MercoPress. South Atlantic News Agency

Fuel costs sink Carnival cruises profits

The world's biggest cruise firm has seen profits fall in the second quarter amid rising fuel costs and lower demand for Caribbean cruises.

Carnival Cruises reported a net income of 380 million US dollars in the second quarter compared to 388 million a year earlier.

While revenue rose 6% to 2.66 billion US dollars compared with the same period last year, executives at the Miami-based company said fuel costs were about 43% higher. Those high fuel prices are expected to continue through the rest of the year. The rise in energy prices reduced earnings by 74 million US dollars, said Micky Arinson, Carnival's chief executive officer.

Since the company if facing reduced demand for cruises in the Caribbean, especially for cruises lasting between three and five days, it is planning to increase bookings with "aggressive pricing strategies".

"I think we have to be careful in not overreacting to what historically have been temporary swings in demand," Arison said. "It's too short a trend at this stage to react to, and it's been too good a market for us."

Carnival, which operates 80 cruise ships totaling 141,000 berths worldwide, has 16 new ships scheduled to enter service by 2010. Ten of those are destined for its European market, which is among its most profitable.

However, rising fuel costs and cheaper Caribbean cruises mean Carnival's net revenue yields, which track the net income per passenger, will rise by only 1% or 2% for the latter half of 2006.

Carnival and other cruise lines suffered some setbacks because of last year's record Atlantic hurricane season, which damaged key ports in Mexico and New Orleans and depressed some demand.

But Howard Frank, Carnival's vice chairman and chief operating officer, said storm anxiety doesn't appear to be a major factor this year for most customers.

The company also said its board approved another 1 billion stock repurchase plan after completing most of a previous 1 billion authorization. The buyback will cover both Carnival Corp. stock traded on the New York Stock Exchange and Carnival PLC shares on the London Stock Exchange.

"This commitment to future expansion, as well as the authorization for another billion share repurchase, demonstrates our confidence in the favourable long-term prospects of our global cruise business," Arison said.