Crunching the Numbers: 5 Things Savvy Consumers Can Take From Carnival's Earnings Call

March 30, 2011

(12 p.m. EDT) -- No surprise here: The rising price of oil and widespread turmoil in the Middle East have taken a bite out of Carnival Corp.'s profits. But how will this affect you?

First, the facts. During the first quarter of 2011, the world's largest cruise company -- which operates 98 ships across 11 cruise lines, including Carnival Cruise Lines, Holland America, Princess Cruises and Seabourn -- posted a net income of $152 million on $3.4 billion in revenue. Still, despite a year-over-year dip of some 13 percent, the numbers beat analysts' estimates and kept the lined poised for a bullish summer.

Fresh off of the earnings report, we've drilled through the economic jargon to unearth five consumer-friendly nuggets:

Last-minute Caribbean deals. Caribbean pricing has been creeping up during the second quarter, but don't worry: Fares are still lower than at the same time last year. With tens of thousands of Oasis and Allure of the Seas, Norwegian Epic and Disney Dream passengers on island time during the colder months, Vice Chairman and COO Howard Frank did his best to depict the glass as half-full, but he had no choice but to describe the Caribbean season in the early part of 2011 as "challenging." At Cruise Critic, we've seen some bottom-basement deals, and we may continue to do so until ships reposition to the Mediterranean in the coming months.

The take-away: Now is a great time to snag a last-minute deal. As Caribbean capacity plummets, prices will climb in what's already a berth-bustingly-busy summer season. Another bit to keep in mind: Next winter, the company said it would be tamping down Caribbean occupancy, meaning that it's aiming to charge you more.

Wave of Europe deals coming? Perhaps only inhabitants of Moai in the Easter Islands will be surprised when we say Europe is bursting with capacity this summer. During the third quarter -- the warm-weather months that are the industry's most profitable -- Carnival Corp. has 25 percent of its total capacity in Europe, a 50 percent increase from 2010. (Competitor Royal Caribbean has even more eggs in the Mediterranean basket: 11 of its 22 ships will sail there at some point this year.)

The question we're asking: Will all that capacity force lines to slice fares to fill berths? According to Carnival brass, pricing for the North American brands -- HAL, Princess Cruises, Carnival -- is nicely ahead of last year, but here's the key: There are more berths to fill than at the same time last year (the higher fares mean fewer passengers have booked). So while Chairman and CEO Micky Arison said the line is still hot on Europe, there are still a lot of empty beds. Just between you and us, we're keeping a close eye on the Med.

Alaska pricing strong. It's not great news for consumers looking to sail the 49th state on the cheap, as prices continue to climb for Alaska cruises. Our loss is Carnival Corp.'s gain, and Arison said the higher fares can be attributed to a three-part formula. "The agreements we reached with the governor last year -- lower head taxes and much higher marketing spend by the State of Alaska -- has really helped, plus obviously capacity is down versus the peak. So the combination of those things, I think, really helped Alaska."

Widespread unrest creates Middle East cruise challenges. Unrest in North Africa and the Middle East has forced the company to divert some 280 cruises (!) at an estimated impact of $44 million in revenue. Two Carnival Corp. brands -- Spain-based Ibercruceros and Italy-based Costa Cruises -- bore the brunt of the ledger-leaking. Costa, in particular, has two ships based in Dubai and two ships in the Red Sea, where unsafe conditions and a significant slowdown in demand forced itinerary revisions.

Executives claimed that it was hard to say precisely what the impact on upcoming bookings has and will be. "I think there's too much noise right now for us to tell," said Arison. "Obviously, as itineraries change, passengers decide whether they want to go on the [newly announced] itinerary or want to change their mind and go on a different itinerary. And so there's a lot booking and canceling going on. We're hopeful that now that all the itineraries are out there and people understand [the new options], that [things] will go back to a normal booking pattern."

But until the dust settles, there are deals to be had. So if you're seeking an international cruise experience -- both Costa and Ibero draw broadly from Mediterranean countries -- there are great last-minute offers on the revamped cruises, which the lines are scrambling to fill.

To charge or not to charge (fuel surcharges, that is). If there's one thing that really affects a cruise company's bottom line, it's the rising cost of fuel. During previous calls, David Bernstein, Carnival Corp.'s senior vice president and chief financial officer, offered some color on the subject, saying that a 10 percent change in fuel price represents a $180 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.
And yet ... the North American brands still show no sign of budging. "It's something that we always are looking at, but as of right now, we don't feel it's appropriate," said Arison. Fuel surcharge or not, "all the brand's lines price to maximize revenue and profitability, not based on the price of fuel on any given day," he added. Is the lack of surcharges good news for U.S. consumers? Not exactly. While fuel supplements are anathema in the eyes of the consumer, and they may protect Carnival Corp. somewhat against oil spikes, the lines are ultimately trying to charge the highest total price they can and still fill the ships -- whether that includes a surcharge or not.

--by Dan Askin, News Editor