Royal Caribbean: A buy in Carnival's wake
A mere 1% market share shift would affect share prices.
If I assume that fuel prices will grow at approximately the same rate, and that third world labor costs grow at the same 5-6% (for people on these ships who earn substantially above what they would in their home countries), margins will not change because of these factors. Ship capacity should grow 2-3%, implying some very slow margin strengthening over the next three to five years. That could result in the compound average growth rate of EPS being in the 6-7% range.
That was my thinking after the Costa Concordia disaster, but before the Carnival Triumph, Elation, Legend, and Dream incidents. Yes, Carnival has more ships than other cruise lines, but the number and quick succession of recent negative incidents say to me, as an outsider, that Carnival's operations have to be considered relatively poor.
Because production of product cannot be increased to take dollar market share in this case, I am predicting an increase in relative pricing between Carnival and both Royal and Norwegian Cruise Line. By my extremely rough calculations, that increased pricing differential would be 2%. That seems to be intuitively possible and a reasonable sort of “insurance policy” to be bought for the average relatively sedentary and unadventurous middle aged and older adult buyers who are the core cruising market.
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