Carnival's Fuel Efficiency Gains Momentum: Can Margins Sustain?

Carnival Corporation & plc CCL is sharpening its operating edge through disciplined fuel management, turning efficiency into a tangible earnings lever. In second-quarter fiscal 2025, management reported $18 million in savings from lower fuel consumption and mix optimization, and expects the benefit to reach $30 million for the full year. These gains contributed to the company’s record operating results and supported EBITDA margins that reached their highest levels in nearly two decades.

Carnival attributed the savings to ongoing efforts and investments aimed at improving the energy efficiency of its operations, citing technology adoption and best practices as key drivers. The company emphasized that efficiency initiatives are not only helping to reduce costs but are also advancing its environmental commitments. Notably, CCL confirmed that it has already achieved its 20% carbon intensity reduction target relative to 2019 levels, more than a year ahead of the 2026 goal.

For a fleet of nearly 90 ships, even small percentage improvements in efficiency compound into meaningful financial results. Management positioned these gains as an important lever for sustaining profitability, especially against the backdrop of volatile fuel markets and broader macroeconomic uncertainty.

Looking ahead, Carnival acknowledged that new destination launches and operational expansions will lift expenses in the near term. However, the company’s demonstrated ability to extract consistent savings from fuel efficiency provides a buffer, reinforcing margins and supporting its ongoing balance sheet improvement efforts.

Peer Comparisons

Norwegian Cruise Line Holdings Ltd. NCLH is leaning on both efficiency measures and hedging to manage fuel exposure. Nearly 60% of its fleet is shore-power capable and almost half has been tested with biodiesel blends, initiatives aimed at reducing consumption and dampening volatility. In second-quarter 2025, NCLH’s fuel expense (as a percentage of total cruise operating expense) came in at 10.8% compared with 12% in the prior-year period. To further insulate margins, NCLH has hedged roughly 65% of 2025, 48% of 2026 and 22% of 2027 projected fuel purchases. A 10% increase in fuel prices would drive an estimated $34.7 million rise in 2025 expenses, partially mitigated by an $18.9 million gain from fuel swap valuations. Management reaffirmed its $300 million cumulative cost-savings target by 2026, highlighting fuel initiatives as a key contributor.

Royal Caribbean Cruises Ltd. RCL is relying on a different lever: hedging. RCL expects fuel expenses of $1.14 billion in 2025 and has hedged 66% of its needs at below-market rates. This provides immediate insulation against volatility while supporting margin expansion. In second-quarter 2025, the adjusted EBITDA margin improved 300 basis points year over year to 41%, aided by fuel hedges as well as operational scale. Management emphasized fuel discipline to drive growth. As of June 30, 2025, RCL has hedged variability in future cash flows for certain forecasted fuel transactions extending through 2028.

CCL’s Price Performance, Valuation & Estimates

Shares of Carnival have rallied 30.4% in the past three months compared with the industry’s growth of 12.3%.

CCL Three-Month Price Performance

From a valuation standpoint, CCL trades at a forward price-to-earnings ratio of 14.26, significantly below the industry’s average of 19.25.

The Zacks Consensus Estimate for CCL’s fiscal 2025 and 2026 earnings implies a year-over-year uptick of 40.9% and 13.8%, respectively. The EPS estimates for fiscal 2025 and 2026 have increased in the past 60 days.

CCL stock currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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