In the third quarter of 2023, Carnival Corp (CCL, Financial) achieved a net income exceeding $1 billion and EBITDA over $2 billion, surpassing the high end of their June guidance range. The company also reported record levels of customer deposits and booking volumes for the third quarter. The impressive performance was driven by strong demand for the company's brands in both North American and European markets, resulting in higher than anticipated yields that surpassed 2019's strong levels and reached an all-time high.
Strong Performance Across Brands
European brands Costa and AIDA reported better than expected occupancy, with both hitting 119% occupancy in August. P&O Cruises also achieved its highest occupancy in over a decade despite a 40% capacity increase from 2019. The company's third-quarter per diems were five points higher than 2019, hitting record levels and more than compensating for the absence of St. Petersburg, one of their highest-yielding itineraries. The company estimates that per diem growth would have been up about seven points, consistent with the first two quarters and their upwardly revised fourth-quarter guidance.
Managing Costs Amid Rising Fuel Prices
Despite a recent spike in fuel prices, which is forecasted to increase by 20% heading into the fourth quarter, the company's higher revenue more than offset the impact. Changes in fuel prices and FX rates combined are a $130 million drag compared to June guidance, masking much of the significant underlying business improvement that is delivering an additional 200 million plus to the bottom line for the second half of the year. However, the company still expects their 2023 adjusted EBITDA to be $4.1 billion or more, which is well within their prior guidance range, and they are raising their net income expectations for the year.
Efforts to Reduce Fuel Consumption
Carnival Corp (CCL, Financial) has been focusing on reducing fuel costs by consuming less. Heading into 2023, the company already had the most fuel-efficient fleet of their public peers by a wide margin, and they're looking to widen that gap. They're on track to achieve a step change reduction in fuel usage and resulting carbon intensity in 2023 with fuel consumption per ALBD nearly 16% lower than 2019, even better than the 15% they had anticipated. This effort is not only benefiting their bottom line by hundreds of millions of dollars, but it's also better for the environment.
Strong Revenue Trajectory Heading into 2024
The company is pleased with their revenue trajectory heading into 2024. Their brands have been working aggressively to build a strong base of business as they position for further revenue yield improvement next year. They're now significantly ahead of the same time last year by about 10 points and well ahead of where they were in 2019. In fact, they already have less inventory remaining for sale at the same time last year, despite 5% more capacity and sailing with occupancy at historical levels.
Debt Reduction and Financial Position
Carnival Corp (CCL, Financial) has been actively managing down their debt and reducing interest expense. With improving performance, positive cash flow, and $5.7 billion of liquidity, they anticipate ending the year with debt just under $31 billion, already over 4 billion off the peak and counting. They are on a path to end the year with less than 31 billion of debt, which is over 2.5 billion less than forecasted six months ago. The company expects substantial increases in adjusted free cash flow in 2024 and beyond through durable revenue growth to drive down their debt balance on their path back to investment grade.
