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FUEL COULD MAKE THE GLASS LOOK HALF EMPTY

The following chart shows recent Intermediate Fuel Oil (IFO) 380 fuel prices.  IFO 380 is the type of fuel that comprises 90% and 80% of the consumption of CCL and RCL, respectively.  As shown in the graph, IFO 380 prices are up huge in the last two months.

FUEL COULD MAKE THE GLASS LOOK HALF EMPTY - IFO 380 prices 

Since CCL last issued guidance on 3/24/09, IFO 380 has spiked up 36%.  Prices have increased 27% since RCL issued guidance on 4/23/09.  RCL is in a better spot, however, since they are about 40% hedged for 2H 2009.  Assuming prices stabilize at current level, we estimate 2H 2009 estimates/guidance need to be reduced by $0.12 each for CCL and RCL, respectively.  However, West Texas Intermediate (WTI) prices are up significantly more over the past few months.  Should lagging IFO prices converge to WTI, the impact could be greater.  RCL actually provides guidance based on WTI prices.

FUEL COULD MAKE THE GLASS LOOK HALF EMPTY - cruise fuel cost eps impact

Fuel prices are not hard to track.  Calculating the EPS impact of a change in fuel prices is certainly not complex math.  However, falling estimates could focus investors on 2010, where capacity increases, a still difficult consumer environment, and now higher fuel costs could make for an ugly year.  Indeed, we are currently 35% and 40% below the Street on our 2010 EPS estimates for CCL and RCL, respectively, including higher fuel cost assumptions.