Carnival's Cost Discipline Holds Firm: Will Margin Gains Continue?
In the first quarter fiscal 2025, adjusted cruise costs per available lower berth day (ALBD) decreased 1.9% year over year to $133.50. Also, adjusted cruise costs excluding fuel per ALBD declined 0.3% year over year to $113.76. The company stated benefits from favorable timing of expenses between quarters, as well as the realization of some permanent cost savings.
This cost containment played a key role in helping the company deliver $1.2 billion in EBITDA (up 38% year-over-year), with both operating and EBITDA margins surpassing 2019 levels. The minimal rise in unit costs, combined with robust net yield growth of 7.3%, contributed to a near-doubling of operating income to $543 million compared with $267 million reported in the prior year period.
Carnival's focus on cost efficiency continues to bolster its margin profile. With strong forward bookings and limited capacity additions, operational discipline will remain key. If sustained, this strategy could fuel durable profit growth in the years ahead. In fiscal 2025, Carnival projects EBITDA to reach $6.7 billion, reflecting a nearly 10% increase over 2024 levels.
Royal Caribbean Cruises Ltd. RCL, a core competitor, is also maintaining tight control over costs. In first quarter of 2025, net cruise costs excluding fuel per Available Passenger Cruise Days (APCD) declined 0.3% year over year to $129.54. The company attributes the outperformance to timing benefits and a continued focus on efficiency under its Perfecta Performance Program. Royal Caribbean's strong onboard spend, pricing traction, and hedged fuel exposure supported its profitability, with EBITDA margins climbing 360 basis points year over year to 35.1%.
In 2025, Royal Caribbean expects net cruise costs excluding fuel to range from a 0.1% decline to a 0.9% increase—10 basis points below its prior guidance. The company remains focused on operational efficiency, margin enhancement, and cash flow optimization. While cost performance is assessed on an annual basis, the pace of cost growth is expected to fluctuate across quarters due to factors such as drydock scheduling, new ship deliveries, and the gradual ramp-up of expenses tied to its acquisition of the Costa Maya port and other destination investments.
Norwegian Cruise Line Holdings Ltd. NCLH also executed well on the cost side. In the first quarter of 2025, Norwegian Cruise reported gross cruise costs per capacity day of approximately $297, slightly down from $300 in the prior year period. Excluding an $8 impact from higher drydock activity, unit cost growth was limited to just 1%, primarily driven by expenses related to the delivery of Norwegian Aqua. The company noted that the lower-than-expected increase in cruise costs was largely due to the timing of certain expenses that have shifted into the second quarter. As a result, adjusted EBITDA in the first quarter came in at $453 million, surpassing the prior guidance of $435 million.
Looking ahead, the management has improved its full-year guidance for adjusted net cruise costs excluding fuel to a range of 0% to 1.25% growth, reinforcing its commitment to sub-inflationary cost increases. Additionally, the company remains confident that its global sourcing strategy and diversified procurement model will help shield operations from potential cost volatility, including tariffs. With a disciplined operating model and transformation office driving ongoing efficiencies, the company is optimistic to preserve margins and navigate macroeconomic uncertainties while delivering long-term growth.
Shares of Carnival have gained 11.4% in the past three months compared with the industry's growth of 6.9%.
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From a valuation standpoint, CCL trades at a forward price-to-earnings ratio of 11.21X, significantly below the industry's average of 17.58X.
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The Zacks Consensus Estimate for CCL's fiscal 2025 and 2026 earnings implies a year-over-year uptick of 31.7% and 13.1%, respectively. The EPS estimates for fiscal 2025 and 2026 have increased in the past 30 days.
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CCL stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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