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October 26, 2008

Cruise lines say they'll end fuel supplement

Both Carnival Corporation and Royal Caribbean Cruise Lines say that they are eliminating their current fuel supplement charges.

Only it's not quite as simple as that. Both companies have couched their announcements in terms that may make it difficult for the typical cruise passenger to figure out whether or not they'll be paying a fuel charge on some future cruises or may get a refund.

That probably reflects the bruising the cruise lines got earlier this year when the Florida Attorney General forced them to refund fuel charges that were held to have been applied retroactively.

Settling that case cost Carnival $40 million in refunds and Royal Caribbean $21 million. So it's not surprising that they are being cautious in announcing the terms for ending the supplements.

Carnival Corporation & plc (NYSE/LSE: CCL; NYSE: CUK) says that six of its brands -- Carnival Cruise Lines, Costa Cruises, Cunard Line, Holland America Line, Princess Cruises and The Yachts of Seabourn -- have announced that effective October 31, 2008, the existing fuel supplement will be eliminated for all new bookings on 2010 departures.

At that same time, a price increase on 2010 sailings will become effective. Additionally, the company has established specific guidelines under which the current fuel supplement may be reimbursed to consumers for 2008 and 2009 voyages.

For 2008 and 2009 departures, if the price of light sweet crude oil according to the NYMEX (New York Mercantile Exchange Index) is $70 per barrel or less at the 2:30 p.m. close of business as reported by Reuters on each of the 25 consecutive trading days ending five trading days prior to the guest's cruise departure date, the fuel supplement will be refunded in the form of a shipboard credit. Guests who book a 2010 cruise prior to October 31, 2008, will be charged the current fuel supplement but will also be eligible for a refund of the fuel supplement in accordance with the same fuel price conditions that are being implemented for the 2008 and 2009 departures.

Bill Harber, director of marketing for Carnival Corporation & plc, said the company was implementing these initiatives due to the recent trends in declining fuel prices in an effort to migrate away from charging a separate fuel supplement. "If fuel prices stabilize below $70 a barrel, we will be able to effectively eliminate a separate fuel supplement." However, he cautioned that there is still a risk that fuel prices could move higher "which would require us to maintain or reinstate a fuel supplement but the company is hopeful that the goal of eliminating the fuel supplement can be achieved." Harber added that "these industry-leading initiatives demonstrate our commitment to our guests and travel agents to make our brands the most attractive cruise vacations available."

The fuel supplement for five of the six Carnival Corporation & plc brands is currently $9 per person per day for the first and second guest (not to exceed $126 per person per voyage) and $4 per person per day for third, fourth and fifth guests (not to exceed $56 per person per voyage). Seabourn's fuel supplement is $15 per person per day for the first and second guest (not to exceed $210 per person per voyage) and $4 per person per day for third and fourth guests (not to exceed $56 per person per voyage).

Royal Caribbean Cruises Ltd. says that the company's fuel supplement will no longer apply to new Royal Caribbean International, Celebrity Cruises and Azamara Cruises bookings made on or after November 10, 2008, anywhere in the world, for sailings that depart on or after January 1, 2010.

This decision takes into consideration the recent reductions in global fuel prices. The company has also established specific guidelines that will determine whether fuel supplement refunds will be provided for sailings that begin in 2009 and later, which were booked prior to November 10, 2008, if fuel prices remain below a specific price threshold.

For 2009 sailings and 2010 sailings booked before November 10, 2008, the company will determine on a quarterly basis whether fuel supplements will be refunded. Refunds, in the form of an onboard credit, will be provided if the closing price of West Texas Intermediate fuel is $65 or less, at the closing time of the New York Mercantile Exchange, two weeks prior to the beginning of the upcoming calendar quarter. When those conditions are met, an onboard credit will be provided to all guests on sailings that begin during the upcoming calendar quarter.

The dates on which the price of West Texas Intermediate fuel will be measured, and the quarters during which refunds could apply are:

December 18, 2008--First quarter 2009

March 18, 2009--Second quarter 2009

June 17, 2009--Third quarter 2009

September 17, 2009--Fourth quarter 2009

December 18, 2009--First quarter 2010

March 18, 2010--Second quarter 2010

June 17, 2010--Third quarter 2010

September 17, 2010--Fourth quarter 2010

The company says it will continue to closely monitor the movement of global fuel prices and recognizes that an upturn in prices could necessitate reinstatement of a supplement.


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