When people feel good and have money to spare, they like to spend it. It could be a new car, a big flat-screen television or perhaps the latest iPhone. Increasingly, though, people are shunning material goods for experiences.
This is good news for leisure groups such as Carnival, the largest cruise operator in the world. The group owns the Anglo-American brands P&O Cruises and Cunard, among others, and operates more than 100 ships including the Queen Elizabeth and Queen Mary 2. Carnival exists as two legal entities — one incorporated in England and Wales, the other in Panama — but operates as a single company with headquarters in Miami, Florida. It has a dual listing in New York and London.
Last year was a good one for Carnival. The company yesterday reported record full-year revenue and its eighth consecutive quarter of revenue growth. Arnold Donald, president and chief executive, was bullish about the company’s prospects for next year. Advance bookings for 2018 were higher than at the same point last year, and at higher prices, he said.
The record year came despite a hit from the hurricanes Harvey and Irma, rising fuel costs and negative currency effects. Carnival exceeded the top end of its original guidance for full-year profit, powered by a 4.5 per cent increase in ticket prices.
In the three months to November, the company’s fourth quarter, profit fell from $609 million a year ago to $546 million as revenue climbed from $3.9 billion to $4.3 billion. Full-year profit for 2017 was $2.6 billion compared with $2.8 billion last year and revenue was $17.5 billion against $16.4 billion comparing the same periods. Carnival carried 12.1 million passengers in 2017, up from 11.5 million in 2016.
Carnival evaluates the amount of capacity used on its cruises by available lower berth day, or ALBD. This is calculated by multiplying passenger capacity by the revenue-producing ship operating days in a given period, and assumes that a single cabin accommodates two passengers. ALBDs climbed to 82.3 million in 2017 compared with 80 million the year before.
Occupancy remained the same at 105.9 per cent in 2017. A figure above 100 per cent indicates that more than two people on average were in each cabin. Fuel consumption per thousand ALBDs fell to 39.9 tonnes in 2017 from 40.4 tonnes last year.
Carnival predicted yesterday that fuel costs would increase by about $117 million next year compared with 2017. However, favourable exchange rates movements are expected to halve this impact. The company forecast adjusted earnings per share of $4.00 to $4.30 for the full-year 2018, compared with $3.82 in 2017.
The shares of Carnival were up 1.9 per cent to $67.86 in New York at lunchtime yesterday.
Meanwhile Republicans are on the brink of pushing through the largest tax cuts since the Reagan era and Americans will have a considerable amount more money to spend on things such as holidays over the next five years at least.
North America accounted for $10.3 billion of Carnival’s $16.4 billion of revenue in 2016 and $2.2 billion of its $3.1 billion profit. The company did not break down revenue and profit by geography for its full-year 2017 report. However, it is probably fair to say that the proportions were roughly equivalent in 2017 — that North America accounted for about 63 per cent of revenue and 71 per cent of profit.
Given the extra money that Americans will soon have in their pockets and the euphoria created by the stock market rally, Carnival appears to be well positioned to capitalise.
ADVICE Buy
WHY Demand for holidays, including cruises, is likely to increase once President Trump’s tax cuts become law
Gocompare
If you can capture the wallets of “savvy savers” you are doing well. Or so the price comparison website Gocompare said as it snapped up a digital vouchers business.
Gocompare is paying £36.5 million in cash to buy The Global Voucher Group — which operates Myvouchercodes.co.uk — from Monetise, a financial technology firm.
The deal may seem odd but Gocompare says it caters for people who want a better insurance or energy deal, while Myvouchercodes does the same for those trying to save money at the supermarket or when shopping for clothes.
Gocompare was spun out of the insurer Esure and listed in November last year on the London Stock Exchange. Last month it fended off a takeover offer from ZPG, which owns Uswitch and Zoopla. It would have valued it at 110p a share.
It believes it can apply its own technology to Myvouchercodes to beef up its sales, while it thinks that the smaller business touches people’s lives more regularly than the once a year or so that a customer may come to its own website.
There is room for scepticism. Vouchers businesses tend not to make a great deal of money, and it is unclear that it will be possible to cross-sell services and products. In addition, Gocompare is taking on more debt to pay for the deal.
That may not matter too much. Gocompare will not find it that hard to pay down its debt as it is a cash generative business. Also, Myvouchercodes should add to its earnings — it is due to make £4 million in profits this year from revenues of almost £12 million. Those numbers are modest, however.
The deal says something interesting about Gocompare’s vision. In the past few months the company, based in Newport, has invested in a robo advice business for mortgages, called Mortgagegym, and has also taken a punt on the emerging price comparison market in the Middle East. The strategy seems wacky, with a high chance that neither will take off. The moves seem driven by a thorny problem, which is consumer inertia. The websites are still largely relying on insurance, other financial services and energy. It is harder to push into other areas.
ADVICE Avoid
WHY Chances are low that the deal will make much difference to revenues
