Carnival Cites Economic Uncertainty in Suspending Dividends

Carnival Corp. is suspending its dividends for the first quarter as it looks to conserve cash during the current economic uncertainty. Carnival says it intends to maintain the suspension through 2009, but will reevaluate its position throughout the year.

"The company's cash flow remains strong," said Micky Arison, Carnival Corp. chairman and CEO. "However, in light of the unusually high cost of raising new capital, continuing concerns about financial institution liquidity and current uncertainties in the global economy, we believe that preserving cash is a prudent step which will further strengthen the company's balance sheet and enhance our financial flexibility."

The move is expected to lead to savings amounting to $1.3 billion. Carnival says that the "liquidity provided by the dividend suspension gives the company the flexibility to fund its 2009 capacity growth without the need to access credit markets." Carnival has approximately 17 new ships scheduled to be delivered by 2012, including Carnival Dream, which debuts in fall 2009.

While ticket prices have been up slightly, Carnival says that occupancy levels in the first half of 2009 are down compared to the year prior. With credit markets in a tizzy, maintaining a positive credit rating is key. Says cruise analyst Tim Conder of Wachovia: "Carnival suspending the dividend in our opinion is solely driven by management's unbending desire to maintain an A- credit rating, especially with credit rating agencies having hair-sensitive trigger fingers in the current environment."

Royal Caribbean Cruises Ltd. is voicing similar problems in the face of economic volatility. During the company's third-quarter earnings call, Richard Fain, chairman and CEO said, "While we are pleased with our third-quarter results, the operating environment has changed dramatically in recent weeks," he said. "We are focused on responding to this challenge, but it is reassuring to know that our liquidity is good, that we entered this period with a solid order book, and that we have a business model that has proven resilient during tough times."

Last week, Royal Caribbean announced it had eliminated its fuel supplement for all its three brands due to "recent reductions in global fuel prices," as has Carnival. "The recent decline in fuel prices will result in a significant benefit to the 2009 full year financial results," Carnival says.


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