Rogue captain defence is firm’s best hope

WE all know about rogue traders, but the idea of a rogue captain is pretty new. Costa Cruises, the Italian arm of Carnival, has wasted no time in pointing the finger at the man steering its capsized ship. Just as UBS needed to convince clients a single errant employee was to blame for unauthorised trades (rather than its own risk systems), Carnival wants to prove its procedures aren’t at fault.

If Carnival can persuade customers that human error was the only cause of the crash, it could mitigate the loss of potential bookings. Even so, we think the current estimated hit to annual profits of $95m (£62m) is certain to grow.

Luckily, the cruise ship industry has a pretty good safety reputation. According to the US Coast Guard, cruise liners are the safest form of commercial transportation. The average number of fatalities per 1m passengers was less than 0.1 between 2005 and 2010, compared to 0.3 for airlines. It stands to reason: there were 4,200 on board the Costa Concordia, the equivalent of 20 Boeing 737s. If this were an aviation disaster involving a similar number of passengers, we would not be talking about deaths in the single digits.

The accident couldn’t have come at a worse time for the industry. This is the busiest time for bookings and its customers, who tend to be older, are more likely to cancel or forego a booking after an incident like this.

A combination of other factors such as the Eurozone crisis, the cost of fuel and too much capacity meant this was already going to be a tough year for the cruise industry. Now it will be much tougher still.

With that in mind, it is hard to recommend Carnival’s stock, cheap though it may seem.