Moody’s Investors Service lowered Carnival’s outlook Friday, saying the cruise operator is vulnerable to increased debt levels as travel demand continues to soften.
Miami-based Carnival and others in the cruise industry have been squeezed as consumers continue to curb their discretionary spending due to economic and job worries. Cruise operators have managed to keep their bookings up during the recession by slashing prices to make trips more appealing to consumers. But the discounted rates lead to lower revenue and travelers have tended to focus on cheaper Caribbean jaunts instead of pricier European and Alaskan vacations.
Consumers also have opted to spend less on gambling, shore excursions, shopping and photos during their cruises, although they continue to spend on spas and drinks.
Moody’s cut Carnival Corp. and Carnival PLC’s outlooks to negative from stable, but maintained their ratings.
“Lower net revenue yields will cause Carnival’s earnings to decline and debt levels to increase,” the ratings agency said in a statement.
Net revenue yields, the amount cruise companies make from their passengers after subtracting expenses, are a key profitability gauge for cruise operators.
In March, Carnival lowered its forecast for fiscal 2009 earnings, in part because prices have remained weak for cruises booked for the second half of this year. Standard & Poor’s Rating Services recently lowered its corporate-credit rating on Carnival and its rival Royal Caribbean Cruises Ltd.