Analyst: RCCL More Susceptible to Yield Decline than Carnival

Carnival Corp. is better positioned than Royal Caribbean Cruises Ltd. (RCCL) to withstand yield deterioration, according a UBS Investment Research analysis.

Declines in yield (revenue per passenger) are still well above the breaking points for Carnival and RCCL, wrote UBS analyst Robin Farley, but given Carnival’s higher profitability, it could handle net yield declines of more than 40 percent before it would “break even” in terms of cash flow, significantly greater than the 23 percent decline RCCL could withstand.

“What this all means is that [Carnival] is much better positioned operationally to withstand a sustained downturn in consumer spending and yield deterioration, and is better positioned fundamentally to withstand credit issues,” Farley wrote. “The proverbial last man standing is Carnival.”

The report looked at the companies’ debt, liquidity, and ship orders to reach its conclusions. Farley said that the cruise companies’ breaking points for yield decline were mathematical analyses not likely to happen.

“In reality, if yields were to decline so significantly, the operators could take more dramatic actions like taking ships out of service,” she wrote. Farley estimated that Carnival’s net yields will decline about 15 percent this year, and RCCL’s about 12.5 percent.