Cruise Lines Report Fuel Costs Impacting First Quarter, Full-Year Earnings

Carnival Corp.´s shares fell about 6 percent May 16 after the company reduced its earnings target, based on lower revenue yields, higher fuel costs and a change in accounting.

Carnival said that earnings for fiscal 2006 are now expected to be in the range of $2.65 to $2.75 per share, roughly in line with 2005 earnings of $2.70 per share. It expects earnings for second-quarter 2006 to be in the range of $0.43 to $0.45 per share.

The company said the reduced outlook is due to “further weakness in bookings, principally for sailings in the Caribbean during the second half of 2006”. It also said since the company´s previous guidance, fuel costs have increased and are expected to further impact earnings per share this year by about $0.07.

“The cumulative impact of higher fuel prices for full year 2006 is expected to be $265 million, or $0.32 per share, compared to the prior year. The company´s guidance is based on the forward curve for fuel for the remainder of the year of approximately $372 per metric ton,” the release said.

Carnival also said that starting in the first quarter of 2006, “the company will change its accounting policy for dry-dock costs from amortizing them over the time between dry docks, generally two to three years, to expensing dry-dock costs as incurred.”

The change will reduce 2006 earnings per share by approximately $0.08, including $0.04 per share in the company´s previously released 2006 first quarter, and $0.04 per share over the balance of the year, Carnival said.

“Although we are disappointed having to lower our guidance for the year, we believe the fundamentals of our business remain sound and our long-term strategies position us well to grow our business in 2007 and beyond,” Carnival CEO Micky Arison said.

Meanwhile, Star Cruises posted a $35.1 million first-quarter loss in 2006, compared to a $4.4 million profit in first-quarter 2005. Ship operating expenses increased by 9.5 percent, mostly due to fuel costs, accounting for 6.7 percent of the higher bill.

Star´s capacity increased, while occupancy fell. The 18.9 percent capacity increase led to a 17.3 percent rise in revenue over last year; however, revenue yield was down by 1.4 percent. The capacity surge was mostly due to the additions of NCL America´s Pride of America and Norwegian Cruise Line´s Norwegian Jewel.

Total occupancy levels fell from 102.2 percent last year to 99.3 percent this year. Star alone saw occupancy fall to 75.7 percent from 92.4 percent last year, mostly due to the introduction of the Superstar Libra in India, which added 34.9 percent additional capacity, but whose net revenue yield and occupancy was lower than the fleet average.

Higher ticket prices and onboard revenue at NCL drove the revenue increase, while Star´s revenue dropped 13.3 percent.

NCL´s ship operating expenses increased by 11.5 percent, due mostly to higher payroll associated with the American crews on its inter-island Hawaii ships and fuel costs.