Carnival cruise earnings affected by past mishaps
NEW YORK (AP) — Lingering images of passengers stranded at sea for days as toilets back up and air conditioners fail has been enough to keep vacationers away from Carnival Cruise Lines, even as the company continues to discount sailings.
The cruise industry has mostly rebounded from the economic downturn but Carnival Corp.'s namesake brand can't seem to shake a spate of bad publicity from earlier this year when three ships suffered mechanical problems and fires.
That, along with ongoing geopolitical fears in the eastern Mediterranean, is why Carnival said Tuesday that bookings for the next three quarters are below last year's pace, even with lower pricing. The world's largest cruise company now expects revenue to drop 3 percent in 2013, worse than its prior forecast. Shares plunged more than 6 percent in morning trading.
Carnival has struggled to restore passengers' confidence following the February breakdown of the Carnival Triumph, which stranded passengers for five days in the Gulf of Mexico. That was quickly followed by two other instances of ships having to be towed back to port. Dozens of future sailings were canceled as the company repaired those vessels.
To win back customers, Carnival announced in April a $300 million program to add backup generators, upgrade fire safety and improve engine rooms on all 24 of its ships. The move ensures the operation of safety equipment and services like plumbing, fresh water and elevators if the main generator fails. Then in June, the company announced that Micky Arison, who had been CEO since 1979 and is the son of Carnival co-founder Ted Arison, was being replaced.
Robin Diedrich, consumer discretionary analyst for Edward Jones, said that Carnival's problems earlier this year "were certainly damaging for the brand and cruising in general." Many first time passengers stayed away from Carnival.
"Ultimately people go back to their normal patterns," Diedrich said. "It will take some time and work on Carnival's part."
Current CEO Arnold W. Donald said in a statement that the Carnival brand "has seen a steady improvement in brand perception among U.S. consumers based on national market research data" and that the company has recently launched a national TV marketing campaign and started a major travel agent outreach program. Travel agents are often paid hefty commissions for each booking made on a cruise line.
Carnival runs cruises under 10 brands including Holland America, Princess and Cunard. Bookings on those lines are running in line with prior years at higher prices.
Carnival's full-year project implies revenue of $14.92 billion. Analysts surveyed by FactSet forecast revenue of $15.46 billion. Shares fell $2.41, or 6.4 percent, to $34.99.
The Miami-based company did turn a $934 million profit for June-August quarter, but that was still down 30 percent from the same quarter last year.
Earnings totaled $1.20 per share, down from $1.71 last year. Revenue for the quarter rose less than 1 percent to $4.73 billion, and expenses outpaced growth. The company also took $176 million in charges related to two ships in its Costa line that are being taken out of service or will be sold.
The majority of Carnival's cost increases came from higher pension plan contributions as well as improvement to its ships. The price Carnival paid for fuel also increased 2.3 percent.
Carnival has turned to China to generate new traffic. During the past quarter, the company has opened five additional sales offices in China. Princess Cruises will also base its Sapphire Princess in China for a four-month season beginning in May — the fifth vessel in the region next year dedicated to Asian guests.
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Scott Mayerowitz can be reached at http://twitter.com/GlobeTrotScott.
