Carnival Corporation (CCL), Royal Caribbean Cruises Ltd. (RCL): This Stock’s Recent Rebound Is a Sucker Rally

Carnival Corporation (NYSE:CCL), the world’s largest cruise operator, recently announced a restructuring plan which involves splitting the roles of the CEO and the Chairman. Micky Arison, whose father founded the company in 1972, relinquished his role as the CEO, with Arnold Donald taking up the position. Nonetheless, Arison is expected to remain a key figure in the company’s leadership, and will certainly be involved in making some key decisions. Since the company reported FQ2, 2013 results, a rebound in stock price has been the highlight, but how long can it continue?

Carnival Corporation (NYSE:CCL) is in the process of trying to recover a significant chunk of its market share following its most recent disasters in 2012 and 2013. The company is still recovering from the effects of the sinking of Costa Concordia off Italy in January 2012. In February this year, Carnival Corporation (NYSE:CCL) suffered another setback after an engine caught fire in the Gulf of Mexico, while in a separate incident, robberies followed shortly, with 22 passengers being the victims.

All these events have resulted in reduced bookings, forcing the company to give discounts in a bid to rebuild customer base. However, this strategy could do more harm than good in the long run as margins are set to suffer amid fluctuating fuel prices.

A pleasant surprise as fuel costs decline

Carnival Corporation (NYSE:CCL) reported $72 million, or $0.09 per share, in non-GAAP income, down from $159 million, or $0.20 per share, in the same quarter last year. Analysts polled by Thomson Reuters had projected a net income of about $0.06 per share, excluding special items. However, the company’s revenue missed the analyst estimate of $3.55 billion as it came in at $3.48 billion, down from $3.54 billion reported in the same quarter last year.

The company’s impressive profits were largely due to the reduction in fuel costs, which fell 10% during the quarter. The fall in revenue was due to the decline in bookings for the company’s largest brand, Carnival Corporation (NYSE:CCL), which holds the largest inventory to sell. Additionally, the discounting, which is expected to continue through 2014, affected revenue from the unit.

Competition

Carnival Corporation (NYSE:CCL) faces competition from the Royal Caribbean Cruises Ltd. (NYSE:RCL) and Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH), in the cruise and resorts industry. The two have capitalized on Carnival’s troubles despite the fact that their pricing remains high, overall. For instance, a seven-night Royal Caribbean Cruises Ltd. (NYSE:RCL) goes for about $350. On the other hand, a five-night Carnival cruise has already sold for as little as $249, not a direct comparison but the picture is imprinted on the pricing.