Carnival Is Cruising Along Long-Term

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In our opinion, there were no metrics that warranted imminent concern about Carnival’s ability to drive demand creation or manage its cost structure. Our long-term yield outlook incorporates 2% average yield increases, above the flattish pace the company has been able to capture over the past decade, as we expect that improved revenue-management strategies and systems should lead to structurally higher yield grab than in the past. We have costs rising more than 1% on average, versus the flattish pace they have maintained on an as-reported basis over the past decade, as fuel and foreign exchange can weigh on the overall metric and have real impacts on cash flows. We expect these metrics add a normalized perspective to Carnival’s earnings power, adjusting for the cyclical silo that it operates within.

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