Weeks after cruise lines sighed in relief amid rebounding profits as consumers began spending again on luxury vacations, worries have resurfaced as mounting protests in the Middle East continue to send oil prices surging to new highs.
Royal Caribbean Cruises (NYSE:RCL) traded 5% lower on Tuesday, while larger rival Carnival (NYSE:CCL) fell by more than 7%.
U.S. crude hit 30-month highs this week amid the regime protests in Libya and its neighboring countries. The increased prices reflect investors’ fears that continued unrest could spread to other top oil producing nations and keep prices high for some time. Oil is one of cruise lines’ largest expenses.
“If Muammar al-Qaddafi stays in power it’s going to get really bloody and that’s a major impact on global markets,” Caprock Risk Management CEO Chris Jarvis told FOX Business.
The protests in Libya could string out as long as six months, he said.
Violence in Libya, Africa’s largest oil producer, has forced 8% of its 1.6 million barrels of crude production per day to shut as companies continue to halt their production and pull workers out of the country. Libya declared force majeure on all oil product exports.
The mounting protests are sour for cruise companies, which started to see an uptick in revenue following several quarters of lackluster sales as consumers put discretionary spending largely on hold during the recession.
The rebound led Royal Caribbean to book a fourth-quarter profit of $47.7 million, up drastically from $3.4 million in the year-earlier period. Carnival, meanwhile, saw its profit grow 29% during the quarter, leading the company to raise its quarterly dividend to 25 cents from 10 cents.