Posts Tagged ‘Carnival Splendor’

Is the Carnival Triumph strike three for the Cruise Industry?

Unloading relief supplies on Carnival Splendor...

Unloading relief supplies on Carnival Splendor 2010-11-09 2 (Photo credit: Wikipedia)

The “Pop Tart Cruise” on Carnival Splendor November 2010 was greeted with curiosity and had little impact to bookings or ticket prices.  The Costa Concordia January 2012 incident was greeted with shock.  Bookings and prices did drop and while they have since recovered; public consciousness of the event still hasn't gone away (and either has Captain Schettino).  I get the sense the “Cruise from Hell” on the Carnival Triumph February 2013 is being greeted with “enough is enough.”

Sure, with over 10,000 annual cruise sailings every year there are little things that can happen to cruise ships (pier bumps, rouge waves etc.,).  And with a seven percent compounded annual growth rate, the likelihood of such events simply continues to be multiplied.  Nevertheless, when a company dusts off the pre-Concordia advertising campaign themed “Land vs. Sea” to run in the subsequent year’s wave season, one is tempted to question good judgment.

I know.  Memories are short.  The media will move on to new stories.  Carnival obviously overcame the fact its first cruise ship, the Mardi Gras, ran aground on a sandbar during its inaugural voyage in 1972.  And don’t expect any instant drop in ticket prices. Prices for close-in sailings (those sold one to three months in advance of departure) took five months after Concordia to bottom in June 2012 .

The direct impact to the bottom line can be quantified by simply accounting for the 14 canceled Triumph sailings scheduled between Feb 11th and April 13th 2013, plus the ill-fated Feb 7th voyage.  The amount totals $20.8 million in revenue according to Cruise Pulse.  Based on the Splendor being off line 101 days, we believe Triumph guidance of 71 days is overly aggressive and the Triumph will likely cancel 7 more cruises up to the May 5th sailing, adding $9.8 million to lost ticket revenue.

But unfortunately the story may not end there.  On the margin, where cash from ticket revenues meet up with corporate expenses this event will continue to be felt.  Not exactly what an industry wants at a time when they are already being squeezed by a slowing European economy and the specter of inflation to costs for fuel and victualing.

When prospective cruisers hear Triumph passengers saying: “The credit, refund and $500 aren't really important. It’s not about the money.  We will pay Carnival anything just to let us off the ship.”  You have to wonder, will this time be different?

Repeat customers and die-hard cruisers will just get more bargains.  And when prices get low enough, it is amazing how memories fade.  But no spin can turn this publicity into a good thing for the industry.  In order to attract the best talent to work aboard ships, continue to penetrate the large “never before cruised” market and stay the course with investors attracted to exponential passenger growth these events can’t continue.  With 10,000 more "at bats" over the next year, getting wood on the ball 99.99% of the time so 20.9 million cruisers all leave happy and share their positive experiences is critical.  In the interim, Cruise Market Watch will continue monitoring the ticket revenue and pricing trends.

Costa Concordia impact

I’ve always been fond of the quotation “the law of flotation wasn’t discovered contemplating the sinking of things.”  This has certainly held true for the cruise industry – growing the annual number of passengers carried nearly 5 times over the past 20 years.  But with over 9,000 sailings worldwide in 2012 the odds of something going wrong somewhere do increase.

GIGLIO PORTO, ITALY - JANUARY 21:  People look...

Traditionally I have considered the media coverage of cruises ships to be somewhat lopsided.  I imagine there are plenty of things going on over the course of a year throughout hotel rooms in Las Vegas for example – but we tend not to hear these stories. By contrast, we do readily hear about the occasional sick cruise ship passenger, bad smell or overboard suicide.

My heart goes out to the passengers and families on Concordia’s sailing.  This is a terrible tragedy by any measure.  Without diminishing these human experiences, the recent events of the Costa Concordia will at the very least have an impact to Carnival’s near term bottom line, something Cruise Market Watch can measure.

For the Costa Concordia, remaining sailings in Carnival’s First Quarter (Q1) 2012 would have brought in an estimated total of $15.8 million in ticket revenue.  For Q2 the impact will be in the order of $47.4 million in ticket revenue, Q3 $63 million and Q4 $45.9 million.  Concordia was booking considerably higher prices during the summer (June, July and August).  In a “back of the napkin” estimate that assumes the lost ticket revenue falls straight out of the bottom line this would equate to about .02 cents in Q1 earnings per share and .05 cents in Q2.  The loss to earnings from the Carnival Splendor incident was .07 cents per share in a single quarter.  Things we can’t measure include – what will be costs of raising and repairing the Concordia and when will she sail again?  Will those who have already booked future sailings on Concordia transfer their vacations to other ships?  What will be the legal actions and operational changes? We will have to wait to hear guidance from Carnival. Update: 12/30/2012  Carnival guided loss be in the range of $155-$175 million after a booking slow down in the mid teens.  This news came after initially guiding $85 to $95 million lower (or .11 cents to .12 cents per share) on 12/16/2012.

Fortunately, ship builder Fincantieri has ship yards located right in Italy.  Any near term impact to ticket pricing across Costa and other cruise brands will likely correlate with the duration of time in which the story continues to garner news headlines and cruise brands keep their wave season ad campaigns off the television.  Pricing impacts will continue to be closely watched.


 

 

Carnival Splendor no lasting impact to cruise demand

There are obvious costs to Carnival related to the recent fire aboard the Splendor; needed repairs as well as lost revenue from 4,500 passengers on each potential sailing (scheduled to resume sailings on February 20).  Carnival has reported the loss to earnings at 7 cents a share in the fourth quarter.  There will likely be several more cents impact in the first quarter.

Pop-Tarts Frosted Strawberry

Image via Wikipedia

But are there any other “hidden” costs to Carnival?  Might there be any damage to the image of cruising or negative buzz generated from the major media exposure that could keep potential cruisers who are “on the fence” from booking a cruise?

Not really – at least according travel agents in the most recent Cruise Pulse survey.  The incident clearly had little if any impact to cruise demand.

Just 10.1% of agents indicated demand and inquires decreased and then only briefly and just for Carnival Cruises specifically.

  • Comments from travel agents included:
  • ~"Cruises stayed the same but no one wanted Carnival at all."
  • ~"Just a lot of jokes about the Spam and Pop Tarts and wonder why there was no better backup generator."
  • ~"Our agency does a large volume of group bookings… have had inquiries about Splendor but no cancellations."
  • ~"My store is in San Diego where the Splendor was towed. We had a Cruise Show that week and had our biggest turnout."
  • ~"Ever so slightly the first week, but generally we could talk people through the issue."

Web search research firm Compete made some interesting observations.  “The newsworthy events off the coast of Mexico back in early November definitely generated buzz for Carnival Cruises, but the buzz resulted in increased demand across a broad suite of sites not named Carnival.com.”  In other words, people searching for Carnival or Splendor specifically were less likely to be directed to the brand itself (Carnival.com or a cruise booking site) and web searchers were more likely to wind up at a news story.

The increased exposure, however, seems to not have turned into be a bad thing.  Consumers understand travel carries certain risks - snow storms result in overnight waits for planes at airports for example.


Carnival delivers early Christmas present

Following yesterday's upgrade to Overweight and a $51 price target, Carnival (CCL) released 4th quarter and year end earnings this morning delivering investors an early Christmas present.

Earnings were in line with analyst expectations, overcoming some of the expected costs associated with the Splendor engine fire.   Carnival posted net income of $248 million, or 31 cents a share.  Carnival also guided full year 2011 earnings in range of $2.90 to $3.10 a share versus analyst's average estimate of $2.92.  The generally upbeat expectations mirrored the sentiment of travel agents in the recently completed fourth quarter Cruise Pulse Survey.  Agents reported average ticket pricing 14% higher ($1,639) than in the previous quarter ($1,406). Compared to the same quarter the year prior ($1,582), ticket pricing was 3.5% higher.  Agents stated cruises booked so far 2011 were averaging $1,718, a 4.8% increase over current quarter pricing.  Increased pricing power is not the only good news for the cruise industry.  Additional capacity coming online in 2011 will help drive more passengers aboard cruise ships of all brands.  Annualized total passengers carried world wide will be 19.2 million in 2011, a 4.1% increase over 2010.

The market responded with its own form of holiday cheer by driving Carnival's price per share (pps) up 4.5% to a new 52 week high.  Not to be outdone, Royal Caribbean (RCL) itself rode the wave of news higher, with its stock price increasing nearly 8%.