Oil prices fell Thursday after climbing to their highest level in more than a year.
Competitor considers a surcharge
With an unnamed cruise competitor considering a fuel surcharge for customers — as lines sometimes instituted during past oil price hikes — would Carnival go that route? Truist analyst Patrick Scholes asked during Carnival's earnings call.
Not off the table
'It's certainly not off the table,' Weinstein said. But 'it's not something we're planning to implement in the near term, though that could certainly change.' It would depend on societal norms and customer expectations, he added. It wouldn't be retroactive. It also would be temporary.
However, Weinstein pointed out an action Carnival can implement, no matter what, is using less fuel. And that saved $375m to the company's bottom line this year, compared to 2019.
Why not hedge, as others do?
Scholes said long-holding investors don't like the day-to-day volatility of the stock when oil prices get volatile, leading to volatility of earnings. Hedging has a cost but if it brings in a long-holding investor base, it may be worth it long-term for the stock, he argued.
Competitors hedge. Why not Carnival?
'We don't take anything off the table, including hedging,' Weinstein reiterated, noting: 'We only get the question when fuel prices spike. We never get the question when it's going the other way ... It's not a question of hedging, it's are you putting wagers on that are either going to benefit you or not, depending on the environment?
'I buy the volatility part,' Weinstein continued. Yet the last time Carnival studied the matter, hedging added only about 1% to the share price.
'Doesn't make a dent' long term
'Even though it might take away volatility, when you look at the long-term value of the firm, ultimately it doesn't make a dent in the grand scheme of the cash flow generation discounted back, etc.
'It is a consideration ... as is the cost of any hedging program,' Weinstein said. 'We'll continue to look at it but, thus far, when we look at it, when we lay out all the pros and the cons, we haven't been there.
'I wouldn't say that's our answer forever. It's just where we are now.'