Executive Summary / Key Takeaways

• Carnival Corporation & plc (CUK) has achieved a remarkable turnaround, delivering record-setting financial results in recent quarters, including highest-ever Q2 operating results and full-year 2024 revenues of $25 billion.
• The company significantly accelerated progress towards its 2026 "SEA Change" financial targets, meeting or exceeding goals for adjusted EBITDA per ALBD, adjusted ROIC, and carbon intensity reduction 18 months ahead of schedule.
• Strong demand, robust yield growth (driven by higher ticket prices and accelerating onboard spending), and effective cost management are fueling performance, with 2025 yield growth expected to significantly outpace cost growth.
• Strategic investments in owned destinations like the upcoming Celebration Key (July 2025 opening) and the expansion of Relax Away Half Moon Cay (mid-2026) are key differentiators aimed at driving demand, enhancing guest experience, and capturing market share from land-based alternatives.
• Carnival is aggressively deleveraging, having paid down over $8 billion in debt since the January 2023 peak, and is actively refinancing to reduce interest expense and simplify its capital structure, targeting investment-grade leverage metrics in the near future.

A Giant Awakens: Carnival's Post-Pandemic Resurgence

Carnival Corporation & plc, a global leader in leisure travel operating a diverse portfolio of cruise brands, faced unprecedented challenges during the pause in guest cruise operations. This period necessitated significant borrowing, resulting in a substantial debt load that peaked in January 2023. However, the company has since embarked on a determined path to recovery and resurgence, leveraging its extensive fleet, global footprint, and portfolio of brands to capitalize on resurgent travel demand.

Operating through segments like North America, Europe, Cruise Support (including owned destinations), and Tour & Other, Carnival competes fiercely in the broader leisure travel market against not only other cruise lines such as Royal Caribbean Cruises (RCL), Norwegian Cruise Line Holdings (NCLH), and Viking Holdings (VIK), but also land-based vacation options like hotels and resorts. While competitors like RCL often emphasize innovation and efficiency, and NCLH focuses on agility and cost leadership, Carnival's core competitive advantage lies in its sheer scale, diverse brand portfolio catering to various market segments, and its strategically important owned destination assets. The company's strategy centers on driving high-margin, same-ship yield growth through enhanced commercial execution, disciplined cost control, and strategic investments in its fleet and destinations, all while prioritizing balance sheet repair.

Carnival's approach to technology and innovation supports this strategy across several fronts, focusing on operational efficiency, guest experience, and environmental sustainability. While not defined by a single breakthrough technology like some manufacturing sectors, the company employs advanced techniques and tools. This includes leveraging technology for fuel consumption management, hull maintenance (including trials with underwater drones), and yield management to optimize pricing and bookings. Digital marketing capabilities have significantly boosted online visibility, with web visits up over 40% and paid/natural search up over 60-70% compared to 2019. On the guest experience side, technologies like the Princess MedallionClass service aim to enhance personalization and service delivery. Environmentally, investments in energy efficiency, itinerary optimization, new technologies, and alternative fuels (such as multi-fuel capable engines on new builds) have contributed to a 17.5% reduction in greenhouse gas emissions intensity versus 2019 and an almost 10% reduction in absolute emissions despite fleet growth. A notable operational efficiency gain has been achieved through a food management strategy ("Less Left Over"), resulting in a 44% reduction in unit food waste compared to 2019 and $250 million in cost avoidance since then. These technological and operational advancements contribute to Carnival's competitive positioning by driving cost savings, improving efficiency, enhancing guest satisfaction, and addressing critical environmental concerns, supporting its ability to compete effectively against peers and land-based alternatives.

The Turnaround Takes Hold: Record Performance and Accelerated Targets

The results of Carnival's focused execution have been nothing short of remarkable. The company has delivered seven consecutive quarters of record revenues, culminating in an all-time high of $25 billion for the full year 2024. This momentum continued into 2025, with the second quarter achieving highest-ever operating results, including record revenues of $6.3 billion, EBITDA, and operating income. Net income for Q2 2025 exceeded guidance by $185 million, driven by yields that grew by almost 6.5%, beating expectations by 200 basis points due to strong close-in demand for both tickets and onboard spending. Unit costs in Q2 2025 also came in 200 basis points better than expected. This performance translated into EBITDA margins that were 200 basis points higher than 2019 levels, the highest in nearly twenty years.

The strength was broad-based across segments. In the three months ended May 31, 2025, the North America segment saw revenues increase by 5.8% year-over-year to $4,214 million, with operating income surging 31.6% to $691 million. The Europe segment demonstrated even more impressive growth, with revenues up 18.5% to $2,011 million and operating income more than doubling to $368 million. For the six months ended May 31, 2025, consolidated revenues reached $12.1 billion, up from $11.1 billion in the prior year, driving operating income to $1.5 billion compared to $836 million in the same period of 2024.

This consistently strong performance has significantly accelerated Carnival's progress towards its 2026 "SEA Change" targets. As of Q2 2025, the company met and exceeded its targets for adjusted EBITDA per ALBD (52% above the 2023 baseline) and adjusted ROIC (surpassing 12.5%), achieving these goals a full 18 months ahead of schedule. The target for reducing greenhouse gas intensity by 20% compared to 2019 was also met. This early achievement underscores the effectiveness of the company's operational and commercial strategies.

Strengthening the Balance Sheet and Investing for the Future

A critical component of Carnival's turnaround has been the aggressive deleveraging effort. Since the peak in January 2023, the company has paid down over $8 billion in debt. This was supported by robust cash flow generation, with cash from operations reaching almost $6 billion in full-year 2024. For the six months ended May 31, 2025, net cash provided by operating activities was $3.3 billion.

The company is actively managing its debt profile through opportunistic refinancings, having refinanced nearly $7 billion of debt in 2025 alone at favorable rates, reducing interest expense and extending maturities. The average cash interest rate has decreased significantly to 4.6%. Near-term maturity towers are well-managed, with $1.1 billion remaining in 2025 and $2.7 billion in 2026. The goal remains to achieve investment-grade leverage metrics in the not-too-distant future, a process management views as transferring value back to shareholders.

Alongside deleveraging, Carnival is making strategic investments to enhance its product offering and drive future growth. A key focus is the development of owned destinations. Celebration Key, a new exclusive destination in the Bahamas, is on track for its July 2025 opening. Described as game-changing and the largest, most Carnival-centric destination, it features five portals built for fun and is only accessible on Carnival cruises. It is expected to ramp up significantly in 2026, serving 19 ships and providing an excellent return on investment. Further enhancing the destination portfolio, Half Moon Cay is being renamed Relax Away Half Moon Cay, with a significant expansion including a two-berth pier planned for mid-2026. Mahogany Bay in Roatan is also undergoing enhancements and will be renamed Isla Tropical. These "paradise collection" destinations are central to the strategy to drive consumer consideration and take share from land-based alternatives.

Fleet investments continue with a moderate newbuild pipeline of just three ships on order over the next four years. This limited capacity growth is seen as advantageous, allowing demand to outpace supply and support pricing power. Existing fleet enhancements, such as the Aida Evolution program and new features on Carnival's Excel class ships, are designed to generate new demand and improve the guest experience. The company also continues to optimize its portfolio, having sunset the P&O Cruises Australia brand and consolidated the Seabourn fleet through an opportunistic sale.

Looking ahead, management is affirming yield expectations for the remainder of 2025, projecting a cumulative yield increase of 16% across 2024 and 2025. Full-year 2025 net income guidance is approximately $2.7 billion, with EBITDA projected at $6.9 billion, a 13% improvement over 2024. This growth is expected to be driven virtually entirely by same-store revenue growth on only a 1% capacity increase. While cruise costs without fuel per ALBD are expected to be up 3.6% for the full year 2025, this includes impacts from Celebration Key operating expenses and increased dry dock days. The booking position for 2025 remains at historical highs for both occupancy and price, with an elongated booking window providing strong visibility. Booking volumes for 2026 sailings are also at record levels.

Risks and the Path Forward

Despite the strong momentum, Carnival faces inherent risks. Geopolitical uncertainty, including the Middle East conflict (though currently having no discernible impact on the business), inflation, higher fuel prices, and interest rate fluctuations could impact demand and costs. Regulatory changes, such as the increasing impact of the EU Emissions Trading System (ETS) which will cover 100% of in-scope emissions by 2026, and potential new taxes like the proposed Mexico port charges, pose financial risks. Cybersecurity incidents, labor costs, and supply chain disruptions also remain potential challenges. The company's substantial debt, while decreasing, continues to amplify many of these risks.

However, management expresses confidence in navigating these challenges, citing the team's agility and the resilience of the cruise value proposition, particularly compared to land-based alternatives. The strategic focus on enhancing the product, leveraging owned destinations, and driving commercial execution is designed to build a more resilient business model capable of sustaining performance even in volatile environments.

Conclusion

Carnival Corporation & plc has demonstrated a powerful recovery, transforming its financial trajectory and significantly accelerating its path towards key strategic targets. Driven by strong operational execution, robust demand, and effective yield management, the company has achieved record revenues and profitability levels not seen in decades. The strategic investments in differentiated destinations like Celebration Key and the ongoing efforts to optimize the fleet and enhance the guest experience position Carnival to capture further market share and drive future growth. While macroeconomic and geopolitical risks persist, the company's aggressive deleveraging and focus on rebuilding its financial fortress provide a stronger foundation. Having met its 2026 financial targets well ahead of schedule, Carnival is poised to set new goals, signaling confidence in its ability to continue its ascent and create value for shareholders.