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updated: 3/15/2013 11:14 AM

Carnival returns to profit; travelers fear mishaps

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  • Carnival Corp., the world's largest cruise line, has suffered through a series of high-profile mishaps. Yet passengers continue to book vacations thanks to discounts, albeit at a slower pace. The company offered more sales to help attract passengers after an engine fire last month crippled the Carnival Triumph. This week, two more of its ships had mechanical problems, including the Carnival Legend, shown here in 2002.

      Carnival Corp., the world's largest cruise line, has suffered through a series of high-profile mishaps. Yet passengers continue to book vacations thanks to discounts, albeit at a slower pace. The company offered more sales to help attract passengers after an engine fire last month crippled the Carnival Triumph. This week, two more of its ships had mechanical problems, including the Carnival Legend, shown here in 2002.
    Associated Press file photo

 
Associated Press

MIAMI -- The world's largest cruise line has suffered through a series of high-profile mishaps. Yet passengers continue to book vacations thanks to discounts, albeit at a slower pace.

The company offered more sales to help attract passengers after an engine fire last month crippled the Carnival Triumph, leaving 4,200 people stranded for five days without working toilets or power. This week, two more of its ships had mechanical problems, ruining the vacations of thousands of more travelers.

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Carnival Corp., earned $37 million, or 5 cents per share, in its first quarter. That compares with a loss of $139 million, or 18 cents per share, a year earlier. But its forecast for the year came in below analyst's predictions. Its shares fell more than 3 percent in morning trading.

On Thursday, the company ended the voyage of the Carnival Dream after the ship's backup emergency diesel generator failed, causing problems with elevators and toilets. Instead of continuing back to Florida, Carnival was forced to charter airplanes to fly home the ship's 4,300 passengers. The Dream's next trip, which was supposed to start Sunday, was also canceled. All of the passengers on that voyage will receive a refund for the cruise and airfare.

Late Thursday, the company announced another ship -- the Legend -- was also having mechanical problems and would skip its stop at the Cayman Islands, heading straight to its final port in Tampa, Fla. instead.

Vacationers have been wary about booking cruises ever since the Costa Concordia -- also owned by Carnival -- sank off the coast of Italy in January 2012. Passengers have returned to the seas, but only thanks to deep discounts.

Following the Triumph mishap, the cruise line is doing an assessment of emergency power and redundancies across its entire fleet, Howard S. Frank, Carnival's chief operating officer, told analysts during a conference call Friday. There is no estimate to the cost of improvements, which will take some time to carry out. "I don't see it as being enormous," Frank said.

The company refused to tell analysts how much it spent each year on safety and training.

In its earnings release Friday, the Miami-based company said advance bookings for 2013 are behind the same point a year earlier. The company also blamed Europe's economic problems for its inability to raise prices. North American prices are up slightly but those in Europe and Asia are lagging behind. Passengers in Europe are booking vacations much closer to the date of departure.

Asked if they would like to share how deep the discounts have been for the various lines, Carnival executives replied, "Not particularly."

Carnival runs cruises under 10 brands including Holland America, Princess, Cunard and Seabourn.

For the quarter that ended Feb. 28, adjusted earnings were 8 cents per share. Analysts had expected 3 cents per share. Revenue rose slightly to $3.59 billion. Analysts expected $3.64 billion.

The best thing going for Carnival right now is declining fuel prices.

The cruise line paid $677 per metric ton for fuel in the first quarter, down 4 percent from the same period last year. That savings alone accounted for 3 cents per share.

However, it is the full-year outlook that worries Wall Street.

Carnival had predicted in December that revenue would rise in 2013 by 1 to 2 percent. On Friday, it said that is now expects revenue to be flat.

Other cruise lines have also been hurt, mainly because of the lagging European economy. Summer Mediterranean cruises favored by Italians and Spaniards are suffering due to those countries economic woes. Last month, Royal Caribbean, the world's second-largest cruise line wrote down $413.9 million due to a substantial drop in bookings and prices in Spain following the government's austerity measures there. Royal Caribbean also blamed residual fears from the Costa Concordia disaster for a drop in European bookings.

Carnival's stock was down $1.28, or 3.6 percent, to $34.45 in morning trading.

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