The Cruise Industry may have some of the worst web sites in the travel industry but they are doing pretty well financially. This is an extract from today’s FT:
Cruises have long been derided as galas for grannies. But the prospects for the big two cruise operators, Carnival and Royal Caribbean Cruises, look anything but geriatric.
Carnival's second quarter results beat expectations with a 22 per cent jump in earnings per share and growth in net yields of almost 9 per cent.
It should come as no surprise that catering to pensioners is a growth industry: the US's 82m baby boomers spend more on leisure than any other age group. But despite its greyish tinge, the cruise business is still relatively immature. Less than 3 per cent of US holidays are on liners. And with travel agents still taking 85 per cent of bookings, there is plenty of scope for cutting costs. It is not all plain sailing. Rising fuel costs and the threat of consumer weakness present risks. But as a recent survey from UK tour operator First Choice showed, holidays are way down the hit-list when it comes to belt-tightening.
Despite their run-up since April, shares in Carnival and Royal Caribbean trade on 2006 price/earnings multiples of 17 and 15 times, respectively. That is cheap compared with US hotel stocks. And Carnival alone will generate $2.7bn of free cash flow over the next three years, after $5bn of investment in new ships. For investors of all ages, it is time to get on board. Dick Stroud www.20plus30.com
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