2020 with a full head of steam, having reported record sales and profit the year before. Three years into the pandemic, it’s a different company.

The cruise line giant, like other ship operators, shut down for more than a year due to Covid. It sold new shares and borrowed heavily, tripling its long-term debt to $32 billion over the past three years. Rising interest rates will make that sum even tougher to pay down.

Meanwhile, Carnival’s fleet has shrunk by 11% as older and less fuel-efficient ships were sold or retired. Passenger capacity is about the same, as newly added ships are larger. The challenge for new Chief Executive Officer Josh Weinstein, who took over in August, will be filling the remaining vessels at prices that allow the company to return to profitability. That’s been difficult in the wake of weakening economies in Europe and Covid outbreaks in China. The company said last week that Europe and Asia bookings for 2023 have trailed pre-pandemic levels, while North America and Australia are tracking ahead.

Also Read: 800 Case COVID Outbreak Hits Carnival Cruise Australia

Weinstein hopes to entice people back to cruising next year with a significant step in advertising, and he’s working with each of Carnival’s brands to hone their position in the marketplace. On a recent earnings call he likened the company’s relaunch over the last 18 months to being “the world’s largest startup.”

Carnival shares trade as if more trouble lies ahead. The stock is down more than 80% since December 2019 — the worst performer among the three big cruise companies — and recently touched a 30-year bottom.  “At the end of the day, we think expectations are low,” said Credit Suisse Securities analyst Benjamin Chaiken.

Also Read: Cruise Line Stocks Could “Fall To Zero” Says Banker

By Bloomberg News, with assistance from Christopher Palmeri, Deena Shanker, David Welch, Angelica Peebles and Sean O’Kane. © 2023 Bloomberg L.P.

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