The possibility of a US recession looms heavy on the minds of many as inflation and interest rates continue to rise, but Carnival Corp is none too worried about it.
Chief executive Arnold Donald made no claim that his cruise industry will not feel the recession pinch like other sectors.
But he said that it may not hurt his sector, which is still floating in billions of dollars in losses and debt, as much as it might pain others.
“Concerning the threat of global recession, while not recession-proof, our business has proven to be recession-resilient time and again,” he told analysts on Friday during a second-quarter earnings call.
“As we have seen in prior cycles, even in downturns, employed people take vacations. And that’s even more true in today’s environment where people prioritize spending on experiences over spending on things.”
Analysts still expressed concern following Arnold’s words of comfort as economic pundits point to signs of looming economic downturn.
Inflation, which hit 8.1% last month, has yet to peak, economists told Reuters in a poll.
Meanwhile, S&P Global’s flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, dropped to 51.2 this month from 53.6 in May, flagging the slowest growth pace in five months.
Donald continued to try to allay recession fears by reminding analysts that cruises offer a nice bang for the buck, especially during hard times.
“Cruise remains an especially appealing vacation option during downturns because of its compelling value proposition relative to land-based alternatives,” he said.
“Also, there is pent-up demand for travel globally which is a powerful tailwind.”
Chief financial officer David Bernstein offered further words of encouragement by pointing out that the US labour market is very strong at 3.6%.
“If people have jobs and they feel comfortable in their jobs, they’re likely to need a vacation,” he told them.
“And remember, vacations are no longer a luxury. They’re a necessity in today’s world.”
Bernstein said that the company’s Ebitda could still be greater next year than it was in 2019, before the pandemic.
But he said fuel costs, which have risen in recent months, could be a “wildcard”.
The cost of very low sulphur fuel oil, which Carnival still uses extensively in conjunction with scrubbers, has risen 70% this year to $1,066.50 per tonne, according to Ship & Bunker.
“We continue to aggressively manage our fuel consumption,” Donald said.
“Upon reaching full fleet operations, we anticipate that we will achieve a further 10% reduction in unit fuel consumption.”
