Is Carnival’s Global Brand Presence Now Causing Issues?

Carnival Corporation, the world’s largest cruise company, has seen its stock price decline in recent months due to various factors, including the global impact of the pandemic and the ongoing situation in Eastern Europe. 

The company operates several well-known brands in various global markets, including North America, the U.K., Germany, Australia, and Italy, and has long relied on its strong brand presence in these markets to drive business and generate profits. 

However, the uneven reopening of cruise travel in the wake of COVID-19, in Asia and Australia in particular, and the direct impact of the conflict in Ukraine on European countries have had a significant effect on the company’s results.

Carnival’s Strongest Suit Now Working Against Them

Carnival Corporation’s brand strategy has long been one where it operates several brands that are location specific. Think Costa Cruises and Italy, AIDA and Germany, P&O in the UK and Australia, and so forth.

This strategy has long been one of the strong points of Carnival Corporation and propelled it to be to world’s largest cruise operator.

In Carnival Corporations’ fourth quarter earnings call, CEO Josh Weinstein explained: “We believe that having the No. 1 or No. 2 brand in each of the largest cruise markets, such as North America, the U.K., Germany, Australia, Italy, France, and Spain, is the foundation of our portfolio strategy and allows us to tailor our experiences and offerings to those specific source markets, enabling us to generate stronger brand loyalty and gain greater penetration and profit.“

One of the main challenges facing Carnival Corporation has been the lagging reopening of specific markets, particularly Australia, Asia, and the Baltics.

These markets have been extremely important and the main base for drawing in non-North American guests for the company in 2019.

Read Also: Who Owns Carnival Cruise Line?

The markets that are now lagging behind accounted for around 2 million people, or one-third of its total non-North American guests, and were particularly reliant on the company’s Costa and Princess brands, representing 40% of Costa’s guests and 25% of Princess’ guests. 

Costa Cruises, in particular, had been betting heavily on expanding its operations in China. For the Chinese market, the cruise line developed several new cruise ships aimed solely at the Asian market. However, these vessels are now either not sailing or being transferred to Carnival Cruise Line under the ‘Carnival Fun Italian Style‘ program.

With Australia currently in a similar position to North America a year ago and Japan further behind, the recovery has been slower than expected, leading to those changes in deployment and guest-sourcing approaches as Carnival anticipates ongoing impacts, particularly in the first half of 2023.

In addition to the challenges posed by the slow reopening of these markets, Carnival Corporation has also been affected by the conflict in Ukraine. This has weighed heavily on consumer confidence in regions served by the company’s Costa and AIDA brands, leading to greater uncertainty and closer-in booking patterns. 

What’s the Solution?

To help mitigate these impacts, Carnival has made strategic deployment decisions, focusing on solutions that reduce the friction of air travel, lower overall costs, and facilitate closer-in bookings.

This strategy aims to attract more new-to-cruise guests and position the company as a more attractive value proposition than land-based alternatives.

Due to the challenges mentioned above, Carnival Corporation has taken steps to optimize its fleet and transform its business to position itself for long-term growth. 

The company has disposed of 26 ships since the pandemic’s start while also introducing larger, more efficient ships such as the Excel-class Carnival Celebration, Mardi Gras, Costa Toscana, Costa Smeralda, AIDAnova and AIDAcosma, and Iona and Arvia for P&O Cruises. 

On top of the 26 ships it has already disposed of, Carnival is also planning to offload at least three smaller, less efficient cruise ships in the near future. Some rumors even include selling off various parts of the business, such as Seabourn Cruise Line. 

The new ships have resulted in nearly a quarter of the company’s fleet consisting of new capacity, with an 8-percentage-point increase in balcony cabins and a significant increase and variety of onboard experiences that generate additional revenues. 

Having a fleet of ships that is fast becoming one of the youngest in the industry, Carnival’s problems remain though. How to draw 2 million guests back to those ships and fill them up?

Bringing ships back to the Caribbean and North America will only work to a point, especially since Carnival Cruise Line already has a large chunk of the market.

By contrast, a company such as the Royal Caribbean Group does not have this problem at all, focusing primarily on the US middle-class market with Royal Caribbean International, and the premium North American and European market, through Celebrity Cruises and Silverseas.

Whether the plans will work out for Weinstein and his nine cruise brands remains to be seen. One thing is certain, investors are not seeing the recent numbers as positive. Carnival Corporation is suffering from extremely high debt and continues to post losses, something it will need to address as soon as possible.