Page 26: of Maritime Reporter Magazine (December 2000)

Cruise Shipping Prospects

New Deliveries, Consolidation Drive Cruise Industry

As the world's two major cruise lines,

Carnival and Royal Caribbean Interna- tional, wage a continual battle to increase market share and draw addi- tional passengers, the real war is waged in the board rooms of these and all other major cruise companies to increase rev- enue per passenger and decrease dis- counting. A record number of new ships and a sluggish North American econo- my prompting fare cutting, and cruise lines are fighting to maintain buoyant bottom lines. A recent report from

Lazard Freres helps to shed some light on the economic strength of the cruise majors.

While Lazard Freres is revising its fourth quarter EPS estimate for Carnival

Corp. (CCL) to $0.38 from $0.42, the downgrade takes into account weaker operating results at Airtours and the ben- efit of a lower tax rate for Costa Cruises.

CCL recently purchased Italy-based

Costa.

The low Airtours returns, combined with restructuring charges have Lazard's analysts predicting that CCL's 4Q EPS is expected to hit $0.05. In more certain terms, Airtours specified that its German tour operator, Frosch Touristick (FTi) would incur losses during the fourth quarter that would be $28.7 million higher than anticipated. The company also expressed that it plans to take a $129.3 reorganization charge. Airtours will also recognize a $337.6 million gain on the sale of its remaining interest in Costa to CCL. Despite this, CCL reported that it would take into consid- eration this gain in its equity accounting of Airtours' fourth quarter earnings. It is estimated that these unfavorable variants at Airtours are to have an impact of $0.09 per share to Carnival in the fourth quarter. However, the cruise line decid- ed that it would recognize a non-cash gain of approximately $0.04 per share due to the reduction of Costa's net deferred tax liabilities, resulting from the reduced tax rate that went into effect upon registering Costa's fleet within the

Italian International Ship Registry.

With a reported F2000 EPS Estimate

Cut to $1.63 from $1.67, Lazard reports that CCL remains a sound investment in the midst of a rocky industry environ- ment. While analysts do not foresee signs of improved pricing (the compa- ny's stock has see-sawed between $20 and $25 three times in the past six months), it is believed that increasing pressure on smaller competitors could continue the ongoing spurt of industry consolidation, which would benefit

CCL's advantage on a long-term basis.

This prediction, coupled with the com- pany's F2001 estimate currently stand- ing at $1.73, has led Lazard to maintain its Outperform rating for CCL.

Royal Caribbean (RCL) reported, on

October 18, its third quarter EPS at $1.04 — up 13 percent from $.92 one year ago. This growth is driven by an 18 percent increase in capacity, subsequent to the line's premiere vessel of the new

Eagle Class series, Voyager of the Seas, which was introduced last November. A firm contributor to the company's growth is its subsidiary company,

Celebrity Cruise Lines, which has come through with the successful debut of

Millennium, the first member of the line's new ships series that bears the same name. Introduced this past sum- mer, the vessel is a firm contributor in the company's 109.7 percent capacity

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