Fuel Costs, Middle East Unrest Drag on Carnival Q2 Numbers


Carnival Magic

Operating a cruise company is still proving to be a difficult proposition. Just ask Carnival Corp. The cruise operator, whose brands include Carnival Cruise Lines and Seabourn Cruises, reported a drop in second-quarter income versus a year prior: $206 million to $252 million.

"Our North America brands' revenue yields increased 3 percent in the second quarter while yields for our Europe, Australia and Asia brands were up slightly (constant dollars), having been affected by the geo-political events which unfolded in the Middle East and North Africa, as well as the earthquake and nuclear disaster in Japan," Chairman and CEO Micky Arison said. "The revenue yield improvement was more than offset by higher fuel prices which cost the company approximately $150 million."

The cruise operator, however, is still expanding. The company took delivery of its 100th ship, Carnival Cruise Lines’ 3,690-passenger Carnival Magic, in late April. Two additional ships, AIDA Cruises’ 2,194-passenger AIDAsol and Seabourn’s 450-passenger Seabourn Quest were also delivered during the 2011 second quarter.

Looking forward through the end of 2011, Carnival says that while its advance bookings are at higher prices, its coupled with fewer occupanies versus last year. "For the last six weeks, booking volumes for the second half of 2011 are well ahead of the prior year for the North America brands, as well as, the Europe, Australia and Asia brands," Carnival said. "Pricing for the North America brands remains strong. Pricing for the Europe, Australia and Asia brands has been significantly affected by the prolonged conflict in the Middle East and North Africa regions and earthquake in Japan, which necessitated very close-in deployment changes for more than 300 cruises. The Southern Europe brands were particularly affected with over 40 percent of their deployments in these areas."

The impact of these events are expected to still drag down on the company, but its North America brands continue to do well. "Our North America brands continue to perform well, benefiting from the gradual economic recovery, with strong yield growth expected in the second half of the year," Arison said. "We expect lower yields for our Europe, Australia and Asia segment in the second half of 2011 as a result of the significant deployment changes in Europe. Despite the considerable challenges we have faced this year, the long-term fundamentals of our business remain sound."

Tim Conder, an analyst with Wells Fargo, seems to agree. "In our opinion, a solid quarter all things considered," he wrote, in an analyst report. He based it off constant dollar on-board spending progressing (a good immediate measure of consumers willingness to spend, he wrote), and "continued tight expense controls." His bottom line: "We would continue building positions in CCL absent a further spike in fuel."



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