Cruise Line Onboard Revenues Off the Charts

[Buckeyefrank100]

3 minutes ago, skridge said:

Unless anyone on this thread is really high up in the accounting department at CCL I have a hard time believing anyone can say definitively what Carnival is counting as revenue and what they are not counting as revenue.  I know the comparison to the gift card is absurd because with a gift card you have actual cash money revenue coming in and then that revenue is offset by goods going out.  With an OBC you have Carnival giving out the equivalent of a gift card that can only be used on board to people that have effectively paid them nothing for it other than rebooking a canceled cruise.

I am a CPA and there are principles called "Generally Accepted Accounting Principles" that govern the US accounting practices.  The titles and exact terminology from a Carnival perspective are not known, but yes the general principal of recording revenue is sound.  The only difference between how a GC and the OBC is handled is on the debit side of the transaction.  In the GC, they receive cash..... for the OBC it's a sales discount (or marketing expense) depending on how they internally record it.  The OBC used on the ship is absolutely recorded as onboard revenue.

[Buckeyefrank100]

19 hours ago, Denverdonkeys said:

I dont agree with the GC analogy. there has to be an entry there because cash was received (hence unearned revenue), but the OBC being granted I don't think generates an entry. there is no obligation at the time of the OBC. I bet it reduces net revenues for onboard. credit revenue for the full cheers package, debit "OBC discounts" for the payment amount, debit cash for the amount over the OBC that hits Credit cards. 

 

the related expense is just the cost of alcohol (or whatever) in this case. you wouldnt put that up as a prepaid expense, because you dont know it and the expense is not equal to the OBC- they make a large profit on all that.

It absolutely does.  It generated a DR to sales discounts (or expense) and a credit for OBC liability.  That liability is relieved when used on the ship and is recorded in the appropriate revenue bucket when used.  The OBC that is not used is recorded to revenue after the cruise completion in an account titled something like "unused OBC revenue".

[Buckeyefrank100]

On 11/10/2021 at 7:09 AM, firefly333 said:

I ran into more than one person who bought gift certificates with their obc to use on another cruise.

 

Are gift certificates counted toward spending when they say spending is up. Of course it's up. Never saw so much obc thrown at cruisers. My friend got more obc than he paid for his cruise and his sister mentioned no worries if extra obc, she would cash it out in the casino the last sea day.

 

I think I predicted lots of spending because of all the obc. Free money. 

You are 100% correct.  The OBC used onboard is part of the onboard revenue.  I would guess the unused OBC does not count towards the onboard revenue though.

[Denverdonkeys]

4 minutes ago, Buckeyefrank100 said:

It absolutely does.  It generated a DR to sales discounts (or expense) and a credit for OBC liability.  That liability is relieved when used on the ship and is recorded in the appropriate revenue bucket when used.  The OBC that is not used is recorded to revenue after the cruise completion in an account titled something like "unused OBC revenue".

I don't think it meets the definition of a liability. They have received nothing (like cash for unearned revenue) when you choose the FCC and OBC (only talking about the OBC here, since the FCC is equal to what you had paid, so that is clearly unearned revenue). They gave you a coupon, that coupon has no value until spent. No store records a coupon when they mail them out.

[skridge]

18 minutes ago, Buckeyefrank100 said:

It absolutely does.  It generated a DR to sales discounts (or expense) and a credit for OBC liability.  That liability is relieved when used on the ship and is recorded in the appropriate revenue bucket when used.  The OBC that is not used is recorded to revenue after the cruise completion in an account titled something like "unused OBC revenue".

I am not a CPA so I will take your word for it from an accounting perspective.  What I am is a realist.  From a realistic point of view Carnival when they sell a gift certificate has the amount of the gift certificate coming in in actual dollars and then when someone uses that gift certificate Carnival is being being paid for the good or service in the actual cash that was paid for the GC.  When they give away an OBC there is no money coming in and they are giving away a good or service for which they would normally be receiving actual currency.  Maybe from a bean counters perspective a GC and an OBC are the same.  From a realistic perspective they are the opposite of the other.

 

Edited November 12, 2021 by skridge
misspelled word

[IntrepidFromDC]

35 minutes ago, Buckeyefrank100 said:

I am a CPA and there are principles called "Generally Accepted Accounting Principles" that govern the US accounting practices.  The titles and exact terminology from a Carnival perspective are not known, but yes the general principal of recording revenue is sound.  The only difference between how a GC and the OBC is handled is on the debit side of the transaction.  In the GC, they receive cash..... for the OBC it's a sales discount (or marketing expense) depending on how they internally record it.  The OBC used on the ship is absolutely recorded as onboard revenue.

So when they offset the OBC credit with the marketing expense debit, it's a wash on the bottom line, even though the top line revenue increases.  Right?  If so, then a shareholder really wants to see the net income available to shareholders being reported more than revenue given the audacious OBC out there getting spent.  Right?  Not an accountant but I remember debits and credits from college, I think.

[IntrepidFromDC]

19 minutes ago, skridge said:

I am not a CPA so I will take your word for it from an accounting perspective.  What I am is a realist.  From a realistic point of view Carnival when they sell a gift certificate has the amount of the gift certificate coming in in actual dollars and then when someone uses that gift certificate Carnival is being being paid for the good or service in the actual cash that was paid for the GC.  When they give away an OBC there is no money coming in and they are giving away a good or service for which they would normally be receiving actual currency.  Maybe from a bean counters perspective a GC and an OBC are the same.  From a realistic perspective they are the opposite of the other.

 

I don't think he said GC and OBC are the same, just that they both count toward revenue.  Big difference from a realistic perspective if you're thinking about Net Income instead of Revenue.

[skridge]

6 minutes ago, IntrepidFromDC said:

I don't think he said GC and OBC are the same, just that they both count toward revenue.  Big difference from a realistic perspective if you're thinking about Net Income instead of Revenue.

I am sorry.  When someone says from an accounting perspective GC and OBC are the same.  I see them saying that OBC and GC are the same.  I am done with talking about accounting.  I am going to say that in the real world an OBC and a GC are not the same in anyway.  An OBC is a complete giveaway of a good or service.  A GC is a currency exchange for a good or service.  An OBC is no money coming in and goods and services going out.  A gift card is money, currency, cha ching coming in and goods and services going out.  I said in my very first post if they are counting the OBC that is being exchanged for goods and services as revenue then that might fly on the balance sheet, but in the real world that is not revenue that is a giveaway that actually cost Carnival money. 

[Buckeyefrank100]

38 minutes ago, skridge said:

I am not a CPA so I will take your word for it from an accounting perspective.  What I am is a realist.  From a realistic point of view Carnival when they sell a gift certificate has the amount of the gift certificate coming in in actual dollars and then when someone uses that gift certificate Carnival is being being paid for the good or service in the actual cash that was paid for the GC.  When they give away an OBC there is no money coming in and they are giving away a good or service for which they would normally be receiving actual currency.  Maybe from a bean counters perspective a GC and an OBC are the same.  From a realistic perspective they are the opposite of the other.

 

I am not trying to argue logic or how things should be.  Accounting logic does not equate to common sense in any manner.  There are lots of things I shake my head at in the accounting world.  The bottom line is that Carnival is 100% recording the onboard use of OBC as revenue.  That is an accounting requirement and it explains why onboard revenue is higher while passenger count is down.

 

[Buckeyefrank100]

45 minutes ago, Denverdonkeys said:

I don't think it meets the definition of a liability. They have received nothing (like cash for unearned revenue) when you choose the FCC and OBC (only talking about the OBC here, since the FCC is equal to what you had paid, so that is clearly unearned revenue). They gave you a coupon, that coupon has no value until spent. No store records a coupon when they mail them out.

Sure it does.  When you booked a cruise and they offered you $600 for that, it becomes a contractual liability to them immediately.  If it wasn't, they could later just decide not to give you the OBC because there's no liability.  Once the contract is signed, all terms and conditions need to be accounted for, which includes the obc liability.

[IntrepidFromDC]

On 11/9/2021 at 7:25 PM, Earthworm Jim said:

 

Which is presumably part of the reason onboard spending per passenger is up, because they were giving most of those super deals to gamblers. One would guess the extra gambling revenue more than makes up for the cheap cabins, or they wouldn't keep offering them cheap cabins.

I have never lost $2,000 on a cruise gambling, but those free balcony seven-day cruises are worth more than $2,000 so I often wonder how that works.  One theory is it's based on the points (slots) or rating (table games).  They don't know how much you lose precisely if you play table games because they don't always ask for the sail & sign card when you redeem chips for cash.  

[Buckeyefrank100]

26 minutes ago, IntrepidFromDC said:

So when they offset the OBC credit with the marketing expense debit, it's a wash on the bottom line, even though the top line revenue increases.  Right?  If so, then a shareholder really wants to see the net income available to shareholders being reported more than revenue given the audacious OBC out there getting spent.  Right?  Not an accountant but I remember debits and credits from college, I think.

That is correct.  A person books a cruise for $4000 plus $600 free obc.  After all is said and done, Carnival will record $4000 in contract booking revenue ($4600 revenue less $600 promo, marketing, whatever) plus $600 when used onboard..   Their net assets will increase by the $4000 (of course not taking into account the other expenses such as depreciation, cost of liquor, etc.) which is the amount of cash they would collect.

 

[IntrepidFromDC]

6 minutes ago, Buckeyefrank100 said:

That is correct.  A person books a cruise for $4000 plus $600 free obc.  After all is said and done, Carnival will record $4000 in contract booking revenue ($4600 revenue less $600 promo, marketing, whatever) plus $600 when used onboard..   Their net assets will increase by the $4000 (of course not taking into account the other expenses such as depreciation, cost of liquor, etc.) which is the amount of cash they would collect.

 

Help me finish this?  OBC is offered, cruise with OBC is booked.  At that point the $600 debit is to OBC/other Expense account and the credit goes to a Liability account, increasing the liability.  When (if) the $600 OBC is used on the vacation what are the next transactions?  Or do I have the first part wrong.  Now I remember why I liked accounting in college.  Is the liability account debited to remove the liability?  What account gets credited?  Cash, decreasing the cash?  Doesn't seem right.  Thanks.

[skridge]

10 minutes ago, Buckeyefrank100 said:

Sure it does.  When you booked a cruise and they offered you $600 for that, it becomes a contractual liability to them immediately.  If it wasn't, they could later just decide not to give you the OBC because there's no liability.  Once the contract is signed, all terms and conditions need to be accounted for, which includes the obc liability.

I will retract my use of the word fraudulent in my first post and will replace it with terribly disingenuous to say that something that has been given away for free is now being counted as revenue.  Surely you can see that an article that states that revenue is up for a company based on them giving away a bunch of credit for free and them counting that credit as is revenue is incredibly disingenuous.

[Buckeyefrank100]

7 minutes ago, IntrepidFromDC said:

Help me finish this?  OBC is offered, cruise with OBC is booked.  At that point the $600 debit is to OBC/other Expense account and the credit goes to a Liability account, increasing the liability.  When (if) the $600 OBC is used on the vacation what are the next transactions?  Or do I have the first part wrong.  Now I remember why I liked accounting in college.  Is the liability account debited to remove the liability?  What account gets credited?  Cash, decreasing the cash?  Doesn't seem right.  Thanks.

You're close.  The first part is correct.  The obc will be booked as a credit liability and a debit expense (or contra-revenue).  When the OBC is used to purchase a drink, they will record a credit to alcohol sales and a debit to reduce the OBC liability established at contract signing.    Does that make sense?

[Buckeyefrank100]

11 minutes ago, skridge said:

I will retract my use of the word fraudulent in my first post and will replace it with terribly disingenuous to say that something that has been given away for free is now being counted as revenue.  Surely you can see that an article that states that revenue is up for a company based on them giving away a bunch of credit for free and them counting that credit as is revenue is incredibly disingenuous.

It's done all the time.  It's completely consistent with a GC at the retail side.  when a GC is purchased, there is no revenue recorded.  It becomes revenue when that GC is redeemed.  Same as OBC.  If you go to a store to complain about something and they give you a GC as compensation for whatever happened.  That GC is debited as an expense and credited as a liability.  When the GC is redeemed, that's when revenue is recorded.  Completely consistent with how Carnival books it.

 

If anyone is disingenuous, it's the reporter, not Carnival for not pointing out that onboard spending is up, likely as a result of the obc offers.

Edited November 12, 2021 by Buckeyefrank100

[skridge]

5 minutes ago, Buckeyefrank100 said:

It's done all the time.  It's completely consistent with a GC at the retail side.  when a GC is purchased, there is no revenue recorded.  It becomes revenue when that GC is redeemed.  Same as OBC.  If you go to a store to complain about something and they give you a GC as compensation for whatever happened.  That GC is debited as an expense and credited as a liability.  When the GC is redeemed, that's when revenue is recorded.  Completely consistent with how Carnival books it.

 

If anyone is disingenuous, it's the reporter, not Carnival for not pointing out that onboard spending is up, likely as a result of the obc offers.

The reporter should have asked follow up questions.  I believe the executives that are being asked about revenues and are responding with every possible answer and leaving out the biggest factor which is all the Credit they have given away for free are being disingenuous.  The reporter committed malpractice and if my kids answered a question the way these executives answered the reporters questions I would consider them liars and they would be grounded for a very long time.  This is not just spin this is lying.  I guess it depends on what your definition of is is.  

[IntrepidFromDC]

24 minutes ago, skridge said:

I will retract my use of the word fraudulent in my first post and will replace it with terribly disingenuous to say that something that has been given away for free is now being counted as revenue.  Surely you can see that an article that states that revenue is up for a company based on them giving away a bunch of credit for free and them counting that credit as is revenue is incredibly disingenuous.

I think your point that all the revenue cheerleaders quoted in the article are trying to create buzz that isn't quite what those percentage gains might seem to indicate is valid.  You don't see them talking excitedly about Profit or Net Income.  Then again, the quotes are only part of what was said on earnings calls, etc. and I see mention of bundling and other marketing in there.  They just know what they're doing to create buzz.

[IntrepidFromDC]

2 minutes ago, skridge said:

The reporter should have asked follow up questions.  I believe the executives that are being asked about revenues and are responding with every possible answer and leaving out the biggest factor which is all the Credit they have given away for free are being disingenuous.  The reporter committed malpractice and if my kids answered a question the way these executives answered the reporters questions I would consider them liars and they would be grounded for a very long time.  This is not just spin this is lying.  I guess it depends on what your definition of is is.  

Bill?  Is that you?

[Schoifmom]

On 11/9/2021 at 8:37 PM, Pjnc said:

Hi

 

Nope      Just a regular sale     

 

so I guess you have to pay the brochure rate to get the OBC now,

 

pat 

murrells inlet, sc

 

I have never paid "brochure rate" and always get my stockholder OBC.  Was there a reason given when they denied it?

[Buckeyefrank100]

19 minutes ago, skridge said:

The reporter should have asked follow up questions.  I believe the executives that are being asked about revenues and are responding with every possible answer and leaving out the biggest factor which is all the Credit they have given away for free are being disingenuous.  The reporter committed malpractice and if my kids answered a question the way these executives answered the reporters questions I would consider them liars and they would be grounded for a very long time.  This is not just spin this is lying.  I guess it depends on what your definition of is is.  

I don't understand how the CEOs can be "liars" when they are reporting numbers that are (going to be) audited.  They clearly stated that the bundling of services, which would include drink packages and obc is helping.  Everyone here is assuming that the increase is due to the obc offered.  I'm sure that is a portion of the story, but it also could be attributed to pent up demand from people who haven't had a vacation in 2 years.  Even if it is 100% the obc, they are not lying, they are reporting the numbers..  Nobody on here has access to the underlying data, but we have no idea how the payment methods onboard breakdown... is obc a higher percentage of revenue than general?  Don't know.  probably but it's a guess.

 

With all due respect, just because you don't like how something is done, doesn't make it a lie.

Edited November 12, 2021 by Buckeyefrank100

[Denverdonkeys]

1 hour ago, skridge said:

I am not a CPA so I will take your word for it from an accounting perspective.  What I am is a realist.  From a realistic point of view Carnival when they sell a gift certificate has the amount of the gift certificate coming in in actual dollars and then when someone uses that gift certificate Carnival is being being paid for the good or service in the actual cash that was paid for the GC.  When they give away an OBC there is no money coming in and they are giving away a good or service for which they would normally be receiving actual currency.  Maybe from a bean counters perspective a GC and an OBC are the same.  From a realistic perspective they are the opposite of the other.

 

I am a CPA and public acountant. I agree with you, you have to go through the guidance, but they owe you nothing if the cruise is cancelled. 

[Denverdonkeys]

1 hour ago, Buckeyefrank100 said:

Sure it does.  When you booked a cruise and they offered you $600 for that, it becomes a contractual liability to them immediately.  If it wasn't, they could later just decide not to give you the OBC because there's no liability.  Once the contract is signed, all terms and conditions need to be accounted for, which includes the obc liability.

but when the cruise does not happen what do they pay you? not the OBC. same with if you rebook, you lose the OBC. the contractual obligation is there when the customer cruises, and meets their obligations.

 

[skridge]

8 minutes ago, Buckeyefrank100 said:

I don't understand how the CEOs can be "liars" when they are reporting numbers that are (going to be) audited.  They clearly stated that the bundling of services, which would include drink packages and obc is helping.  Everyone here is assuming that the increase is due to the obc offered.  I'm sure that is a portion of the story, but it also could be attributed to pent up demand from people who haven't had a vacation in 2 years.  Even if it is 100% the obc, they are not lying, they are reporting the numbers..  Nobody on here has access to the underlying data, but we have no idea how the payment methods onboard breakdown... is obc a higher percentage of revenue than general?  Don't know.  probably but it's a guess.

 

With all due respect, just because you don't like how something is done, doesn't make it a lie.

If the word lie bothers you so much fine.  If you want to go with utterly and completely disingenuous that works for me.  If someone calls me that I consider them to be calling me a liar.    

[Bgcruising]

Let's all look at their financial statement and see what we come up with. 

This is the best conversation I have seen here in a while!