The Exchange

Carnival’s ‘Triumph’ Is Anything But

Rebecca Stropoli
The Exchange
Tug boats tow the Carnival cruise ship Triumph into the middle of the Mobile River Wednesday April 3, 2013 in Mobile, Ala. The ship broke its moorings Wednesday at BAE Shipyard. Carnival Cruise Lines says a crippled cruise ship that tore loose from the Alabama dock where it's being repaired is secure and has been moved to a terminal. (AP Photo/AL.com, Bill Starling)
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Tug boats tow the Carnival cruise ship Triumph into the middle of the Mobile River Wednesday April 3, 2013 in Mobile, Ala. The ship broke its moorings Wednesday at BAE Shipyard. Carnival Cruise Lines says a crippled cruise ship that tore loose from the Alabama dock where it's being repaired is secure and has been moved to a terminal. (AP Photo/AL.com, Bill Starling)
Recent cruise ship fires
Allure, April 20, 2012: Dubbed Royal Caribbean's "signature ship," the world's largest cruise ship had to change course to keep smoke from a "small and short-lived engine fire" from blowing back into the vessel.
Azamara Quest, March 31, 2012: The ship drifted off the Philippines coast for 24 hours due to an engine fire, which injured one crew member. Power was restored and the ship made port to Malaysia; some passengers remained to finish the trip.
MS Costa Allegra, Feb. 27, 2012: After a generator fire, the vessel had to be towed over the course of several days — across pirate territory — to the Seychelles.
Costa Concordia, Jan. 13, 2012: After its captain ordered a change in its route, the cruise ship struck a rock and ran aground off Italy, leaving 32 dead. The captain's trial for manslaughter is due to be held this spring. Salvage operations are estimated to conclude this September.
Bahamas Celebration, Dec. 21, 2011: The crew extinguished a fire in one of its six generator and shut down the engine as a precaution. Tugboats pulled in the ship, which was four miles off Grand Bahama. Originally built as the Prinsesse Ragnhild, the boat had a 1999 engine-room fire that resulted in a full evacuation.
Queen Mary II, Oct. 5, 2011: A minor fire in the engine room reportedly did not affect the voyage. One year earlier, an explosion led to a brief power outage. The ship returned to news headlines in December after a norovirus sickened 205 people.
Ocean Star, April 16, 2011: The ship had just been retrofitted when a generator fire forced an evacuation of 748 people by catamaran.
MSC Musica, Dec. 19, 2010: A trip leaving Rio de Janeiro had to be canceled when an engine room fire knocked out air conditioning and water purification systems.
Carnival Splendor, Nov. 8, 2010: A catastrophic failure knocked out a diesel generator. The second engine room failed to provide backup, and the vessel had to be towed from Mexico to San Diego.

As Henry Blodget states on Thursday's Daily Ticker covering the merger of U.S. Airways and American Airlines, "Everybody hates flying." And, yes, commercial flight -- with its frequent delays, security line indignities, cramped spaces and rubbery food offerings, to name just a few -- can be a rather unpleasant experience.

But flying isn't looking so bad these days when compared with cruising, at least not when you consider the latest disaster brought to you by Carnival Cruise Lines (CCL).

Since Sunday, Feb. 10, when a fire on board damaged the propulsion system of the ironically named ship Triumph, the planned four-day voyage to the Caribbean has turned instead into a nightmare of Dante-esqe proportions. With the ship unable to sail and lacking power, sewage systems, air conditioning and heating, the 3,142 passengers and 1,086 crew members aboard have been stranded in the Gulf of Mexico -- hungry, sickened and, according to reports, reduced to defecating in plastic bags and urinating in showers. The New York Times describes an almost "Lord of the Flies"-like quest for survival, complete with food hoarding and wine-bottle stealing amid increasingly frayed nerves and a revolting stench.

The on-board horror may come to an end late Thursday, as three tugboats have been pulling the 900-foot boat toward shore in Mobile, Ala. But even that's turned into a disaster -- the tow line broke, delaying the ship's arrival in port. As of now, Carnival has made the move of canceling a dozen planned cruises aboard Triumph, which the company admits had suffered other mechanical problems in the weeks before the fire.

Black marks for the industry

This incident is another to add to the list of recent black marks for the cruise industry, ranging from power losses to norovirus outbreaks to fatal disasters. Back in March of last year, a fire on the cruise ship Costa Allegra, owned by Carnival's Costa Crociere subsidiary, led to a similar lack of power, food and plumbing situation for more than 600 passengers. An engine-room fire on Carnival's 952-foot Splendor in November 2010 left more than 3,000 passengers stranded for three days. Azamara Club Cruises, whose parent company is Royal Caribbean (RCL), and the Mexican cruise ship Ocean Star Pacific also suffered power-killing fires in the past couple of years.

And memories are still fresh of last year's Costa Concordia disaster, in which a partial sinking of the Italian cruise ship (also operated by Costa Crociere) led to the loss of 32 lives and multiple manslaughter charges against the captain, Francesco Schettino, who reportedly fled the scene in a lifeboat while several passengers and crew members were still on board.

Naturally, these incidents represent just a fraction of the cruise ship experience, which more often than not leaves its customers happily suntanned and overstuffed with buffet food. But do these highly publicized occurrences, complete with graphic detail and harrowing video, have any effect on the industry's numbers?

A healthy business

According to an August 2012 Cruise Lines International Association (CLIA) study, the business has generally been healthy during what have been tough economic times for many sectors. The study most recently covers 2011, but the numbers tell a pretty strong story. That year saw a 6.8% increase in gross output in the U.S., at $40.4 billion, which helped generate close to 350,000 jobs in the nation that paid a total of $16.5 billion in wages. The study also showed that CLIA member lines, which include Carnival, Royal Caribbean and several more, carried 10.1% more passengers than in 2010, for a total of 16.3 million.

An AP story released just four short days before the Triumph debacle says that, following the Concordia tragedy in January 2012, several in the travel industry reported a large percentage decrease in cruise bookings for the first quarter -- dubbed "wave season" in the industry -- particularly with first-time cruisers who may have been scared away by the horrifying tale. But agents were more optimistic for the coming year, some already reporting a 6% to 7% increase in bookings as compared to last year; it remains to be seen if cancellations and dashed plans will hit this wave season in the wake of the publicity surrounding the non-triumphant Triumph.

And what of Carnival shares? While they have slid close to 4% this week as reports of the debacle made big news, the stock, trading at around $37 on Thursday afternoon, is just around $2 down from its 52-week high of $39.95. Since last year at this time, shares are up 23%, and for 2012 the stock outperformed the S&P 500, notching a 13% return.

Its December earnings report, which showed earnings of 13 cents and net income of $93 million, exceeded its September guidance, and Carnival expected net revenue yields for the coming year to be up 1% to 2%. The $29 billion company, based in Miami, has a hold on nearly 50% of the industry. The stock has a P/E ratio of 22.43 and a beta of 1.43, according to Y! Finance data, indicating that it's more volatile than the market as a whole (stocks that have a volatility mimicking the S&P, for perspective, have a beta of 1).

Slipping shares

As of now, amid slipping shares, Carnival has already warned on its earnings for the first half of the fiscal year, saying the Triumph impact could hit EPS by 8 to 10 cents a share. Barron's, meanwhile, reports that bearish options activity related to Carnival was much higher than the typical volume on Wednesday, indicating a sentiment of more sinking to come as the Triumph story continues to unfold.

Carnival's closest competitor, Royal Caribbean, has slipped 1% for the week so far. Boasting around 23% of the industry market share, the company comes in at a very distant second in market cap at $7.7 billion

Meanwhile, the tiny Norwegian Cruise Lines (NCLH), which just went public on Jan. 18, is up 16% since its IPO, currently trading at $28 and change. On Feb 11, it reported strong earnings for the fourth quarter and full year of 2012.

Carnival has said that it is offering full refunds to all customers who have booked cruises through April 13, along with discounts on a future cruise with the company. Will customers be more likely to use this discount or ditch the cruise idea altogether? Stay tuned.

Meanwhile, here is a classic ad from the more innocent days in Carnival's history:

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