Oil shock sorts cruise lines into the hedged and hedged nots

{"text":[[{"start":5.43,"text":"Investors in cruise line operator Carnival Corporation are racing for the lifeboats. The company’s US-listed stock is down 18 per cent since the US-Israeli attack on Iran triggered a massive increase in oil prices. Carnival is particularly exposed since it opted years ago to go without oil hedges. Today, that decision looks penny wise and pound foolish. "}],[{"start":31.87,"text":"Fuel is one of the biggest expenses for ship operators. Hedges aren’t free and investors aren’t all that fussed when prices are low and stable. But they can be quick to jump ship when the tide turns. Shares of rival Royal Caribbean, which has hedged about 60 per cent of its oil use in 2026, are down a more modest 11 per cent since the conflict started. "}],[{"start":56.269999999999996,"text":"High fuel prices are doubly frustrating because the industry was just about rediscovering its sea legs after the pandemic, which upended cruises more than most industries. Operators took on eye-watering amounts of debt as vessels sat idle in ports or were taken out of the water completely. Net losses for Carnival between 2020 and 2022 exceeded $25bn. "}],[{"start":null,"text":"

"}],[{"start":84.72,"text":"Expensive safety protocols and a marketing push followed to win passengers back. A new social media strategy and pit stops on glitzy private islands were even helping break through to younger holiday goers. At the end of last year, Carnival was still carrying about $26bn of net debt, up from just under $10bn pre-pandemic. This is about 3.6 times ebitda, above levels of roughly 2 times in 2019 but almost half what it was back in 2023. "}],[{"start":118.31,"text":"To be fair, Carnival is less sensitive to rising fuel prices than it used to be. The cruise operator has made its liners more efficient and optimised travel routes so consumption has fallen by 20 per cent per day since 2019. These are larger efficiency gains than rivals’, according to BNP Paribas. Carnival expects to net about $650mn in cost savings from lower fuel consumption this year compared with seven years ago. "}],[{"start":149.24,"text":"Other ways of cushioning the company from the oil price shock are less easy to pursue. Weaving surcharges into bookings and ticket prices may be ill-advised given hedged rivals are under less pressure to do so. Carnival is trying other means to get investors to stay on board, like pledging to return $14bn to shareholders by 2029. But funnelling cash outside the business carries its own risks: the cruise industry is locked in intense competition, where regular refreshing of the fleet is needed to keep pace with rivals. "}],[{"start":190.07,"text":"Carnival’s position wouldn’t be so bad if its rivals were in the same boat. The point of locking in fuel exposure is not so much to guess future prices, but to maintain a level competitive playing field. Companies occupying the same niche often hedge similar amounts; that way, if there’s a crisis, everyone can pass on the costs. In that sense Carnival’s real problem isn’t fuel prices or hedges, but the fact that it is sailing against the wind."}],[{"start":229.95999999999998,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1775718209_9199.mp3"}