Carnival cruise line faces new fiasco
A year after the tragic Costa Concordia shipwreck, cruise industry leader Carnival faces a new public relations fiasco that reveals the downsides of the sector's recent high-speed growth.
Late Thursday, the company's crippled Triumph limped ashore in Alabama after an engine room fire on Sunday left the ship without the power needed to operate air conditioners, prepare meals or flush toilets.
It ended a miserable ordeal for some 4,000 people that had triggered days of news reports around the world about the disastrous hygiene conditions on board.
The incident is reminiscent of what happened to the Costa Allegra, owned by a Carnival subsidiary, in March 2012. When that ship lost power, hundreds of passengers found themselves out at sea off the Seychelles for three days in similar conditions.
Allegra belongs to the same fleet as the doomed Costa Concordia that smashed into rocks off Tuscany in January of 2012, keeling over with 4,229 people on board in an accident that claimed 32 lives.
"The current public relations headache Carnival faces from this disabled ship may remind investors of (last year's) Concordia disaster," said Standard and Poor's Capital IQ.
On Wednesday, Carnival -- the world's largest cruise line with a fleet of 100 ships -- said it expects the Triumph incident will cost the company 8 cents to 10 cents a share in its first-half earnings.
According to 247wallst.com, the cancelation of 12 voyages aboard the Triumph in the wake of its woes would "lead to lower earnings for two different quarters, and that does not include any last-minute cancelations brought on by the negative public relations."
"With a refund being given and discounts being given for future cruises, this may even hurt margins longer than just the period covered," it said.
Both S&P Capital IQ and Goldman Sachs have lowered their forecasts.
Still, this week's incident has only had a moderate effect on the the company's stock: it dropped 4.6 percent to $36.92 in five days. In contrast, during the week after the Concordia accident, the stock slid 15 percent, falling below $30.
Both the Concordia tragedy and the Allegra incident only had a temporary effect on the company's shares, which were near $40 at the end of last year.
"We still expect more than $1 billion of Carnival share buybacks in fiscal year 13 that could include different types of Carnival shares," said S&P Capital IQ.
Carnival's 2012 figures, which have yet to be published in their entirety, are expected to be lower due to what happened to the Concordia. Results for the first nine months of the year show that turnover was down 2.5 percent while its net profit dipped 41 percent.
Carnival's problems, which have tainted the reputation of the entire sector, weighed on Royal Caribbean Cruises, the number two in the industry, which saw its profit drop by nearly 30 percent in 2012 due to the Concordia incident, Europe's economic crisis and Hurricane Sandy that hit the East Coast of the United States last fall.
Norwegian Cruise Line, however, saw its sales increase by 2.6 percent to $2.8 billion pushing profit up 33 percent.
Over the past few years, the cruise market has seen strong growth with an average annual passenger increase of 7 percent since 1990, according to Cruisewatch.com.
Over time, cruise ships have truly become ocean giants, as vessels with space for 2,500 passengers have frequently been replaced by ones that can carry 4,000 passengers. This has resulted in lower prices and opened up such vacations to a wider public.
However, as the multiple incidents encountered by Carnival suggest, this rapid expansion may have impacted the quality and safety of cruises.