Carnival (LSE: CCL) has had a rocky year, with fluctuating share prices and a few issues impacting the firm. The American-British organisation holds a giant share of the sector, as the world’s largest cruise line operator. Since 1972 the firm has gradually grown in stature, acquiring well-known brands including Holland America Line, Carnival Cruise Line and Princess Cruises.
A powerful brand – but is it stable?
Carnival boasts New York Stock Exchange, Standard & Poor’s 500 and FTSE 100 footholds. Over the past few years, the firm has been steady overall despite a few minor dips. However, external pressures to the sector have impacted Carnival’s net income, evidenced through the dwindling earnings per share rates.
Alongside its two main sector competitors (Royal Caribbean Cruises and Norwegian Cruise Line Holdings) Carnival dominates approximately 80% of the global cruise industry. In terms of market share, with over 100 ships, Carnival has double the resources of any other sector competitor!
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External influences may hinder sector growth
Currently, many firms in ‘luxury’ sectors are feeling the pinch as the UK consumer base tightens the reins on spending as Brexit negotiations continue. Uncertainty around economic stability often sees firms specialising in luxury items such as foreign travel taking a hit as consumers wait for circumstances to stabilise.
Carnival may also be concerned about increased fuel prices, which may see its cruise offers provide less value for money for discerning UK consumers.
The plus side of economic uncertainty
Despite increasing pressure on the sector due to political and economic uncertainty, low-cost holidays and low-end luxury products from trusted providers should continue to be popular. This bodes well for Carnival, who may see its profits increase rather than diminish as a direct result of the economic climate.
Capitalising on nationwide uncertainty through a safe brand
When the economy is depressed, UK holidaymakers tend to opt for more secure ways to invest in leisure, and an organisation that has been around since the 70s will hold more attraction than less powerful brands. Similarly, the sheer size of Carnival means that if one product revenue stream falters, it has sufficient net operating cash flow overall to keep the boat steady until it can turn it around and continue to profit.
There is significant room for growth with Carnival, and investors may be well placed to consider the stock. The brand may prove lucrative and stable, given its market dominance, expanding operations and expectations of improved earnings going forward.
There is significant room for growth with Carnival, and investors may be well placed to consider the stock. The brand may prove lucrative and stable, given its market dominance, expanding operations and expectations of improved earnings going forward.
Despite stiff competition, the firm continues to enjoy a market-leading position, and the current uncertainties across the broader UK economy surrounding Brexit is a prime motivator for me to buy into CCL. The firm has the potential to hang on in there when less powerful sector competitors capsize, leaving shareholders cruising ahead with some solid shares in their portfolio.
