Why Carnival Will Never Be Great Again

Carnival Costa ConcordiaIt's now been two weeks since Carnival's (CCL) tragic Costa Concordia accident off the Tuscan coast of Italy.

After refuting reports that the leading cruise line operator was insensitively offering survivors a 30% discount on a future Costa cruise, Carnival came up with a public offer to those who found themselves on the unfortunate voyage.

Carnival will shell out the euro equivalent of $14,460 to compensate every surviving passenger to cover the lost baggage and psychological trauma.

I won't opine about whether that's fair compensation. Every passenger is unique. Considering the lavish accessories and clothing that many ritzy travelers bring alone on a formal Mediterranean cruise, I'm sure that won't even be enough to cover the valuables lost by some of the passengers. They'll sue. Others will take the money and run.

My concern here is with Carnival as an investment at this point.

Not-So-Bon Voyage

Cruising is awesome. Cruising is safe. Potential passengers should disregard this tragedy. If anything, we now have a cautionary tale for any captain to avoid veering off course for whatever reason. Taking a cruise was already a generally safe travel option, and now it will be even safer.

I even recently argued how the catastrophic Concordia mishap makes this the best time to get a great deal on a future cruise.

What remains to be seen is the Costa brand itself can survive.

This is a global news story that travelers won't soon forget. It obviously can't match the Titantic. It may not even be as memorable as the hijacked Achille Lauro. However, the Costa name will forever be linked to the Concordia accident despite decades of brand building.

Thankfully for Carnival, it's a company with many different brands.

The namesake brand is more than familiar closer to home. It's the cheap "fun ship" cruise line for first-time passengers or cost-conscious consumers. Then there are the classier brands in Carnival's arsenal, like Holland America and Seabourn. Its Princess line was immortalized by The Love Boat. Overseas -- literally -- Carnival's fleet includes P&O Cruises, Cunard, and AIDA. If it must nix the Costa brand, it has no shortage of alternatives.

Ports of Fall

Despite Carnival's industry-defining depth of vessels, there's still something missing. Disney (DIS) has doubled its fleet to four ships since last year, and it obviously has the market cornered on premium cruising for young families. Larger rival Royal Caribbean (RCL) turned heads by wooing families with older kids by installing rock walls aboard its ships, and these days its newer boats offer zip lines and surfing simulators. Norwegian Cruise Lines -- which filed initial paperwork to go public last year -- attracts sophisticated cruise veterans who appreciate its less rigid "freestyle cruising" approach, which means passengers don't have to eat at a particular restaurant at a particular time.

How far do you think Carnival can go on its "fun ship" theme?

The company's flagship brand is the Walmart of cruising. It's the biggest. It's usually the cheapest. This may not necessarily be a bad place to be during a period when cruise lines are growing their fleets and expanding into new ports that will attract even more first-time cruisers; however, investors may be better served by focusing on a smaller rival with a more fine-tuned marketing focus.

Investors comparing Royal Caribbean and Carnival as potential investments may be surprised.

Let's check what analysts think. Wall Street predicts Carnival will grow its revenue by a little more than 1% to $16 billion this year. They see earnings of $2.36 a share, shrinking slightly from last year's $2.44-a-share showing.

Now let's try Royal Caribbean on for size. Analysts are forecasting revenue to grow by nearly 4%. They see net income of $2.98 a share, well ahead of the $2.75 a share it posted in 2011.

Mr. Market is no dummy. If a stock is growing faster, it's the one that will command the higher valuation. Except that's not the case here. Carnival is trading at 13 times this year's projected profitability. Royal Caribbean checks in at a more reasonable nine times this year's earnings target.

The Open Seas

One of the four reasons that I offered for locking into a cruise booking now is that fuel prices are projected to move higher. Some analysts believe that retail gas prices may approach 2008's peak, and that increase will likely be mirrored across all modes of transportation outside of you pedaling a bike to work.

Cruise lines can slap on fuel surcharges when things get out of hand, but the easier solution is to juice up room rates. But it'll be hard for the industry to raise prices in the near term with the Concordia tragedy fresh in the mind of consumers.
What do you think that will do to margins?

Analysts are already talking down Carnival's prospects. Just three months ago, the pros were modeling a profit of $2.83 a share this year and $3.29 a share come fiscal 2013. Now, as I noted above, they foresee net income of $2.36 a share in 2012 and $2.79 a share next year.

If consumer demand doesn't keep up with the way that cruise lines have been rolling more and bigger ships out of shipyards, there are going to be price wars and shakeouts in the future.

Living in Miami, I have nothing but respect for the Arison family, which runs Carnival, and for my many neighbors who have helped build it into the world's largest cruise ship operator. However, the stock's lofty valuation and near-term deterioration of its fundamentals are difficult to ignore.

Are you still sure you want to go on this Carnival ride, investors?

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, except for Disney. Motley Fool newsletter services have recommended buying shares of Disney.


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HC

it's spelled TITANIC! Not TITANTIC!!!

February 01 2012 at 12:57 PM Report abuse rate up rate down Reply
glennfausz

Why this recipe works:

Unless you’re a practiced pie baker, it’s hard to get the same results every time. We wanted a recipe for pie dough that rolls out easily every time and produces a tender, flaky crust.

The first step was to determine the right fat. As with our basic dough, a combination of butter and shortening provided the best balance of flavor and tenderness. Once again, the best tool to cut the fat into the flour was the food processor. To ensure same-sized pieces of butter time after time, we eliminated the pieces entirely and made a paste instead. Rather than starting with all the flour in the processor, we put aside 1 cup of flour and processed the remaining 11/2 cups with all of the fat until it formed a unified paste. We added the reserved flour to the bowl and pulsed it until it was just evenly distributed. Finally, we tackled the tenderness issue, which is partially determined by the amount of water added. In order to roll easily, dough needs a generous amount of water, but more water makes crusts tough. We found the answer in the liquor cabinet: vodka. While gluten (the protein that makes crust tough) forms readily in water, it doesn’t form in ethanol, and vodka is 60 percent water and 40 percent ethanol. So adding 1/4 cup of vodka produced a moist, easy-to-roll dough that stayed tender. (The alcohol vaporizes in the oven, so you won’t taste it in the baked crust.)



For one 9-inch Double-Crust Pie

Vodka is essential to the texture of the crust and imparts no flavor—do not substitute.

This dough will be moister and more supple than most standard pie dough’s and will require more flour to roll out (up to 1/4 cup).

Ingredients
2 1/2 cups unbleached all-purpose flour (12 1/2 ounces)
1 teaspoon table salt
2 tablespoons sugar
12 tablespoons cold unsalted butter (1 1/2 sticks), cut into 1/4-inch slices
1/2 cup chilled solid vegetable shortening , cut into 4 pieces
1/4 cup vodka , cold
1/4 cup cold water
Instructions
· 1. Process 1 1/2 cups flour, salt, and sugar in food processor until combined, about 2 one-second pulses. Add butter and shortening and process until homogenous dough just starts to collect in uneven clumps, about 15 seconds (dough will resemble cottage cheese curds and there should be no uncoated flour). Scrape bowl with rubber spatula and redistribute dough evenly around processor blade. Add remaining cup flour and pulse until mixture is evenly distributed around bowl and mass of dough has been broken up, 4 to 6 quick pulses. Empty mixture into medium bowl.

· 2. Sprinkle vodka and water over mixture. With rubber spatula, use folding motion to mix, pressing down on dough until dough is slightly tacky and sticks together. Divide dough into two even balls and flatten each into 4-inch disk. Wrap each in plastic wrap and refrigerate at least 45 minutes or up to 2 days.

Technique

· Key Steps to Foolproof Pie Dough


1. MAKE A FAT AND FLOUR PASTE: Completely blending part of the flour with all of the butter ensures a consistent amount of fat-coated flour in the final dough.


2. ADD MORE FLOUR: Pulsing in the final cup of flour ensures a consistent amount of uncoated flour in the final dough.


3. ADD WATER AND VODKA: Sprinkling with water and vodka ensures even distribution. No need to skimp—unlike water, vodka won't make the dough tough.

January 30 2012 at 8:34 PM Report abuse rate up rate down Reply
glennfausz

I have been on many cruises over the years. Alaska, Carribean, Mediterranean, Hawaii ,Panama Canal... all of them memorable, fun, and safe. EXCEPT one. And that was, you guessed it- a Carnival cruise. Crew polite to your face but of no help when needed. Oh, yes, for the Captains dinner they were unable to get lobster, So we had a steak. Whoopie. Ship was dirty, food was suspect and of poor quality. Bad problems on board and my family was offered a 30% discount on a future carni cruise. I'll stay home before I would go on a Carni cruise again. Bad experience on a carni cruise.

January 30 2012 at 8:34 PM Report abuse rate up rate down Reply
Herb

If you think NCL attracts "savy cruise veterans with free style dining" you are so far out of it that i question if you have ever been on a cruise? Almost all cruise lines have had one version or other of free style cruising for years. You also name carnival the walmart of cruising...as if that is a bad thing ? And did you notice that carnival owns holland america, a very sophisticated brand that caters to older?..as well as Princess that competes easily with royal carib...did you notice that holland america and princess between them practiacally control all of the alaska cruises and cruise tours/trains/buses/hotels?

HORRIBLE STORY by a very LAZY and poorly informed writer.

January 30 2012 at 7:46 PM Report abuse rate up rate down Reply
wehew

Carnival has never been a great cruise line. Remember when one of their ships rammed and sank a Cuban fishing boat, killing most of the crew? The cruise liner was reported to be on autopilot at the time....

January 30 2012 at 12:27 PM Report abuse rate up rate down Reply
bobrav

I'm guessing the passengers are figuring out how many margaritas one can buy for $14,460 before they settle.

January 30 2012 at 11:53 AM Report abuse +1 rate up rate down Reply
finlmgr

Micky A. needs to spend some of his billions compensating passengers on the Concordia cruise. Also he needs to bring all brands to a US flag. Concern over personal safety aboard and having to deal with the one sided laws of other countrys where the ships are flagged is reason enough to think more than twice about a cruise.

January 30 2012 at 10:48 AM Report abuse +2 rate up rate down Reply
janswizz

The Carnival boat resembles what Obama is doing to our once great nation.

January 30 2012 at 8:53 AM Report abuse rate up rate down Reply
Sand

We shouldn't be blaming the cruise ship company for this tragic event. It is the fault of the captain and what he did. He is to blame for everything that happened. I been on a couple cruises and will never sail again. We put our trust in these people to give us a safe trip whether cruising, flying or what not.

January 29 2012 at 8:56 PM Report abuse +1 rate up rate down Reply
Skeet !!

This incident happened right after I talked my sister into going on her very first cruise with me. I knew it would happen but this week she called and said "what do you think about that ship?" I told her, "Don't start." She's a 'sky is falling type person". Things happen. I've been on Norweign and Carnival. Carnival is the Big Lots of cruising in comparison, but I'm going to spend time with my sister. We are exploring the sea together which is something we've never done. It's no different than when the cruise lines were having issues with people getting sick. Get over it. I was told 24 years ago I had maybe ten years to live. I'm still here. I'm waiting for the world of the rich and greedy to catch up to my way of thinking..Embrace the day and being happy because you woke up on the top of the dirt.

January 29 2012 at 8:51 PM Report abuse rate up rate down Reply