May 17, 2006

Ill winds buffet Carnival cruises

By Amy Yee in New York
Updated: 1:41 a.m. ET May 17, 2006
Carnival, the world's largest cruise operator, on Tuesday cut its earnings outlook for the year on lower bookings for Caribbean voyages, soaring fuel costs and an accounting change.
Lingering fears of hurricanes in the wake of Hurricane Katrina has deterred consumers from booking Caribbean cruises that depart from Florida and other ports vulnerable to storms.
"We underestimated the psychological effect that hurricanes had on the mindsets . . . of people taking cruise vacations," the company said.
Shares in Carnival plunged 8.5 per cent to end Tuesday's session at $42.60.
The company, with brands that include Princess and Cunard of Queen Mary fame, on Tuesday forecast earnings for fiscal 2006 in the range of $2.65 to $2.75 per share, down from average analysts' estimates of $2.93 per share.
The company lowered its earnings forecasts in March after reporting a 19 per cent drop in first quarter profit.
Advance bookings from North America, the cruise industry's core market, have slowed for this year's third and fourth quarters. Third-quarter occupancy is down 6.2 percentage points for Caribbean cruises compared with last year, but up 3.6 points for European cruises.
Although the cruise industry is stringently conserving fuel, soaring energy costs continue to hurt profits. The cumulative impact of higher fuel prices for 2006 is expected to be $265m.
Carnival was also hit by an accounting change related to ship building and renovation costs, reducing full-year earnings per share by about 8 cents.
However, Micky Arison, chief executive, said that industry fundamentals "remain sound".
On Royal Caribbean's new ship, Freedom of the Seas, which made its debut last week as the world's largest cruise liner, he said: "If Freedom gets half the PR that Queen Mary got, it will be positive for the industry."
Carnival's guidance revision marks the latest headwind for the cruise industry, marring unexpected buoyancy after 9/11.
But the industry has recently been at the centre of negative publicity following a fire aboard a Princess ship; a car crash during a celebrity cruise day trip; a pirate attack on luxury liner Seabourn near Somalia; and a probe into a honeymooner's disappearance from a Royal Caribbean ship.
A US Congressional panel heard testimony about shipboard security and safety in December and demanded statistics for crimes on cruises.

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