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Carnival, owner of ill-fated liner, sees shares fall

The grounding of the Costa Concordia cruise liner

The grounding of the Costa Concordia cruise liner off Giglio, Italy, late Friday night could cost Carnival Corp. $95 million. The insurance loss could be $500 million to $1 billion. (Jan. 16, 2012) Photo Credit: AP

Shares of Carnival Corp., fell the most in more than 11 years in London trading Monday after the company said the grounding of its Costa Concordia liner off Italy's Tuscan coast that killed at least six people will cost it as much as $95 million.

Carnival, the world's biggest cruise operator with brands including Cunard and Princess Cruises, dropped 16 percent to $28.79 on the London exchange, the biggest decline since 2000. U.S. markets were closed for the holiday honoring civil rights leader Martin Luther King Jr.

When U.S. markets opened Tuesday, Carnival shares were down $4.50, or 13.13 percent, to $29.78.

The vessel will be out of service for at least the current financial year ending Nov. 30, the Miami- and London-based company said in a statement Monday. The reduction in fiscal 2012 earnings will amount to 11 cents to 12 cents a share, it said.

Carnival said it anticipates additional costs to the business that aren't possible to determine at this time.

"There will be negative short-term implications for bookings across the cruise sector as pictures of the stricken ship are flashed around the world," said Wyn Ellis, an analyst at Numis Securities in London.

The insurance loss could be $500 million to $1 billion, depending on liability claims, which would exceed the loss from the 1989 Exxon Valdez disaster including pollution, said Joy Ferneyhough, an insurance analyst at Espírito Santo Investment Bank.

The Costa Concordia was insured by companies including Assicurazioni Generali, RSA Insurance Group and XL Group, said three people with knowledge of the policies. They are among several insurers facing total costs of about 405 million euros (about $513 million), said one of the people, who declined to be identified because the terms of the policies are confidential.

Carnival is self-insured for the loss of the use of the Costa Concordia, which is insured for damage with a deductible of about $30 million, the company said. Third-party personal injury liability insurance carries a deductible of about $10 million for this incident.

Cash costs, excluding the capital cost of the ship, probably won't exceed $1 billion, which Carnival should be able to accommodate, Numis' Ellis said.

"Consumer sentiment soon recovers following such tragic events, and we do not expect there to be long-term negative consequences for demand," Ellis said. "Tragic accidents happen with greater frequency and, sadly, often greater loss of life in the aviation and rail industry, and this does not prevent people using these modes of transport."

Shares of Carnival, which has dual U.S. and British listings, had risen 5 percent in New York this year before Monday. That compares with a 16 percent gain for Royal Caribbean Cruises Ltd. U.S. markets were closed on Monday in observance of the Martin Luther King holiday.

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