The 33% slump in the oil price since June is good news for leisure stocks whose biggest costs include fuel. Cruise ship operator Carnival (CCL) in particular will benefit from the energy price trend as less than half of its near-term fuel costs are hedged via derivatives contracts.
Investment bank Berenberg believes cruise lines won’t pass on all the cost savings to customers via lower ticket prices. As a result it believes Carnival is ‘strongly placed’ to beat earnings expectations in 2015. It says the company uses approximately 3.2 million tons of bunker fuel a year with an average $650 per metric ton cost in 2014. Bunker fuel is now $575 and falling. ‘If this price were to persist, it would add c$250 million of earnings to Carnival or an increase in earnings per share of 13% on our already-above-consensus estimates,’ says Berenberg.
The $32 billion cap in October announced plans to strengthen its position in China where the cruise industry is expected to be one of the biggest in the world with 4.5 million passengers by 2020, according to the Chinese Ministry of Transport. A provisional deal has been signed with the country’s largest shipbuilder CSSC to form a joint venture that would design and build China’s ‘first world-class cruise ship’.
In September, Carnival reported better-than-expected third quarter results with advanced bookings for the first half of 2015 ahead of the prior year at higher prices.