June 23, 2011
First, the facts: During the second quarter, the world's largest cruise company -- which operates 100 ships across 11 cruise lines, including Carnival Cruise Lines, Holland America, Princess Cruises and Seabourn -- posted a net income of $206 million compared with $252 million in Q2 2010. Still, despite a year-over-year profit dip of some 18 percent, the numbers beat Wall Street's estimates and kept the lined poised for a solid second half.
Post-earnings report, we've drilled through the economic jargon to unearth four consumer-friendly nuggets.
Caribbean pricing pressure is easing. Winter (Q1) in the Caribbean was a crowded period, with the world's largest ships jockeying for space and your cruise dollars. But as the bottleneck clears -- 3,634-passenger Liberty of the Seas and 4,100-passenger Norwegian Epic are now in Barcelona -- prices for Caribbean cruises are starting to climb. It's nothing new: The phenomenon is attributed to cruising's seasonality. Many ships split time between the Caribbean (cooler months) and Europe (warmer months), so Caribbean capacity is dramatically reduced during the summer, and prices climb. The difference this year? Extreme Caribbean capacity made the pricing competition a bit more pronounced. But our Caribbean cruise deals section is pretty bare of summer sailings, which tells you the lines are doing a tremendous amount of discounting.
Massive deployment changes in the Middle East and Africa have brought Mediterranean fares down. Widespread unrest in Northern Africa and the Middle East sent Carnival Corp. ships scrambling out of necessity. Costa Cruises, in particular, created new itineraries for some 280 sailings to avoid calling at Middle East ports. As we previously reported, the geopolitical events were much more disruptive to Carnival Corp.'s bottom line than predicted. "We had expected that once the new itineraries were announced, we would experience a period of cancellations and rebookings for the newly redesigned cruises, and that over time, pricing would stabilize," said vice chairman and COO Howard Frank. "[But] reselling of these cruises was far more challenging than expected, and we were eventually forced to reduce pricing for the summer and fall season to stimulate demand." The Costa vessels in particular, which would have been plying the waters of less competitive Eastern Mediterranean and Middle East regions, have been brought back into an already-crowded Mediterranean fold.
Fuel prices are dramatically reducing profits, but the U.S. brands are still loathe to adopt the dreaded surcharges. Fuel expenses, which were up some 35 percent compared with last year at the same time, cost the company some $150 million. It's now standard earnings call protocol for David Bernstein, Carnival Corp.'s senior vice president and chief financial officer, to offer some color on the subject. Explains Bernstein: A 10 percent change in fuel price for the second half of the year represents a roughly $112 million impact to the company. As we've reported, rapidly ascending oil expenses have led a number of Carnival's European lines -- including P&O Cruises and Cunard -- to institute fuel surcharges. But, while Bernstein noted that the company is seriously considering ways to shield itself from dramatic spikes -- for instance, through some sort of fuel insurance policy -- there is still no intention by U.S. lines to reinstitute surcharges.
Alaska cruises are more expensive this year. In fact, Alaska fares are running significantly higher than 2010. But why? "First of all, capacity was reduced after the referendum [the cruiser head tax] passed," said chairman and CEO Micky Arison. That $50-per-person head tax, as well as other associated costs of cruising in Alaska, sent many lines packing. "It took a number of years for that reduced capacity actually to roll through, and I think that has helped," said Arison. "And second," he continued, "historically, when Europe weakens, those people looking for some kind of sightseeing destinations [consider Alaska to be] a very positive alternative. And so Alaska winds up benefiting from the negative issues that occur when North Americans travel into Europe." Arison also mentioned high Europe airfares, pointing out that it's cheaper to fly to Seattle or Vancouver.
--by Dan Askin, News Editor