The Costa Concordia accident will hurt the cruise industry, says Robin Farley cruise analyst at UBS in New York, who has lowered her estimates for Carnival Corp & plc (CCL) and placed those of Royal Caribbean Cruises Ltd (RCCL) under review.
“Today we are adjusting for the more quantifiable impact, which is the Concordia coming out of service. We are reducing our 2012 adjusted EPS estimate for CCL to $2.58 from $2.75, on $0.08 reductions directly related to the removal of the ship from CCL’s capacity and an additional $0.09 from costs related to insurance deductibles and other miscellaneous operating expenses related to the accident, as detailed above,” Farley said in a research note on 16 January.
“What's difficult to ascertain is the ongoing impact of forward bookings. While we continue to review our estimate for that forward yield impact, we think 2012 yields for CCL could potentially be reduced by as much as 2-3 percentage points, to flat to a -1% decrease for the year vs. our current estimate for ’12 yields of +2% growth, which allows room for a -10-15% yield decline in the Costa brand plus slightly weaker demand for the rest of Carnival's 9 other brands,” she continued. Carnival group sources about 37% of its passengers in Europe.
“This could further reduce our 2012 EPS estimate for CCL by an additional $0.34-$0.51. We just note this as a potential scenario while we review our yield estimates. More on this to follow,” Farley said.
Moving on to RCCL, she said: “We expect this could cause downward pressure on RCCL bookings, as well. While we review our estimates, we believe 2012 constant currency net yields for RCCL could potentially be negatively impacted by 75bp to +1.25% vs. our current +2% estimate.”
“We believe this could reduce our RCL 2012 EPS estimate by $0.20 vs. our current 2012 EPS of $2.72, though our estimates remain under review. As a rule of thumb, every 1% change to constant currency net yields is a $0.27 impact to RCL’s 2012 EPS. We look below at the EPS sensitivities across percentage decreases in RCL’s yields for the remainder of FY2012.”
“For reference, we believe RCL sources ~50% of its passengers from outside the U.S., with approximately 35-40% from Europe, though most concentrated in the UK,” she pointed out.