Cruise earnings as an economic outlook

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Carnival Corp. issues year-end earnings every December and looks ahead to the coming year. In some ways last year’s report looks just like this year’s. For example, in 2017 bookings were ahead of the prior year in both occupancy and price, which was also true of the just published report.

But what jumps out at me was that last year, Carnival was wrong both on how strong its pricing would be and how much costs would rise in 2017.

In December 2016, Carnival projected that its net yields from revenue would rise 2.5% in 2017 and cruise costs (excluding fuel) would rise 1%.

The actual results were a net yield increase of 4.5% and a rise in costs, measured to remove the effect of currency changes, of 2.7%.

That would appear to suggest a robust business, and perhaps the prospect for continued price and cost increases in 2018, as the extraordinarily low inflation of the past few years begins to heat up.

The Federal Reserve, which controls the money supply and thus interest rates, raised its target rate this month for short-term rates by one-quarter percent. Although it said inflation in the short term is below its 2% target, it sees the prospect of 2% inflation emerging over the “medium-term.”

In its December statement, it said “economic activity has been rising at a solid rate and the unemployment rate declined further. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters.”

The Fed will get a new chairman in February, and the economy will get at least a short-term boost from the comprehensive tax cut approved by legislators in the waning days of 2017.

All of which suggests that the current economic weather pattern of low interest rates, subdued inflation, modest price increases and little or no growth in wages may be on the brink of a change.

For cruise suppliers, that could mean higher nominal prices, but a decline in real revenue and income after inflation takes effect. Cruise retailers, while not immune from inflation, would benefit from higher nominal prices on which their commissions are based.

With higher inflation comes the risk of recession as policy-makers try to cool increasing prices by quickly escalating interest rates. That seems to be nowhere on the horizon. And yet, the expansion that began in mid-2009 already is the third-longest in U.S. history and if it continues into the second half of 2019 would exceed the 10-year record set by the 1990s economic boom.

It doesn’t feel to me like we’re in the midst of record-setting prosperity. Nevertheless, let’s hope as we head into 2018 that cruise prices and the economy stay in a Goldilocks zone – not too hot, not too cold – for the foreseeable future.

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Can I Finance the Cost of a Cruise?

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Carnival Cruise Line just introduced its new Carnival EasyPay program to more evenly spread out the cost of a cruise over time.

Though it’s not quite a traditional financing model, there are some other options to consider.

For those who define financing as a means of buying a product now and paying for it in periodic installments—with or without interest—after the fact, then Carnival EasyPay would not be included. Cruise lines expect to be paid in full prior to the cruise, and Carnival is no exception.

That makes Carnival EasyPay more of a layaway situation (like financing prior to receiving the product) in which you make a deposit at least 90 days before final payment is due. That is then followed by equal payments across three months automatically charged to the credit card on file.

The entire process is completed prior to sailing.

Of course, you could also budget yourself early on, effectively putting aside the necessary cash on your own while making a modicum of positive interest. Carnival just makes it simpler.

Choices for typical consumer financing are unfortunately less common. Some travel agencies offer cruise-now-pay-later plans in the 12-month range, and PayPal Credit permits zero-percent financing for up to six months. Perhaps more desirable might be zero-percent interest credit cards with an intro APR for upwards of 18 months.

A lot of these can get you quickly trapped beyond, however. So, choose wisely and use sparingly.

Otherwise, it seems the only in-house option is Disney Cruise Line.

Thanks to the Disney Premiere Visa Card, guests can receive zero-percent, six-month financing on all Disney cruises as well as select other Disney vacations. The reservation must be charged to the credit card before the trip, at which time the six months begin counting down, but that could still occur closer to the actual departure date, leaving a bulk of the cost to be paid afterward.

Carnival Cruise Line and Princess Cruises used to offer financing plans of their own but no longer do. However, many cruise lines—Carnival and Princess included—still offer branded credit cards. They mostly exist to accrue points that can be redeemed towards voyages and don’t serve any sailing cost financing purposes, unfortunately.

Other brands with such credit cards are Norwegian Cruise Line and Royal Caribbean International among others.

As Travel Pulse’s Holly Johnson pointed out, there are also a number of credit cards unaffiliated with any particular line that rack up points for cruise redemption.

So why Disney is the only cruise line to offer any form of financing of its own now, especially if Carnival and Princess once did?

Either the programs were not popular or they proved too challenging for the cruise lines to keep up with. As consumers generally appreciate the opportunity to offset due dates for paying back big expenses, it’s hard to imagine it was the former.

Perhaps dealing with banks was a costlier ordeal for the cruise lines in the long run than originally anticipated. Back in 1997, financing from Princess was being offered for as far out as 48 months in conjunction with MBNA AMERICA BANK, according to Cruise Industry News.

Then Princess Senior Vice President of Sales and Corporate Relations Richard James was quoted as saying, “We know that the key barrier to cruising today is that people think they cannot afford it.”

He also added, “We must go beyond traditional ways of marketing and begin positioning cruises as being affordable, and this program addresses affordability head on.”

Affordability is sometimes still viewed as a stumbling block—albeit an often false one given the incredible value of cruising—and it stands to reason that financing programs would be a good tool for cruise lines to again offer.

In 1997, boomers were the primary demographic of cruisers. With millennials now heavily in the mix, it might be the perfect time to bring financing back to appeal to younger generations more inclined to charge a reservation.