Carnival cutting prices to drum up business

Cruise ship operator Carnival said that bookings are recovering as the memory of the Costa Concordia tragedy fades, but it is having to offer tempting price cuts to get passengers on board.

"Since March, fleet-wide booking volumes have continued to improve and are running well ahead of the prior year at lower prices," the company said in a statement as it unveiled sharply reduced profits before tax of $14m in the three months to the end of June, versus $206m in the corresponding period of 2011.

Profits were hit by a $145m adjustment relating to fuel derivatives. Fuel costs in the three-month period - the group's second quarter - were 12% higher than in the equivalent period of 2011, knocking 9 cents off Carnival's earnings per share (EPS).

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Diluted earnings per share on a GAAP (generally accepted accounting principles) basis were $0.20, down from $0.26 the year before, and on a non-GAAP basis EPS fell to $0.02.

Full year 2012 non-GAAP earnings per share (diluted) are expected to be in the range of $1.80 to $1.90, compared to the March guidance range of $1.40 to $1.70, and $2.42 for fiscal 2011.

Third quarter non-GAAP earnings per share (diluted) are seen falling in the range of $1.42 to $1.46, compared to $1.69 in the third quarter of 2011.

Revenue in the three month period eased to $3,538m from $3,620m a year earlier.

For the remainder of the year, cumulative advance bookings excluding the ill-fated Costa line are three occupancy points behind the prior year at "slightly lower prices", while cumulative advance bookings for Costa are at lower occupancies and lower prices compared with the prior year, Carnival revealed.

"The increase in booking volumes indicates that a progressive recovery is well underway and we are catching up following the slowdown in bookings during

wave season, our peak booking period," claimed Micky Arison, Chairman and Chief Executive Officer of Carnival.

Excluding Costa, the company forecasts full year 2012 net revenue yields, on a constant dollar basis, will be down slightly on last year. Including Costa, the company expects a decline in net revenue yields of 3 to 4 per cent (constant dollars).

The company has slightly reduced the mid-point of its 2012 yield guidance as the price incentives required to drive the booking volumes needed to close what it termed "the occupancy gap" was more than had been previously anticipated for the second half of the year.

Arison said he was pleased to see a resurgence in demand at Costa, albeit at cut-price rates, as the brand has a "long-standing reputation for quality built over many decades."

The shares reacted negatively to the news of Carnival's heavy discounting to drum up business, and fell from around 2,290p before the results announcement to 2,179p shortly after it, before recovering a little.

JH