Carnival Slumps After Saying Cruise Ship Grounding May Cost It $95 Million

Carnival Corp. (CCL) fell the most in more than 11 years in London trading after saying the grounding of the Costa Concordia off Italy’s Tuscan Coast that killed at least six people will cost the company as much as $95 million.

Carnival, the world’s biggest cruise operator with brands including Cunard and Princess Cruises, dropped 16 percent to 1,878 pence, the biggest decline since 2000.

The vessel will be out of service for at least the current financial year ending Nov. 30, the Miami- and London-based company said in a statement today. The reduction in fiscal 2012 earnings will amount to 11 cents to 12 cents a share, it said. Carnival said it anticipates additional costs to the business that aren’t possible to determine at this time.

“There will be negative short-term implications for bookings across the cruise sector as pictures of the stricken ship are flashed around the world,” said Wyn Ellis, an analyst at Numis Securities in London who reduced his recommendation on the stock to “hold” from “add.”

The insurance loss could be $500 million to $1 billion, depending on liability claims, exceeding the loss from the Exxon Valdez disaster including pollution, said Joy Ferneyhough, an insurance analyst at Espirito Santo Investment Bank.

Insurers

The Costa Concordia was insured by companies including Assicurazioni Generali SpA, RSA Insurance Group Plc and XL Group Plc, said three people with knowledge of the policies. They are among several insurers facing total costs of about 405 million euros ($513 million), said one of the people, who declined to be identified because the terms of the policies are confidential.

Carnival is self-insured for the loss of the use of the Costa Concordia, which is insured for damage with a deductible of approximately $30 million, the company said. Third-party personal injury liability insurance carries a deductible of approximately $10 million for this incident.

Cash costs, excluding the capital cost of the ship, probably won’t exceed $1 billion, which Carnival should be able to accommodate, Numis’s Ellis said.

“Consumer sentiment soon recovers following such tragic events, and we do not expect there to be long-term negative consequences for demand,” Ellis said. “Tragic accidents happen with greater frequency and, sadly, often greater loss of life, in the aviation and rail industry and this does not prevent people using these modes of transport.”

Dual Listing

Carnival, which has dual U.S. and U.K. listings, had risen 5.7 percent in London this year before today and about 5 percent in New York. That compares with a 16 percent gain for Royal Caribbean Cruises Ltd. (RCL) U.S. markets are closed today for the Martin Luther King Jr. holiday. Genting Hong Kong Ltd. (GENHK) fell 3.2 percent today.

Some investors may switch holdings into Royal Caribbean after the Concordia incident, according to Tim Ramskill, an analyst at Credit Suisse in London. “If the industry already didn’t face enough challenges -- fuel price volatility, capacity absorption, and weakness in the European economy -- this unfortunate event will reverberate on the group,” he said.

Costa Crociere Chief Executive Officer Pier Luigi Foschi told a press conference in Genoa that he doesn’t foresee a long- term impact on the industry.

Human Error

The cruise liner’s captain ordered the ship off its programmed route, an “error” that caused it to hit rocks off Italy’s coast on Jan. 13, Foschi said.

The rescue operation was halted for about four hours because of the ship’s movement in shallow waters near Giglio, Italy’s Civil Protection Agency said. Search efforts resumed about 4 p.m. local time. About 16 people are still missing from more than 4,000 passengers and crew.

TUI Cruises isn’t getting cancellations and can’t determine the effects on bookings, said Alexa Huener, a spokeswoman. Thomas Cook Group Plc (TCG), Europe’s second-largest tour operator after Tui Travel Plc (TT/), said its passengers on the Concordia were safe and it was making alternative arrangements for customers who hadn’t already joined the vessel, according to a spokeswoman for the London-based company. Hapag-Lloyd Cruises spokeswoman Negar Etminan said it’s too early to forecast the likely effect.

“We would highlight the potential impact on booking yields in an environment where booking patterns remain subdued,” Greg Johnson, a Shore Capital analyst, said in a note, adding tighter operational procedures could add to annual running costs.

Europe generated about 38 percent of Carnival’s revenue in fiscal 2010, the last full year for which geographic results are available. Its Genoa-based Costa Crociere unit is the continent’s largest cruise line based on passengers and ship capacity, according to Carnival.

Carnival bought P&O Princess Cruises Plc in 2003, three years after it was spun off from Peninsular & Oriental Steam Navigation Co.

To contact the reporter on this story: Armorel Kenna in Milan at akenna@bloomberg.net

To contact the editor responsible for this story: Sara Marley at smarley1@bloomberg.net

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