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To regain pricing power, invest in upgrading fleet - analyst

Details: Written by Kari Reinikainen Kari Reinikainen; Category: Top Headlines Top Headlines; Published: 22 May 2013 22 May 2013

Carnival Cruise Lines, the US focused contemporary market brand in the Carnival Corp & plc group, should invest more in upgrading its existing vessels in order to regain pricing power that has been hurt in incidents involving its ships in the recent past, a cruise industry analyst says, adding that the same goes for the industry as a whole.

Karl Burns, analyst at Panmure Gordon in London, told the Financial Times that the decline in yields “bodes ill for the future as we think Carnival will struggle to regain pricing power.” He added that “the market must begin to appreciate there are structural as well as cyclical challenges to the Carnival business model.”

“The focus seems to be on new ships. Older vessels need to be marketed better to boost revenues,” Burns told Cruise Business. More investment may be needed in upgrading older vessels to allow them to obtain better yields.

Carnival Corp & plc recently unveiled a $700 million programme to technical upgrades to reduce the risk of incidents such as the one that crippled Carnival Triumph in the Caribbean in the spring. About $300 million of the total will be invested in the ships of Carnival Cruise Lines. The incident combined with bad publicity that followed has put Carnival Cruise Lines’ yields under downward pressure and the parent company issued a profit warning yesterday, largely as a result of these problems.

Burns welcomed the investment decision, but added that it might serve the industry as a whole well to focus investment on upgrades of existing ships rather than adding capacity on the market by contracting newbuildings. Yields per berth have trended lower over a long period of time and weak consumer markets in Europe in particular and to some degree also in the US indicate that the situation is unlikely to improve in the near future.

Cruise operators have struggled to stimulate on board spending too, which combined with low ticket prices poses a headache for the industry. “By investing more in upgrading existing ships, you could get the dual benefit of higher yields and no capacity growth,” Burns said, concluding that the bottom line of the industry's current problems is that it has not succeeded in significantly increasing its penetration rate on key markets, such as North America and Europe.

"Worst may not be over yet for Carnival brand” – Farley

Details: Written by Kari Reinikainen Kari Reinikainen; Category: Top Headlines Top Headlines; Published: 22 May 2013 22 May 2013

The worst may not be over yet for Carnival Cruise Lines, the US focused mass market brand in Carnival Corp & plc group, says Robin Farley, leisure, lodging and gaming analyst at UBS Invesrment Research in New York.

Farley downgraded Carnival to neutral from buy after a profit warning on Tuesday.

“We had maintained a buy rating after previous incidents due to the belief that the worst was behind for the Carnival brand and that perception issues would start to resolve going forward. Tonight's news signals that the worst may not yet be behind for the Carnival brand, and the guidance reduction suggests that booking trends have gotten worse, not better, in the last two months, signaling that perception problems may not have bottomed yet,” she said in a research note emailed to Cruise Business.

“Remaining on the sidelines in the near term may be the best course of action until the tide turns on Carnival's perception problems. Carnival management has been one of the best regarded management teams in the consumer sector and on a wider basis for more than a decade.”

“Our downgrade is a change in our view of the stock, not a change in our view of the company. This management team will right the ship. Our downgrade is only a matter of timing.

“Downgrading after bad news has already happened, but our concern is that the worst is not behind Carnival just yet. We had maintained BUY after previous incidents with belief that perception issues would start to resolve going forward, but lower guidance tonight means bookings have gotten worse, not better, in the last few weeks.”

Carnival group management is focused on rebuilding the Carnival Cruise Lines’ brand and re-establishing service to travel agents for improved relationships. “Constant negative publicity has damaged the Carnival brand more than what management had expected when CCL (Carnival group) last gave guidance in March’13, and that is particularly notable for a management team that historically has been viewed as guiding conservatively. “

“Based on the 75 bps of lowered guidance due to the Carnival brand in March, and now an additional 250 bps of yield decline attributable to the brand, the cumulative 325 bps of yield reduction for Carnival Corp suggests that the Carnival brand, which is about 30% of Carnival Corp, may be seeing yield declines of 10-11% at the brand level this year,” Farley stated.

The American Steamboat Company to expand west

Details: Written by Teijo Niemelä Teijo Niemelä; Category: Top Headlines Top Headlines; Published: 21 May 2013 21 May 2013

The American Queen Steamboat Company, owner and operator of the U.S-flagged American Queen, announces the purchase of the Empress of the North from the U.S. Maritime Administration (MARAD) for an undisclosed amount. To be renamed the American Empress, the vessel is scheduled to resume sailings on the great rivers of the Pacific Northwest April 2014 calling her homeport Portland, Ore. The American Empress will deliver riverboat opulence on a grand scale, following in the pedigree of the line's namesake American Queen, and proudly serve as the largest overnight riverboat west of the Mississippi River.

"The American Queen has ushered in a rebirth of U.S. river cruising, welcoming thousands to discover the heartland of the United States and its iconic port cities," shares Ted Sykes, president and COO of the American Queen Steamboat Company. "Now the American Empress will continue that tradition as an ambassador to the Pacific Northwest, a region equally rich in American and natural history."

A U.S.-flagged riverboat, the American Empress measures 360 ft. with five towering decks and accommodates 223 guests in seven stateroom categories. The American Empress will sail the Columbia River and Snake River, offering seven-day voyages between Portland, Ore. and Clarkston, Wash. Ports of call include Astoria, Wash.; Stevenson, Wash.; The Dalles, Ore.; Umatilla, Ore.; and Richland, Wash.

The American Empress was built in 2002 and operated by Majestic America Line from 2002 to 2008, sailing Alaska's Inside Passage and the Pacific Northwest. Just as the American Queen brought luxury and grandeur to river cruising America's heartland, the American Empress will do the same for the Pacific Northwest.

Carnival shares open sharply lower in New York, partly recover in London after morning rout

Details: Written by Kari Reinikainen Kari Reinikainen; Category: Top Headlines Top Headlines; Published: 21 May 2013 21 May 2013

Shares in Carnival Corporation, the US based holding company in the Carnival Corp & plc group, opened sharply lower on Tuesday after the group had issued a profit warning, while shares in Carnival plc, the British holding company, stageda partial recovery after a morning rout.

Carnival Corporation traded about 5.4% down at $33.40 in New York at about 10 am this morning local time. About 6.2 million shares had changed hands.

In London, Carnival plc had staged a recovery to trade about 4.2% lower at £23.01 at 3pm local time. It had hit a session’s low of £20.17 in the morning. Volume was in the region of 3.7 million shares.

However, the share price of both holding companies showed high volatility

Carnival issues profit warning, says yields to fall, shares dive in London

Details: Written by Kari Reinikainen Kari Reinikainen; Category: Top Headlines Top Headlines; Published: 21 May 2013 21 May 2013

Carnival Corporation & plc, the world’s largest cruise shipping group, has issued a profit warning on forecast fall of yields in 2013 that sent shares in the British holding company sharply lower in early London trading.

“The company now expects full year 2013 net revenue yields to be down 2% to 3% compared to the previous flat yield guidance for the year. In addition, voyage cancellations beyond those incorporated in the company's previous earnings guidance, as well as increased selling and administrative costs, are expected to reduce earnings by approximately $0.10 per share,” the company said in a statement.

“Current cruise ticket pricing for the company has driven higher booking volumes however, at the same time, it has led to lower than anticipated net revenue yields which has resulted in reduced earnings guidance,” it continued.

“Based on the above factors, as well as current fuel prices of $674 per metric ton and currency exchange rates of $1.30 to the euro and $1.53 to the pound, the company now expects full year 2013 EPS to be in the range of $1.45 to $1.65 compared to its previous earnings guidance range of $1.80 to $2.10. The company continues to expect second quarter 2013 EPS to be in the range of $0.04 to $0.08 per share despite slightly lower yield expectations,” Carnival said.

Shares in Carnival plc, the UK based holding company, had fallen 13.8% to £20.7 in the first 45 minutes of trading in London this morning.