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Choppy Seas Ahead for Carnival

|Includes: Carnival Corporation (CCL)

Carnival, the cruise specialist, was at the end of the last financial year, the “world’s most profitable” vacation company. With 88 ships, up from 79 in 2005, Carnival catered for over 8 million holiday-makers globally in 2008. Revenue, earnings per share and passengers carried all increased year-on-year during those 4 years as consumers embraced the cruise lifestyle and Carnival ate deeper into the mainstream vacation market attracting couples who had previously just trawled the cities and beaches along the usual tourist trails. Then, late in 2008, the global recession worsened hitting consumer confidence in Carnival’s key market, the US. Hard of the heels of the economic decline followed swine flu. The flu was another painful set-back for the industry and Carnival, one the cruise operator could well do without. Then positive signs of economic stabilisation appeared and reports of swine flu faded from the news. However, this week, following the announcement from the World Health Organisation that the swine flu alert level has been increased further, and that 30,000 cases have been identified across 74 countries, investor attention has again returned to travel companies and their shares. Such is the fickle nature of investor sentiment you can bet your last dollar that on days when swine flu dominates the papers, travel shares fall, irrelevant of the long term progress and profitability of quality firms like Carnival. The management are conducting a conference call with investors on the Thursday 18th June, the day its Q2 earnings update is due, and investors should pay very close attention to Q2 customer numbers and Carnival’s pricing strategy, to gauge how well the firm is coping with the double-hit of recession and the flu pandemic. Until then, it’s a hold, unless concerns over swine flu increase in which case you know what to do, sell.

The writer does not hold shares or other financial instruments that offer either direct or indirect exposure to any company mentioned in this article.