Skift Take

This year was a tough one for the world's largest cruise company, and Carnival executives will likely be happy to see it end. But in 2020 many of the same challenges remain, particularly in regards to sustainability.

As the largest cruise line in the world, Carnival has had a tough year. Challenging geopolitical headwinds, ship delays, three consecutive quarters of lowered forward guidance, and ongoing court proceedings for its environmental crimes mean that executives are probably glad to see 2019 come to a close.

At its full year and fourth quarter earnings call on Friday, the company regained its stride somewhat, with its fourth quarter figures beating analysts’ expectations. The cruise line reported a year-end profit of $3 billion, down from $3.2 billion in 2018. Revenues reached a record $20.8 billion, up 9 percent from $18.9 in 2018.

For the fourth quarter, profit was $423 million, down from $494 million in 2018. But revenue rose 7 percent to $4.8 billion. Adjusted earnings per share were $0.62; analysts were expecting $0.50 and $4.6 billion in revenue. The company further reported it is entering 2020 with record booked occupancy levels.

‘Unusual Events’

Carnival CEO Arnold Donald reported that “unusual events [that] were outside our control” made the fiscal year that ended on Nov. 30 a tough one. Regulatory changes in Cuba, unstable geopolitics in the Arabian gulf, Hurricane Dorian, as well as shipyard delays and unscheduled dry dock time that resulted in cancellations were named as factors that cost the company $0.23 per share. Further, a downturn in consumer sentiment affecting leisure travel in continental Europe cost the company an estimate $0.30 per share over the course of the fiscal year.

Another one of those “unusual events” — this one perhaps within Carnival’s control — happened literally as the call was unfolding. Videos surfaced on Twitter and local media of the Carnival Glory and the Carnival Legend colliding while in port in Cozumel, Mexico. There were reports of extensive damage to the Glory, and a further narrow miss with Royal Caribbean’s Oasis of the Seas. One injury was reported. Neither Carnival execs nor analysts made any mention of the crash during the call, but Carnival reps told the Miami Herald that both ships’ itineraries would be unaffected.

The company also announced on Friday that one of the two ships it’s waiting to deliver, the Mardi Gras, will be delayed from August to November 2020, causing eight itineraries to be cancelled.

Despite what could be described as a wave of bad news, shares were up 7.6 percent since the market opened. Shares of competitors Royal Caribbean and Norwegian Cruise Line also rose.

Environmental Concerns

During his opening remarks, Donald emphasized that sustainability and compliance remain a focus for the company — with good reason. The company is still on probation for environmental crimes it was convicted for in 2016. It will appear before a Florida judge for its next status report on Jan. 8.

Perhaps as an attempt to burnish its environmental image, Carnival announced this week that it joined the Getting to Zero Coalition, a cross-sector effort spanning the maritime, energy, infrastructure, and finance industries to accelerate the de-carbonization of the shipping industry. Carnival reported a 4 percent reduction in per unit fuel consumption in 2019, and the delivery of the first of 11 Carnival ships to be powered solely by liquefied natural gas (LNG), which it describes as “the most environmentally friendly fossil fuel.” It delivered the second LNG-power ship, the Costa Smerelda, this month after its fiscal year’s end.

In response to the news, environmental activist group Clean Up Carnival Coalition released a statement saying it “tentatively applaud[s]” that Carnival was the first cruise company to join the alliance, but also pointed out that the company “has an abysmal track record on environmental compliance,” referring to its 13 federal felony convictions in the U.S. since 2002. Along with some other environmental campaigners, the coalition also rejects the idea that methane-intensive LNG fuel is an improvement for the environment. Kendra Ulrich, Senior Shipping Campaigner for said “if Carnival wants to be seen as a climate leader, it needs to put its money where its mouth is and end its climate-disrupting LNG program.”

Carnival also has another environmental challenge on the horizon: On Jan. 1 it will have to start abiding by the International Maritime Organization’s new pollution standard for sulfur levels in fuel. It will by and large do this with the use of scrubber technology, which it has made a large up-front investment in in order to avoid relying on low-sulfur marine gas oil, which can be 30 percent more expensive than dirty bunker fuel.

An analyst from Stifel Financial Corp. asked Carnival executives if they were concerned about the regulatory environment changing in regards to open loop scrubbers, which environmental campaigners have argued swaps air pollution for ocean pollution. Some ports have already banned them.

“Only a few ports have taken a hard position against open-loop. So at this point, those positions are immaterial in terms of our earnings results,” Donald said. “But more importantly than that, we feel strongly open-loop is a real plus from an environmental standpoint as an Advanced Air Quality System technology. And so we’re doing the work to ensure that we educate ports around the world so open-loop is available for use.”

Carnival’s competitor, Royal Caribbean, told Skift in October it had opted to not use open loop scrubbers due to the high-risk of a changing regulatory environment.

Before the earnings were announced, Carnival’s share price was down roughly 5 percent year to date.


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Tags: carnival, carnival corp., climate change, cruises, sustainability

Photo credit: The Carnival Glory, which collided with the Carnival Legend on Dec. 20. Sea-turtle / Flickr

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