Carnival Corp profit declines

In the Wall Street Journal Today: "Carnival Corp said earnings in its latest quarter fell 2% to $1.22 billion, dented by fuel hedging, and reported a 1.3% decline in revenue to $4.88 billion. The cruise-ship company has benefitted in recent quarters from broad-based booking strength and lower fuel costs."

Just an informational item on HAL's parent company.

Any company that hedges against fuel has gotten ding'd recently - airlines more than most. The long haul shipping companies (freight, bulk, etc.) have really been impacted.

Up here in the Northeast, (snow country), I am hearing all the time about homeowners who 'locked in' a price with their home heating oil company and they are

now choking on the price they are committed to.

Smaller scale for the homeowner but same principle. They tried to predict future prices and didn't get lucky.

Up here in the Northeast, (snow country), I am hearing all the time about homeowners who 'locked in' a price with their home heating oil company and they are

now choking on the price they are committed to.

 

Smaller scale for the homeowner but same principle. They tried to predict future prices and didn't get lucky.

 

I do not understand how these homeowners are any worse off than they expected to be since they locked in prices? They expected the agreed upon price and should be able to handle this. Sure, they are not benefitting like they might have, but they are no worse off.

Hedging is a common technique and always a gamble. A home owner who agrees to purchase future fuel at a specific price has the advantage of knowing his approximate future costs, but can really lose out if prices drop (while the home owner is locked into contracted higher prices. And it is the same for both cruise lines and airlines. But we think CCLs problems are not so simple. The cruise line have been hit with many issues including drastically higher food costs. And even labor costs have increased (faster then inflation) as have most costs associated with entertainment. So cruise lines have cut back in many ways, and many cruisers have noticed. In addition, the cost of cruising has suddenly increased far faster then inflation. A balcony that would have cost me less then $150 per passenger day less then 2 years ago can now cost $250 on some popular cruises.

So how does this impact on CCL? For the past 10 years DW and I have averaged over 75 days a year in cruising. But this year we are only cruising 14 days...preferring to spend our travel dollars on other non-cruise options. At this point we only have a single 14 day cruise booked for 2016 whereas our norm would be at least 70 days booked by now. And we are not alone. If I want to go to Europe it just makes more sense for me to jump on a plane, get to Europe, rent a car for 1 or 2 months, and go! While the cruise lines have increased their pricing, the strong US dollar has actually put Europe on sale for those of us who do their own thing on land.

Hank

I do not understand how these homeowners are any worse off than they expected to be since they locked in prices? They expected the agreed upon price and should be able to handle this. Sure, they are not benefitting like they might have, but they are no worse off.

They locked in the prices in early spring at the end of last heating season. The price per gallon was a lot higher at that time than now. The locked in price works both ways. Had the price of oil increased, the homeowner would have made a 'good deal'. They took the chance the prices would go up and not down and now the oil dealer got the 'good deal'. Homeowner is obliged to pay the higher 'locked in price' according to the contract they signed.

That is the same concept as what Carnival did when hedging fuel contracts. Prices dropped but they are paying more than today's 'going rate'.

I understand DaveOKC's point of view. The homeowner thought they were getting a good deal at, say, $2.50/gallon. But the price on the market is now $2.00 gallon. Yes, the homeowner budgeted for $2.50, but is really now just jealous they aren't getting $2.00. Its buyer's regret, nothing else.

As mentioned by Hank, hedging is always a gamble. Southwest was VERY successful with fuel hedging for a long time. But all those contracts have now expired, and Southwest's prices aren't so dramatically cheaper than competitors as they have been in the past.

Yet if fuel prices had gone up, they would have hit is with fuel levies, even though they had hedged them.

Notice no refunds when fuel prices fall.

Funny that.

HAL has never, to my knowledge, put on the fuel surcharges, even tho they have mentioned it as an option for many years. You will remember the warning is they have the option of putting on the surcharges when the price of oil is above $70. Even when it hit almost $150, no fuel surcharges.

You might remember Carnival (and HAL) is in this to make a profit. No profit, no cruise business.

I understand DaveOKC's point of view. The homeowner thought they were getting a good deal at, say, $2.50/gallon. But the price on the market is now $2.00 gallon. Yes, the homeowner budgeted for $2.50, but is really now just jealous they aren't getting $2.00. Its buyer's regret, nothing else.

 

 

As mentioned by Hank, hedging is always a gamble. Southwest was VERY successful with fuel hedging for a long time. But all those contracts have now expired, and Southwest's prices are so dramatically cheaper than competitors as they have been in the past.

Spot on, th benefit of locking in is you have certainty.

Like here you can fix the interest rate on your home loan, but then you hear people winge that they locked in and then rates dropped.

Can't please some people.

HAL has never, to my knowledge, put on the fuel surcharges, even tho they have mentioned it as an option for many years. You will remember the warning is they have the option of putting on the surcharges when the price of oil is above $70. Even when it hit almost $150, no fuel surcharges.

No but I am pretty sure other lines under the carnival umbrella have, and that's what we're talking about.

Same as for those not in USA they (and here I'm talking cruise lines in general) may change prices up to inal payment if the exchange rate moves, but never seen them drop prices for the same reason (maybe they have but I've only ever seen increases).

HAL has never, to my knowledge, put on the fuel surcharges, even tho they have mentioned it as an option for many years. You will remember the warning is they have the option of putting on the surcharges when the price of oil is above $70. Even when it hit almost $150, no fuel surcharges.

 

You might remember Carnival (and HAL) is in this to make a profit. No profit, no cruise business.

In the about 25 years and 85+ cruises I've sailed with HAL, Princess and Carnival (sort of), we never once paid a fuel surcharge that I recall.

I understand DaveOKC's point of view. The homeowner thought they were getting a good deal at, say, $2.50/gallon. But the price on the market is now $2.00 gallon. Yes, the homeowner budgeted for $2.50, but is really now just jealous they aren't getting $2.00. Its buyer's regret, nothing else.

 

 

As mentioned by Hank, hedging is always a gamble. Southwest was VERY successful with fuel hedging for a long time. But all those contracts have now expired, and Southwest's prices aren't so dramatically cheaper than competitors as they have been in the past.

Just this week, I was chatting with the owner of a home oil delivery company and we discussed just this subject. A lot of people in New England chose to lock in a price after the awful winter we had last year.

I'm glad I didn't lock a price and never have. :)

You have to remember that most transportation companies, including cruise lines, hedge by buying futures, not by pre purchasing fuel. It's quite a bit different than locking in your home heating oil cost. When we first moved to Maine, you could pay to lock in a maximum price, but you were protected on the downside. (If prices were below the contract price, you paid spot price plus a nickel.) That all changed in the early 2000s,and downside protection became very expensive - about $0.75 per gallon if memory serves.

HAL has never, to my knowledge, put on the fuel surcharges, even tho they have mentioned it as an option for many years. You will remember the warning is they have the option of putting on the surcharges when the price of oil is above $70. Even when it hit almost $150, no fuel surcharges.

 

You might remember Carnival (and HAL) is in this to make a profit. No profit, no cruise business.

There were fuel surcharge provisions in HAL's cruise contracts in the late 90s. I don't recall ever being hit with a surcharge, but it was a possibility.

There were fuel surcharge provisions for my SA and AK cruises. I don't remember one last March. Were they discontinued?

In the Wall Street Journal Today: "Carnival Corp said earnings in its latest quarter fell 2% to $1.22 billion, dented by fuel hedging, and reported a 1.3% decline in revenue to $4.88 billion. .

Back to the subject of Carnival's dropped earning.

Most important is to look at peer companies. So main competitor RCCL's figures compared to Carnival.

My (limited) observation is, that RCCL seems much more active with new ideas and innovation. Not necessary does this create a cruise product the more traditional cruiser appreciates, but could certainly attract new customers. To me it seems HAL mainly tries to cut cost, and still hope to keep the traditional customer happy. Which of course becomes more end more difficult. If they are lucky customers move on to a luxury cruise line also owned by Cc. But bottom line is; the company needs to generate revenue, and preferably do better than it's peers to keep stock owners happy.

In the Wall Street Journal Today: "Carnival Corp said earnings in its latest quarter fell 2% to $1.22 billion, dented by fuel hedging, and reported a 1.3% decline in revenue to $4.88 billion. The cruise-ship company has benefitted in recent quarters from broad-based booking strength and lower fuel costs."

 

Just an informational item on HAL's parent company.

Thank you for the information.

I could have sworn that about 10 years ago we paid a fuel surcharge on either 1 or 2 cruises.

This whole fuel oil price drop has reflections of the customer who books a cruise early and then complains when the price is reduced closer to sailing time.

Paying the higher price has it's upside for both. The cruiser gets the location he wants, and the fuel oil customer get a known price per gallon that he's betting will increase as the heating season and demand grows closer.

I didn't lock in a price for oil either, but I have made final payment on a Paris river cruise for next May.

There were fuel surcharge provisions in HAL's cruise contracts in the late 90s. I don't recall ever being hit with a surcharge, but it was a possibility.

I know I was, but don't recall when. I remember it as quite a while ago, but can't put a finger on it. The market has gone down and up a couple of times since then.

On the second go-round HAL/CCL put it in it's contract that a fuel surcharge could be imposed, but it never was again. There had been a lot of complaining about it the first time. On that second go-round, the price of fuel did skyrocket, but HAL made it up in cutbacks, rather than a price surcharge.

There were fuel surcharge provisions for my SA and AK cruises. I don't remember one last March. Were they discontinued?

Post #13 in this thread shows the date they were discontinued:

http://boards.cruisecritic.com/showthread.php?p=19621791&highlight=end+fuel+surcharge#post19621791

"As fuel prices continue to decline, Holland America Line has announced that it will suspend fuel supplements effective for all voyages departing on or after December 17, 2008. "

From a HAL press release.

 

So how does this impact on CCL? For the past 10 years DW and I have averaged over 75 days a year in cruising. But this year we are only cruising 14 days...preferring to spend our travel dollars on other non-cruise options. At this point we only have a single 14 day cruise booked for 2016 whereas our norm would be at least 70 days booked by now. And we are not alone. If I want to go to Europe it just makes more sense for me to jump on a plane, get to Europe, rent a car for 1 or 2 months, and go! While the cruise lines have increased their pricing, the strong US dollar has actually put Europe on sale for those of us who do their own thing on land.

 

Hank

Wow, it's quite a shocker to hear how drastically you'll be cutting down on cruising next year! We love both cruising and driving trips in Europe. We track our travel expenses pretty closely. We find that our "on the ground" costs to be about $120 (yes, dollars) a day in Greece or southern Italy, and somewhat more if we are traveling further north.

When we cruise, we usually get the cheapest cabin, so our per diem for cruising runs about the same. But cruising becomes more of a value proposition as you go further north into Europe.

Actually, comparing cruising and land vacations is like apples to oranges. Land vacations for us are much more action-packed, and you get to see a country in depth. Cruises are more about goofing off and relaxing. I no longer feel like I need to see everything in each port stop.

I know that you've seen many of the European ports many times. I'm wondering how this experience is affecting your decision to do more land trips. Thoughts?

Wow, it's quite a shocker to hear how drastically you'll be cutting down on cruising next year! We love both cruising and driving trips in Europe. We track our travel expenses pretty closely. We find that our "on the ground" costs to be about $120 (yes, dollars) a day in Greece or southern Italy, and somewhat more if we are traveling further north.

 

When we cruise, we usually get the cheapest cabin, so our per diem for cruising runs about the same. But cruising becomes more of a value proposition as you go further north into Europe.

 

Actually, comparing cruising and land vacations is like apples to oranges. Land vacations for us are much more action-packed, and you get to see a country in depth. Cruises are more about goofing off and relaxing. I no longer feel like I need to see everything in each port stop.

 

I know that you've seen many of the European ports many times. I'm wondering how this experience is affecting your decision to do more land trips. Thoughts?

It actually started with the current year, so over 2 years we have eliminated what would normally be about 150 days of cruising. As to land trips, since we DIY in Europe (with a rental car) we have learned to make those trips quite relaxing. Unlike many, we have no desire to cram 50 sites into 1 day :). We love long lunches and dinners, take frequent cafe breaks if in appropriate places (like Paris) and might plan a visit to a single museum during a long day mixed with several miles of strolling, browsing, and enjoying.

One problem we ran into with cruising was that having done just about every itinerary around the world, we still like interesting itineraries. The best mass market line for itineraries is HAL (Oceania is also good, but often higher priced). But we have been disappointed with HAL the past 3-4 years with all their cutbacks in cuisine and entertainment and even the usually fantastic HAL service seems to have waned (it seems like HAL is trying to do more with fewer staff). And the nail in the coffin is the HAL smoking policy which we have found to be annoying. In Europe we also find smokers annoying, but we can usually avoid most of the problem by choosing the right outdoor table (on the upwind side) or eating inside restaurants (indoor smoking has just about disappeared in European restaurants). On HAL ships it sometimes drives me nutz to walk through casinos (going somewhere else) which often stinks like a dirty ashtray....or paying for a balcony that we sometimes cannot use because of nearby smokers. And our other big issue with cruising has been the industry trend to reduce the hours in port so the cruise lines can save on fuel...and have more hours to maximize onboard revenue. Taking 2 hours off a port stay in Europe can often have huge implications for what we can do during a port day.

Hank

Post #13 in this thread shows the date they were discontinued:

 

http://boards.cruisecritic.com/showthread.php?p=19621791&highlight=end+fuel+surcharge#post19621791

 

"As fuel prices continue to decline, Holland America Line has announced that it will suspend fuel supplements effective for all voyages departing on or after December 17, 2008. "

 

From a HAL press release.

Thanks. I knew I had seen them before.