Majestic Research

Wall Street Journal

UPDATE: Carnival, Citing Strong Demand, To Increase Prices In March

By Veronica Dagher
Published: March 01, 2010

NEW YORK (Dow Jones)--Carnival Corp.’s (CCL) namesake brand said it will hike summer-cruise prices after seeing bookings so far this year “at unprecedented levels.”

Shares rose 3% in early trading to $34.70. The stock is up 71% over the past 12 months.

Although the move gave a lift to Carnival and rival Royal Caribbean Cruises Ltd. (RCL) shares on Wednesday, some analysts wonder if news of the price increases is more of a marketing push rather then a bullish statement about customer demand.

“We’ll see if these price increases are supported by demand when the prices move up,” said Matthew Jacob, analyst at Majestic Research. Jacob said if the world’s largest cruise ship operator sees demand high today it would likely be better served raising prices immediately.

Rather, Carnival may be encouraging consumers to book their vacations further in advance. Cruise lines have struggled to predict demand as consumers have cut back on extras, such as vacations. Although the cruise industry generally fills its ships, cruise operators have been forced to slash fares to attract frugal consumers amid the downturn.

Still, in light of the weaker-than-expected read on consumer confidence on Tuesday, the company could be overestimating demand for its vacations, some analysts say.

In December, Carnival cautioned its profit could shrink again in 2010 as it struggled to regain pricing power in the recession. It then said pricing for cruises still had not recovered as much as it would like but said it has been able to move up pricing in selective areas of the business.

On Wednesday, Carnival Cruise Lines said it would increase prices across the board by as much as 5%, depending on departure date, effective March 22. The cruise-ship operator said the booking levels have been helped by strong travel-agent support, marketing initiatives and itinerary enhancements.

“While pricing hasn’t fully recovered to 2008 levels, we are increasing prices,” said President and Chief Executive Gerry Cahill.

Carnival Corp. - which operates 12 brands including Princess Cruises, Holland America Line and Cunard Line cruises - has cited soft prices as it has seen profit decline. In December, Carnival said its fiscal fourth-quarter earnings dropped 48% amid falling yields and declining revenue. The current quarter ends Sunday.

-By Veronica Dagher, Dow Jones Newswires; 201-938-4290; veronica.dagher@dowjones.com