Falling oil price

[Hoveto]

Hi, now that fuel has fallen by 40% can we expect a reduction in cruise fares, or an increased on board credit especially for those of us already booked for next year, and enhanced menus. Or will the cruise companies pocket the profit?

[Austcruiser84]

Hi, now that fuel has fallen by 40% can we expect a reduction in cruise fares, or an increased on board credit especially for those of us already booked for next year, and enhanced menus. Or will the cruise companies pocket the profit?

 

It's never that simple. Cruise lines, like airlines, buy fuel in bulk. So, there is a good chance that Cunard has secured at least 6 months worth of fuel at formerly higher prices. It will be some time before fares come down - if at all should the oil price go back up (which is expected as OPEC will not maintain supply at this level for long).

[Hoveto]

That may be true, but they are quick to apply fuel supplements when the cost of fuel increases.

[Austcruiser84]

That may be true, but they are quick to apply fuel supplements when the cost of fuel increases.

 

Of course. Welcome to the world of business where the number one goal is to make profit and make lots of it.

[Underwatr]

Look at the bright side -- no fuel supplements for the time being.

[ToadOfToadHall]

Hi, now that fuel has fallen by 40% can we expect a reduction in cruise fares, or an increased on board credit especially for those of us already booked for next year, and enhanced menus. Or will the cruise companies pocket the profit?

 

Oil may well have fallen by 40%, but the price of fuel certainly hasn't fallen by the same amount for all sorts of reasons. a) Because the fuel companies are slow to reduce their prices and b) because a large part of the cost of fuel is tax and duty, and that remains the same.

[balf]

Does Cunard pay tax and duties on bunker fuel?

 

David.

[Salacia]

According to a report just published by The Wall Street Journal, "Carnival Corp. swung to a loss in its November quarter as improvements to ticket prices and onboard spending were wiped out by a heavy fuel derivative charge...Still, Carnival gave an outlook for its newly started fiscal year that met Wall Street’s expectations, forecasting that benefits from falling fuel costs would be offset in part by unfavorable foreign exchange rates...For the period ended Nov. 30, Carnival posted a loss of $102 million, or 13 cents a share, compared with a profit of $66 million, or 8 cents a share, a year earlier." quoted from http://www.wsj.com/articles/carnival-swings-to-loss-on-fuel-derivative-charge-1419000722

Edited December 19, 2014 by Salacia

[Underwatr]

Annual results were $1.96 per share on revenue of $3.72 billion compared to $1.58/share on revenue of $3.66 billion in 2013.

 

Fuel prices declined 13 percent to $584 per metric ton for 4Q 2014 from $671 per metric

ton in 4Q 2013 and were better than the September guidance of $635 per metric ton.

 

Fuel derivatives are common among cruise lines and airlines, where a significant fraction of operating costs are due to the cost of fuel. The value of the contracts is reflected at fair market value so this may be as simple as recording the change in value of existing fuel purchase contracts. Since the market value for the fuel has dropped the market value of the asset (future fuel) in excess of the liability (what will be paid for the fuel) has dropped.