Carnival Reports Unrealised Loss of $145 million on Fuel Derivatives

Carnival operates a fleet of 100 ships with an additional nine ships scheduled for delivery by March 2016.

Global cruise company Carnival Corporation & plc (Carnival) has reported an unrealised loss of $145 million on fuel derivatives in its second quarter results for 2012, which follow a recent drop in oil and bunker prices.

The figure took their net income for the quarter down to $14 million, a drop of 93% from $206 million in the same period last year.

Revenues for the quarter were $3.54 billion, a fraction below the $3.55 billion analysts had been predicting.

Carnival currently has 38% of its estimated fuel usage through to the end of FY2013 covered by fuel derivatives, with Brent crude, currently at $90.67 per barrel, needing to trade above $127 if the company is to benefit from any of the existing hedges.

Responding to questions about hedging during the company's Earnings Conference Call Webcast Presentation, Carnival Chairman and CEO Micky Arison said, "we look at this, or I look at this anyway, as insurance. It was, at the time, cheap insurance. It's now become a little bit more expensive insurance, but that's what it is, it's insurance."

The company said a quarter-on-quarter gain in bunker prices of 12 percent to $756 per metric tonne (pmt), verses last year's figure of $673 pmt, was to blame for its fuel costs increasing $71 million over the same period last year, although that was slightly less than the $772 pmt figure they predicted in March.

"Continued focus on cost controls and fuel consumption helped to mitigate the impact of higher fuel prices in the quarter," Arison said.

Lower Fuel Prices

Looking ahead, Arison said that booking volumes were up, indicating that "a progressive recovery is well underway."

Carnival COO, Howard S. Frank said that "a positive development for 2013 is our expectations, at least currently, that lower fuel prices should provide a boost to earnings using our current fuel price of $620 pmt."

The lower fuel prices, net of their forecast realised losses on fuel derivatives, was given as the main reason for increasing their full year 2012 expected earnings per share by $0.30 compared to their March guidance.

"We are currently estimating that lower fuel prices should benefit first half 2013 earnings per share by approximately 23 cents, so that is a little bit of a silver lining going into 2013," Frank added.

Dual listed on the New York and London Stock Exchanges (NYSE and LSE) Carnival has headquarters in Miami, Florida, and London, England, and operates a fleet of 100 ships with an additional nine ships scheduled for delivery by March 2016.