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Carnival seeking to diversify away from Caribbean
April 5, 2006

NEW YORK — Carnival, the world's largest cruise line, is looking to sail off to more profitable ports of call in Alaska and Europe as a way to stave off weakness in the Caribbean, its chief executive said.

But the switch from the Caribbean markets, which currently represents half of Carnival's business, won't happen quickly, Chief Executive Micky Arison told Reuters Tuesday.

The Caribbean — which saw a number of its critical ports lost during last year's hurricane season — for several years has been less profitable than other destinations for Carnival, but demand for Caribbean cruises has been particularly weak in recent months.

"Hopefully it is a short-term phenomenon, but I have no way of knowing that," Arison said, referring to the softer demand.

Carnival, which operates the Holland America, Cunard and Princess cruise brands, cut its earnings forecast for 2006 twice last month and reported weaker advance bookings in February compared with the previous year, raising fears about the strength of demand for its cruises.

The Caribbean still accounts for about half of Carnival's business, but its capacity there is projected to decline to 48% this year from about 52% last year, Arison said. He said that the recent weakness in demand there would not accelerate the switch.

"It's a slow process because the Caribbean is so huge, particularly in the winter time," Arison said in a phone interview. "It's growing slower than our destination trade."

"To me, the encouraging part is all our other destination trades — Alaska and Europe — are performing very, very well," Arison said.

In Europe, the company has been trying to get customers to book earlier so that it can better interpret demand and adjust prices, Arison said.

The cruise operator has been issuing year-round brochures vs. seasonal ones and offering incentives for people to book early.

The efforts have paid off in several European countries, including France, Germany, Spain and Italy, where customers are booking their cruises as early as they do in the United States, he said.

Arison declined to say how early, but in the United States customers typically book several months ahead of the cruise.

High fuel costs have also been cutting into Carnival's profits. The company does not hedge its fuel requirements and has no plans to start doing so, Arison said.

Shares of Miami-based Carnival have dipped more than 11% so far this year, compared with the the Dow Jones U.S. leisure and travel index, which has risen roughly 8%.

Arison also said that the company continued to get most of its bookings from travel agents and that Internet bookings were an insignificant part of its business.

"Internet has become a resource of information," Arison said. "But for some reason ... there hasn't been a significant amount of Internet bookings."

Carnival's shares were up 7 cents at $47.25 in late morning trade on the New York Stock Exchange Wednesday.

USA Today / Reuters

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Originally posted by Eric:
Americans book earlier because they get far better terms than Europeans. Deposit back if cancelled before 90 days & if price is reduced they get new price, they cannot lose. No wonder Europe is more profitable that the Caribb. Eric

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Originally posted by Eric:
No wonder Europe is more profitable that the Caribb. Eric

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Carnival's European cruises are still sold mainly to Americans, who enjoy the same booking terms as in the Caribbean. But with higher operating costs in Europe, the cruise lines can charge higher per diems, in excess of their actual costs, and make more profit. Plus, more Americans are just sick and tired of the Caribbean, as the article states.

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Originally posted by lasuvidaboy:
When are Europeans/Brits going to demand better terms??

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Alll our travel firms offer the same terms so it's not if we can shop around. We would all have to refuse to go on vacation to get things changed.

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Originally posted by Matts:
I hope that this influx of big boats will start affecting prices....

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I doubt it. The last thing the cruise lines want is a price way. They will agree behind closed doors to price fix.