Thread: Carnival Sees Alaska Profits Rebounding

Carnival Cruise Lines' decision to pull ships out of Alaska this last summer may have paid off for the line, as it reports strong ticket sales and increasing profits for the just concluded tourist season.

In its quarterly report released Friday and covering most of the Alaska tourist season, Carnival reported better than expected earnings of $1.3 billion for the quarter ended Aug. 31. That was up from $1 billion last year, and came despite a 17 percent increase in fuel costs.

The summer cruise season is the most important for Carnival, with much of that focused on profitable Alaska tours. North American operations saw increased profits, but company executives reported pricing was stagnant in Europe, where Carnival increased capacity.

In North America, "revenue yields," the amount the company makes per passenger, increased 10 percent compared to last summer. In Europe, it rose only 1 percent, the company said.

"I think we had a stronger Alaska on lower capacity," said Howard Frank, Carnival's vice-chairman and chief operating officer, in a conference call with industry analysts about the quarter's results.

Carnival pulled two of its ships out of Alaska after they blamed the voter-adopted $46 cruise ship passenger head tax for reducing bookings for its Alaska trips.
Frank said having few ships going to Alaska enabled Carnival to charge more for tickets.

"Clearly, taking capacity out gave us the ability to have good yield improvement this summer in Alaska," he said.

The Alaska Legislature, at the behest of Gov. Sean Parnell, cut the head tax last session, which local tourist industry advocates say they hope will convince Carnival and other operators to bring ships back.
Frank said that may well happen.

"It was a much improved Alaska season with the reduced capacity," he said. "Obviously, (if) it continues to continues to strengthen, we'll add more capacity over time."

Carnival is the biggest cruise line doing business in Alaska and the world, and owns Holland America Line, Princess Cruises and also operates ships under its own name.

It has been aggressive in opposing the cruise ship head tax and blaming a difficult 2009 season on the head tax. Carnival suspended its dividend that year to conserve cash, but resumed paying a smaller dividend this year.
Carnival CEO Mickey Arison last year said that declining demand for Alaska cruises then was due to the head tax. Declining profits elsewhere, however, were due to the bad economy, he said.

Arison last month said the company continues to consider returning ships to Alaska.

"I think that because of what's happened in recent years and the change in the law we're going to do a careful postmortem of the season and try to make sure that the political leaders in Alaska understand how it went," Arison told analysts.
After voters adopted the head tax in 2006, cruise visitors to Alaska peaked at more than 1 million in 2008 and 2009. This year local officials said they expected about 860,000, after the reduction in ship visits.

Carnival reported that fewer passengers this year had an impact on its local tour and hotel operations as well, but that with aggressive cost cutting they remained profitable.

Carnival's Holland America, Princess Alaska Tours and other Alaska subsidiaries are the largest individual player in Alaska's tourism industry, operating 15 hotels or lodges with 3,400 guest rooms, as well as 390 motorcoaches and even 20 domed rail cars.

Those revenues, which come almost entirely in the summer, were $292 million, down from $399 million in 2009. Profits were $55 million this summer, compared to $81 million in 2008.

FMI: Carnival sees Alaska profits rebounding - Juneau Empire

This is not at all a surprise. The 2009 season was very heavily discounted as the economy was suffering. Although the head tax may have been a factor, the economy and too many ships is what drove down the prices. During the 2010 season there was very little discounting. With fewer berths to fill, they were able to keep prices up and increase profit.

I have no doubt that eventually they will increase the number of ships up there within a few years.