Carnival warns rising fuel prices will have ‘material impact’ on recovery
Carnival, the world’s largest cruise company, has warned that uncertainty prompted by the conflict in Ukraine, particularly over fuel prices, will have a “material impact” on its slow recovery from the pandemic.
Arnold Donald, Carnival’s chief executive, said on Tuesday that the business was battling “strong headwinds”, including “complex constraining and constantly changing regulations and protocols and more recently the very troubling invasion in Ukraine, all of which undermine consumer confidence”.
The Miami-based group said in a statement that the wider impact of Russia’s invasion of Ukraine, including surging energy prices, would have a “material impact” on its “liquidity, financial position and results of operations” and that it expected to fall to a net loss this year.
After a bruising pandemic forced the cruise company to raise more than $29bn in debt and equity in order to keep its ships afloat, Carnival had hoped its recovery would continue in the first quarter as it hit “wave season”, traditionally the most popular point in the year for customers to book cruises.
However, the spread of the Omicron Covid-19 variant affected bookings, pushing the company to a greater than expected net loss of $1.9bn in the three months to the end of February. Revenues were $1.62bn, well below analysts’ expectations of $2.26bn.
In common with companies across the travel sector, Carnival is also battling the recent dramatic spikes in fuel costs, just as countries begin to relax testing requirements for travel and reopen borders.
Analysts at Citi said that fuel costs presented the biggest risk to cruise lines’ performance and would “likely remain a significant X-factor as long as volatility persists”.
Cruise ships have traditionally relied heavily on diesel for sailing, which traders have warned could be hit by shortages as a result of sanctions against Russia.
Carnival said that it also expected to make a loss in the second quarter, but hoped to return to profitability in the third quarter — the first time it would have done so since the pandemic began and several of its ships were forced into emergency quarantine with infected passengers on board.
Itineraries in and around Russia and Ukraine accounted for only 4.6 per cent of Carnival lines’ cruises this year, Donald said. While St Petersburg was a “marquee port” for the company, it had managed to redeploy ships amid some “regional disruption in booking patterns”, he added.
Carnival, which operates 87 cruise ships under brands such as P&O Cruises and Princess Cruises, said that ship occupancy had reached more than 70 per cent in March after serious disruption from the spread of Omicron in December and January.
Guests, who must test several times before embarking on cruises, were cancelling after testing positive or struggling to get hold of Covid-19 tests, the company said.
Carnival increased the number of its fleet sailing from 47 per cent in the final quarter of 2021 to 60 per cent in the first quarter of 2022. It said that 75 per cent of its ships were now operating again.