Carnival Corp. (CCL:US), the cruise operator beset by mishaps at sea this year, will spend $600 million to $700 million on fire protection and backup systems across its entire 101-ship fleet.
Carnival is installing additional emergency generators and reinforcing shipboard systems to prevent a loss of power like that on its Triumph liner in February, the Miami-based company said a statement today. The company, the world’s largest cruise operator, will also invest in new fire-prevention, detection and suppression systems.
The Triumph’s engines failed after a fire in February, leaving 3,100 passengers adrift off the Mexican coast for several days without working toilets and electricity. The mishap was the first of at least three incidents this year involving separate ships.
“Safety is our highest priority,” Howard Frank, vice chairman and chief operating officer, said at the company’s annual meeting today. “We’ve learned much in the past several years and we continue to learn.”
The company’s 24-ship Carnival Cruise Lines unit is creating a Safety & Reliability Review Board that will include outside experts, the company said. In addition, the company will more than double the capacity of a training facility in the Netherlands to accommodate 7,000 employees a year in bridge and engine-room training.
The spending will probably take place over the next three years, Steven Wieczynski, a Stifel, Nicolaus & Co. analyst, wrote in a research note today. The company had been spending about $650 million annually on maintenance, he said.
“Without clarity on the capex spending levels, investors couldn’t get comfortable,” write Wieczynski, who recommends buying the shares.
Carnival plans to earmark about $300 million of the spending for its namesake unit, according to the statement. The company had about $2.3 billion in capital spending last year.
The company said this week it will reimburse the government for help responding to accidents aboard the Triumph and Splendor. U.S. Senator Jay Rockefeller, a West Virginia Democrat who heads the Senate Committee on Commerce, Science and Transportation, had asked the company in a March 14 letter whether it would pay $4.2 million in rescue and investigation costs incurred by the U.S. Coast Guard and Navy.
“It’s unfortunate that it has taken a series of terrible cruise line failures, and the scrutiny that followed, for Carnival to respond with some improvements for their passengers’ safety,” Rockefeller said in an e-mailed statement. “I will continue to take a close look at how the cruise industry operates and hold them accountable for the safety and quality that their passengers expect.”
Carnival fell 0.2 percent to $33.23 at the close in New York. The shares have dropped 9.6 percent this year, compared with an 8.8 percent gain for the Standard & Poor’s 500 Index.
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