Carnival Corporation’s Crash Should Not Hurt Royal Caribbean and Others

After one of Carnival Corporation’s (NYSE:CCL) largest ships, the Costa Concordia, went down off the coast of Italy (NYSE:EWI) on Friday, London-listed shares fell 16 percent. Despite this setback, the industry is actually seeing some growth, although profits are scant.

Even this disaster — with at least six fatalities and critical damage to the 450 million euro ship — is not likely to affect that trend. Investors have been bullish on cruising stocks, with CCL rival Royal Caribbean Cruises (NYSE:RCL) up 16% year-to-date.

The cruise company’s initial estimate of the direct costs of the catastrophe is between $85 million and $95 million, which amounts to around 5 percent of the most recent fiscal year’s reported revenue. The harm will be much more profound, though, for the cruise industry as a whole.

Higher insurance rates to balance out the cost of the wrecked ship will be easier to deal with than the expense of soothing the worries of potential passengers. Although words of assurance can be given for free, changes to ship design will be expensive and enticing discounts even more so.

Even so, this is a healthy industry. Since 1990, the number of passengers has grown 8 percent per year, according to the Cruise Market Watch website. The industry’s earnings in 2011 were $34 billion, only slightly less than the combined revenue of United and American Airlines.

To contact the reporter on this story: Gina Smith at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com