Carnival Corporation is the world's largest cruise operator, with 37% of global passenger capacity in 2024. Like the industry as a whole, the company has experienced several difficult years. The Covid pandemic brought the business to a standstill for many months, depriving cruise passengers of revenue. Financially, the main consequence was an increase in debt. For Carnival, this almost tripled between 2019 and 2022, from $11 billion to $30.5 billion.
Since then, however, the Group has been gradually turning things around. The 2024 results bear witness to this dynamic. Annual sales are up 16% on 2023, while EBITDA has exceeded 2019 levels for the first time. These good figures can be explained by the massive return of travelers in search of maritime experiences. Demand for cruises is very strong, particularly in North America and Europe. And compared to 2019, the increase in demand has been much greater than the increase in supply; Carnival 's transport capacities having risen by only 9% between 2019 and 2024. As a result, the company has been able to raise cruise prices.
Source: Carnival Corp, Q4 2024 Earnings presentation
Inventing destinations
Cruise ships have been criticized for several years, both for their environmental impact and because they have become the emblem of mass tourism. Opposition has become particularly strong in European cities such as Barcelona and Venice.
While Europe remains a must-see destination, cruise operators have found a way to expand their business: developing their own islands or private beaches in the Caribbean. Virgin islands or beaches are bought from local governments and transformed into a kind of Club Med. In 2019, MSC opened Ocean Cay (Bahamas), a private island previously used for aragonite sand mining, whose transformation would have cost $500 million, according to the Wall Street Journal. Carnival plans to open Celebration Key on Grand Bahama this year.
Project Celebration Key. Source: Carnival Corp, Q4 2024 Earnings presentation
Carnival presents Celebration Key as a "game-changing asset". While Zonebourse analysts remain cautious with this typical investor presentation formula, the Caribbean region is crucial for Carnival. Around a third of capacity is deployed there, a percentage that has even increased slightly compared to 2023. And demand seems to be there: Ocean Key, operated by MSC since 2019, is now included in many of the company's itineraries.
Record cash flows to reduce the debt burden
In 2025, bookings point to record occupancy rates, while prices should continue to rise. As a result, operating income is expected to rise by 25% this year. While debt is still high, record free cash flow generation is forecast for 2025 and 2026, thanks to strong activity, cost control and route optimization. As a result, net debt should converge towards the threshold of 3 times EBITDA by the end of 2026.
Finally, at 15.4 times 2025 earnings, Carnival is at a discount to its competitors, such as Royal Caribbean and Norwegian Cruise, due to lower profitability and profitability. While the discount is justified, we still believe there is potential for revaluation. Firstly, because earnings growth will be sustained over the next few years, and secondly, because the discount is significant relative to the overall market - the S&P500 is trading at around 22x 2025 earnings.
