Florida Keys Business
Sunday, June 30, 2013
Carnival cruise line is profitable, but not popular

The Associated Press

NEW YORK -- Passengers remain hesitant to book cruises, despite deep discounts. But that didn't stop Carnival Corp. from managing a $41 million second-quarter profit thanks to lower fuel costs and the timing of some administrative expenses.

The Miami-based company also announced Tuesday that Micky Arison, who has been CEO since 1979 and is the son of Carnival co-founder Ted Arison, is being replaced by Arnold W. Donald, who has served on the company's board for the past 12 years. Arison will continue to serve as chairman of the board.

The profit was nearly triple the $14 million the world's largest cruise company earned during same period last year, a quarter in which it suffered from steep losses on fuel price bets known as derivatives.

Earnings totaled 5 cents per share this quarter, up from 2 cents a share last year at this time. Revenue fell 1.7 percent to $3.48 billion.

Arison led the company through an aggressive expansion that included the acquisition of several brands, including Holland America, Costa Cruises, Cunard and Seabourn. In 2003, he oversaw a merger between Carnival Corp. and P&O Princess Cruises. Today, Carnival runs cruises under 10 brands.

However, Arison came under fire during Carnival's bad publicity earlier in the year when a string of its cruise ships suffered mechanical problems and fires. The most dramatic occurred aboard Carnival Triumph, where passengers were stranded at sea for five days as toilets backed up and air conditioners failed. There were media reports of raw sewage seeping through walls and carpets.

Arison, who also owns the Miami Heat basketball team, took some heat of his own for attending a game while the crisis was ongoing.

The Triumph nightmare was followed by problems on three other Carnival ships: The Elation, Dream and Legend -- all of which made big headlines.

None of that helped restore confidence in vacationers who are still wary after the January 2012 sinking of the Costa Concordia, also owned by Carnival.

In its earnings release Tuesday, Carnival said that advance bookings for the rest of 2013 are running behind last year's levels, even at lower prices. Bookings on its namesake Carnival line are particularly weak.

Arison said in a statement that Carnival is working to market the "truly exceptional vacation values" that cruises offer through travel agents and other industry partners.

"We believe these initiatives, combined with slower supply growth, will lead to increased yields," he said. "In addition, we remain focused on reducing our fuel dependence. By year end, we will achieve a 23 percent cumulative reduction in fuel consumption since 2005 and expect our research and development efforts in fuel saving technologies to continue to bear fruit."

Those fuel-savings efforts seem to be paying off. In the quarter that ended May 31, the company saw a 14-percent drop in its fuel bill. The company spent $555 million on fuel, down from $645 million during the same quarter last year. Cruise companies, airlines and other large consumers of fuel typically make bets, called derivatives, on the price of oil to hedge against any sudden spikes. Last year, Carnival lost $145 million in the second quarter on such bets. This year, that loss was narrowed to $31 million.

During the second quarter, the company took delivery of Princess Cruises' 3,560-passenger Royal Princess, the first of a new class of ships for Princess. Additionally, Carnival Sunshine entered service in May following a $155 million modernization.

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