Carnival PLC CCL

Carnival is the largest company in the cruise industry, operating 10 global brands that include Cunard, Costa, AIDA, and Seabourn. It has 100 ships in service and passenger capacity of around 200,000, which allows Carnival to reach a broad and ethnically diverse group of consumers in a lightly penetrated vacation segment. Carnival has the largest fleet on the seas; this, aligned with cost-containment initiatives, provides the company with a narrow economic moat and allows it to maintain the lowest unit costs in the industry. We expect the company can continue to lower costs through additional administrative consolidations (most recently with the HAL and Seabourn back offices), improved procurement costs, and improved fuel efficiencies. While Carnival is the most competitive participant in the cruise industry, we remain concerned that an uncertain economic environment and continued global instability could temper its ability to raise prices materially in the near term. Additionally, headline risk remains a concern as recent mishaps have been highlighted in the media, causing uncertainty around near term yields.