Carnival Cuts Forecasts As Incidents Mount

The Carnival Triumph cruise ship is towed towards the dock at the port of Mobile, Alabama, February 14, 2013. REUTERS/ Lyle Ratliff

By Phil Wahba

March 15 (Reuters) – Cruise operator Carnival Corp, grappling with a series of recent headline-grabbing mishaps involving its ships, said on Friday it returned to profitability in the latest quarter but cut its revenue and profit forecast for the year.

Carnival, whose Carnival, Holland America and Costa lines make it the world’s largest cruise operator, cited weakness in Europe and pricing promotions aimed at attracting customers for the reduced forecast. Its shares fell more than 2 percent to $34.90 in midday training.

The spate of mishaps has dented demand for Carnival’s vacation cruises and slashed revenue per cabin.

Earlier this week, the company cut short a Caribbean cruise after an engine problem idled its Carnival Dream ship in St. Maarten. Last month, its Carnival Triumph was adrift for days in the Gulf of Mexico following an engine fire, and passengers described an overpowering stench as toilets overflowed.

In the most recent incident, the Carnival Legend canceled a scheduled stop on Friday on Grand Cayman, Cayman Islands, to return to its home port in Tampa after technical difficulties affected its sailing speed.

The accumulation of incidents, especially the Carnival Triumph debacle, is hurting business, executives conceded on a Friday call with Wall Street analysts.

For the remaining three quarters on a fleet-wide basis, bookings are behind last year at slightly lower pricing, they said. The company now expects net revenue yields to be flat this year, versus an earlier forecast that they would rise 1 percent to 2 percent.

At a conference earlier this week, Carnival announced it had launched a comprehensive review of its entire fleet.

On Friday’s conference call, Chief Operating Officer Howard Frank defended Carnival’s record.

“I want to emphatically state that all of the ships in our fleet are safe and the work we are planning will add further enhancement to the safety systems already in place,” Frank said.

The company needs to emphasize its response to safety problems in its marketing even more if it wants bookings and pricing to return to normal levels, one analyst said.

“It’s really time to figure how they want to market this. It has to be more about safety,” Morningstar analyst Jaime Katz told Reuters. “You need to sail the ships full.”

WEAK EUROPE HINDERS

Bookings had been increasing compared with a year ago when demand for cruises plunged after Carnival’s Costa Concordia ran aground off the Italian coast, killing 32.

While demand is improving in Europe, Frank said the tough economy is preventing a quicker recovery in prices. After the Costa Concordia grounding, the company had to offer deals to lure passengers back.

Carnival said the lower profit and sales forecast stemmed from weak demand in Europe, the need to offer price promotions for its flagship brand and weaker-than-expected on-board revenues.

Carnival now expects full-year earnings of $1.80 to $2.10 per share, down from its earlier forecast of $2.20 and $2.40, mostly because of the expenses to fix the Triumph and lost bookings.

Carnival reported net income of $37 million, or 5 cents per share, on revenue of $3.59 billion for the first quarter ended Feb. 28. Net revenue yields fell 2.3 percent in the period.

A year earlier, it posted a loss of $139 million, or 18 cents a share, on revenue of $3.58 billion.

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