Carnival Corporation (CCL), Royal Caribbean Cruises Ltd. (RCL), Norwegian Cruise Line Holdings Ltd (NCLH): The Effect of Passenger Safety on Cruise Line Shares

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Passenger safety on cruise lines has been a hot topic lately after the occurrence of several incidents that have led to passenger deaths, emergency evacuations, and cancelled trips. The Cruise Lines International Association board has unanimously approved a passenger bill of rights that is designed to ensure the “safety, comfort, and care” of cruise guests. Reading through the list of rights, it appears the industry is putting in writing what passengers have expected all along.

So far, the incidents at sea have not had a major long-term impact on share prices. It will be interesting to note if the industry’s latest move to address passenger safety across all major U.S. cruise lines, such as Carnival Corporation (NYSE:CCL), Royal Caribbean Cruises Ltd. (NYSE:RCL), and Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) will support the share values of these companies and assure passengers that cruising is a safe mode of travel.

Carnival Corporation (NYSE:CCL)

Carnival’s troubled and no-fun ships

Here’s an example of how trouble at sea can affect a company’s value — on the week of February 11, as news broke out that Carnival’s ship Triumph was headed back to port due to a variety of problems, company shares ended the week almost 5% lower.

Carnival Corporation (NYSE:CCL) stated it expects cruise disruptions and ship repairs to drive down earnings by $.08 to $.10 per share for the first half of Carnival’s 2013 fiscal year. So far, the greatest impact to the company was the 2012 tragedy, where shares plunged dramatically but shortly thereafter regained their value.

The five-day period from May 23 to May 30, the time surrounding the announcement of the passenger bill of rights, Carnival Corporation (NYSE:CCL) shares rose about 2% from $32.88 to $33.51. The company’s latest 2013 earnings guidance estimates net revenue to be down 2% to 3% due to higher booking volumes at reduced prices. Full year 2013 EPS was revised down to $1.45 to $1.65, down from previous estimates of $1.80 to $2.10.

Royal Caribbean affected despite safety record

Royal Caribbean Cruises Ltd. (NYSE:RCL)’s website boasts about the company’s 42-year safety record. However, the company was still affected by the 2012 accident of the Carnival-owned ship Costa Concordia and Royal Caribbean saw its passenger bookings in Europe drop. On the trading day following the accident, the company saw a drop in share value of about 6% from $28.75 to $26.97, while Carnival Corporation (NYSE:CCL)’s stock plunged about 14%.

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