IT'S been far from plain sailing for the cruise industry recently. The global downturn meant that many of us could only dream of sailing to sunnier climes.
But things could be about to change, particularly in the United States. Those would-be sun seekers who successfully weathered the unemployment storm are beginning to think of booking the holidays that they postponed last year.
All this is good news for Carnival, the world's largest cruise group. It has more than 50 per cent market share in the US and controls a portfolio of 12 brands – key among these are P&O, Cunard, Holland America and of course the flagship Carnival Cruise Lines.
In addition to pent-up demand, Carnival is set to benefit from a feature unique to cruise companies: onboard transactions are predominantly dollar-based. This allows American holidaymakers to fix the cost of an overseas holiday at a time when the dollar is relatively weak against other currencies, such as the euro.
Carnival's operating costs are largely fixed, meaning that higher pricing and improved customer volumes have substantial benefits for net profits. Fuel costs are still a wild card, although we believe this is more than reflected in the company's current valuation.
Management has recently signalled its confidence in Carnival's cash flow by reinstating the share dividend. It also has a further 13 ships on order between now and 2012, adding to its current fleet of 92. There may still be some choppy waters ahead, but rising demand for cruise holidays over the longer term suggests that now may be a good time for investors to get on board.
Investment markets and conditions can change rapidly and as such the views expressed should not be taken as statements of fact nor should reliance be placed on these views when making investment decisions. Past performance is not a guide to the future.
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