Profits warning knocks hole in cruise operator Carnival

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The Independent Online

Cruise operators are slashing prices to try to persuade customers to holiday in the Caribbean around hurricane season, the industry's biggest player has admitted.

Shares in the Anglo-American cruise giant Carnival sank 12 per cent on a profits warning, their biggest one-day fall since the 11 September attacks.

The industry has continued to add new ships on Caribbean routes, despite the fears generated by last year's devastating hurricanes. Carnival's warning comes days before the world's largest cruise liner - the 4,375-passenger Freedom of the Seas, owned by the rival Royal Caribbean - sets sail for the region.

But passengers are nervous about potential disruption and are shunning the Caribbean in favour of Alaska or European destinations, Carnival said. There had been hints of stormy conditions ahead, and Royal Caribbean said last month Caribbean bookings were a weak spot in an otherwise strong set of results. Since then, industry executives have begun to fear that potential customers are delaying cruises because of the effect of higher petrol prices on their disposable income.

Carnival's profits warning yesterday was confirmation the "wave season" of spring bookings has been bitterly disappointing. Carnival's shares fell 12.3 per cent in London to 2,326p.

About half of Carnival's business is in the Caribbean, and although the company is buying new ships for use in the robust European market from next year, the balance of the business will still not shift significantly. Micky Arison, Carnival's chief executive, said the fundamentals of the business remain sound, driven by an ageing population and the attractions of increasingly lavish on-board entertainment.

"I don't think we are seeing anything more than another cycle where demand slowed up a little and we have needed to stimulate by pricing," he said. "Price overcomes almost everything, as we found after 11 September 2001, and the advantage of having the best margins in the business is that you can use the price card."

Carnival is based in Miami but is a member of the FTSE 100 as a result of its takeover of P&O Princess Cruises in 2003. It said earnings would be flat this year.

Royal Caribbean had argued last month hurricane fears might be a useful marketing tool. It was hoping to persuade holidaymakers who might be considering the Caribbean that a cruise ship, able to sail away from the worst of a storm, was safer than a single land-based destination.