Ships are sailing full!

[JoeyandDavid]

Carnival Corporation is keeping its cruise ships full, but only by significantly cutting prices. While this is great news for consumers looking for a vacation deal, the moves will likely put pressure on revenues and margins going forward.

The company reported first quarter results that exceeded Street estimates yesterday. However, Carnival lowered its full-year outlook as pressures from the economic recession continue to impact the company's business.

Although the 1st-quarter results were impressive given the economic environment, investors are far more concerned with the outlook going forward. To that end, management stated that booking trends remain strong, and are actually up year-over-year.

This strength in bookings is somewhat deceptive, however, as the company has been required to substantially reduce its prices. Management stated that for its North American brands, pricing is down between 10% and 15% year-over-year for Caribbean cruises, while prices for Alaskan and European cruises are down 30% to 40% versus the prior-year period. Pricing for the company's European brands have held up better, but is still down approximately 10% year-over-year.

In addition to the lower ticket prices, customers are spending less once they board the company's ships. In the 1st quarter, net onboard and other yields were down 5.8% in local currency. Onboard yields for spa and bar expenditures were actually up year-over-year, but yields were down for casino, shore excursions, shops and photo.

Customers are clearly curtailing their expenditures as much as possible while still making commitments to their annual vacations.

In the current environment, however, we believe the company's strategy to cut prices to be appropriate. Unlike the hotel business, where we prefer to see companies maintain room rates as much as possible during economic downturns, the cruise companies have significant incentive to fill their ships given the fixed nature of many expenses.

[coloradocruisers]

The article speaks of first quarter "results" but doesn't speak to profits, so it's hard to determine if this is a good news story or bad news. I think as long as they're making a profit, or at least breaking even, they'll weather the storm and see more profitable days.

[deb1220]

I know our last cruise on Carnival was the cheapest we've ever taken. We also didn't spend as much on board. This is the first time we didn't buy any photos.

I don't know how long they can operate like that and make any profit but I'm no expert.

[TheSkipper]

Based on all the emails I receive daily for many, many cruise lines, cruising is at an all time low for fares. They have got to try and keep those ships full.