Shares in Carnival Corp. slid by about a fifth on Monday as the owner of the cruise liner that ran aground off Italy’s west coast over the weekend estimated the initial financial impact of the disaster to be up to $95-million (U.S.).
The company, which owns the Costa Concordia through an Italian subsidiary, Costa Crociere, said the ship was expected to be out of service for the rest of the year.
Analysts warned of the potential impact on already subdued reservations during the busiest part of the bookings season after the death toll from the ship, carrying more than 4,000 passengers and crew, rose to six after it hit submerged rocks off the Italian island of Giglio in the Tyrrhenian Sea on Friday.
Jamie Rollo of Morgan Stanley cut Carnival’s estimated earnings per share by 30 per cent. “Cruising is a safer way to travel than air, but the investigation may take time, the story is getting global publicity and people are unlikely to book until confidence returns.” He said. “An apparently disorganized evacuation may lead to tighter regulation.”
Greg Johnson of Shore Capital said each 1 percentage point of Carnival’s revenue yields was worth 15 cents in earnings.
Wyn Ellis of Numis said the negative implications for the company would prove short-term. “There will, justifiably, be questions about the adequacy of management and emergency operational procedures on board which may have longer-term cost implications,” he said. “However, we expect that in due course trading will return to normal and, in our view, longer-term valuation fundamentals will not be materially impacted.”
The shares, which had fallen by almost a third in the last year, fell on the London Stock Exchange by up to 28 per cent on Monday morning to £16 before closing at £18.78, down 16.5 per cent from Friday’s close or a drop of more than £2-billion in market capitalization.
The New York Stock Exchange, where the company also has a listing, is closed for a public holiday.
Miami-based Carnival estimated the impact of the accident on this year’s earnings would be between $85- and $95-million or 11 to 12 cents a share, but added it expected to record other costs not yet possible to determine.
The Costa Concordia provides about 1.5 per cent of Carnival’s income and capacity. Its Costa Crociere subsidiary makes up 17 per cent of group capacity.
In fourth-quarter earnings released just last month Carnival said full year non-GAAP earnings per share were expected to be in the range of $2.55 to $2.85, compared with $2.42 for 2011.
Pier Luigi Foschi, chief executive officer of Costa Crociere, again blamed Francesco Schettino, the ship’s captain, for taking a route outside of the company’s guidance at a Monday press conference in Genoa. “The captain decided to enter into water he did not know in advance,” Mr Foschi said.
But reports in the Italian press on Monday suggested this was not the first time a cruise ship had sailed near to Giglio. Last August a Costa liner reportedly sailed very close to Giglio because the captain on board was from the island and wanted to salute the islanders with the vessel’s siren. A letter sent from the mayor to the ship’s captain thanking him for his detour has been published in the media.
Carnival operates more than 100 cruise ships worldwide and owns a range of brands including P&O, Cunard and Princess Cruises.
It said it would pay $40-million in deductibles on insurance to cover damage to the vessel and third-party personal injury cover.
Companies including Assicurazioni Generali, XL Group and RSA are among several insurers providing cover for the ship, people close to the situation said.
Joy Ferneyhough, an analyst at Espirito Santo, said that depending on the ultimate liability claims, the insurance loss could come to as much as $750-million. “This will make this the largest ever marine loss,” she said.
However, she added that the net losses for the individual insurers were likely to be limited. “We expect much of the loss will fall into the reinsurance market,” she added.
XL and RSA declined to comment. Generali, Italy’s biggest insurer, confirmed it was one of the insurers involved but said that due to its reinsurance policy any impact would be small.