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Sea Sick

No amount of savvy financial planning by Carnival CFO Gerald R. Cahill could have stopped the company's recent string of very bad luck.
Kris Frieswick, CFO Magazine
January 1, 2003

Using price incentives and increasing the number of "drive-up" ports of call, Carnival Corp., and most of the cruise industry, sailed smoothly through rough economic waters after the 9/11 terrorist attacks. But no savvy financial planning by Carnival CFO Gerald R. Cahill could have stopped its recent string of very bad luck.

That bad luck started in October, when several cruise lines, including Carnival, began to report hundreds of passengers sickened by a stomach virus. Then the Carnival ship Holiday ran aground in Mexico, and the Wind Song sailing vessel caught fire during a cruise in French Polynesia.

The turn of fortune threatens the company's high booking season (January through March) as well as its stock price, a key element of the pending merger between number-one cruise line Carnival — which owns Holland America, Windstar, Cunard, and others — and number three, London-based P & O Princess Cruises.

And due partly to the mishaps, Carnival's stock dropped from a post-9/11 high of 34 in May 2002 to 22 in October, when the number of illnesses started to grow. It rebounded to 30 when the market realized passengers weren't canceling in droves. However, at press time, more shipboard illnesses were reported, and the stock had sunk to 26.

Despite the trend, observers say the effect of these events is immaterial and Carnival should close the deal when P & O shareholders vote on February 14.

"These incidences don't jeopardize the deal," says Joe Hovorka, a leisure-industry analyst with Raymond James & Associates. "They aren't something you want to see, because of the negative publicity, but once they're out of the media attention, they're out of the mind of the consumer."




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