Carnival brand's recovery could take years, COO says

By By Tom Stieghorst
Carnival Corp. officials acknowledged last week that it might be several years before the Carnival Cruise Lines brand fully recovers from the engine room fire on the Carnival Triumph in February.

Initially, executives said discounts would bring bookings back quickly, but the forecast delivered during Carnival Corp.'s Q2 earnings call was less optimistic.

"Our advisers are saying that the recovery will be gradual, and it will take two to three years for the Carnival brand to fully recover," said Vice Chairman and COO Howard Frank.

Although Frank said he thought prices had bottomed and started upward, he said it will take another year before price comparisons begin to turn positive.

Despite the Carnival brand's struggles, Carnival Corp. reported an increase in net income in Q2: $41 million, up from $14 million a year ago when large, unrealized losses on fuel hedges helped depress results.

Revenue fell 2.3%, to $2.61 billion.

Frank took time during a conference call with Wall Street analysts to thank agents for supporting Carnival over a difficult stretch.

"For that, we are very grateful," he said.

Carnival Cruise Lines last week announced an outreach program to agents called Carnival Conversations, which includes a series of road shows mostly on Carnival ships starting in New York July 12.

It hopes to reset agent relations by enabling more channels for feedback and dialog with its 15,000 retail distributors.

Frank said the profit decline at Carnival Cruise Lines is expected to reduce 2013 earnings by about $388 million from a year earlier. That includes $124 million for canceled sailings and repair costs to the Carnival Triumph, $210 million in lower revenue yields and about $54 million in vessel enhancements and extra marketing.

Carnival Cruise Lines accounts for a quarter of the ships owned by Carnival Corp., and a larger percentage of berths.

While bookings for the Carnival brand for the rest of the year are lower, at lower prices than at the same point in 2012, Carnival Corp.'s other brands have higher bookings at higher prices, Frank said.

Bookings in Europe turned the corner in the past 11 weeks, he said, adding, "We're very encouraged by what we're seeing in Europe right now."

Although premium and luxury brands in North America are expected to have a solid year, Frank said more needs to be done to strengthen demand, so Carnival Corp. will ramp up marketing in the second half, including increased co-op advertising with agents.

Carnival will also begin a marketing campaign for Carnival Conversations. Agents will be invited to meet with senior executives in eight key ports between now and October.

There will also be a push for real-time feedback on the line's agent site, Carnival Executive Vice President of Sales Lynn Torrent said there have already been changes at call centers in response to agent suggestions.

"We're committed not only getting the message out but to taking the actions we need to take so that travel agents believe it," Torrent said.

Although consultants hired by Carnival Corp. forecasted a two- to three-year recovery for Carnival Cruise Lines, company Chairman Micky Arison said he was more optimistic based on its high market share and strong word of mouth from 90,000 passengers a week.

Matthew Jacob, a cruise analyst at ITG Investment Research, said Carnival is typically conservative in its guidance. "I think what they're doing here is they've really set expectations as low as they can," Jacob said.
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