Questor share tip: Carnival is cruising towards recovery "It typically takes a brand two to three years to recover from a negative incident," Arnold Donald, Carnival chief executive, has said. Analysts from JP Morgan Cazenove believe Carnival has recovered from the majority of the damage done by the Costa Concordia sinking. The cruise company has invested in advertising and marketing to change the perception of the industry and this has also helped. The number of holidaymakers choosing a holiday at sea continues to rise. The global total of cruise passengers for 2014 is forecast to hit 21.7m, up from 21.3m last year, according to a report from the Cruise Lines International Association (CLIA) last week. Last year a record 1.79m British holidaymakers took an ocean cruise - up 5pc, an additional 89,000 passengers, on 2012. Pricing in the cruise industry could also recover later in the year. So far revenue has fallen at Carnival because, although more people are going on cruises, they are paying less. Analysts are expecting pricing to stop falling by the third quarter of this year, and then recover. Carnival could receive an added boost from falling fuel costs. Fuel makes up about a quarter of the total cost of running a cruise liner. This has been painful for the industry, with the benchmark Brent crude price staying around $110 a barrel. That could all change in the year ahead, as excess global oil production could result in falling prices. Questor estimates that a 10pc drop in fuel costs would represent a saving of $210m (£128m) for Carnival. The shares have had a strong run during the past eight weeks, rising by 15pc. However, this comes in the wider picture of a lost decade. Carnival shares have gone sideways for the past 10 years and underperformed the wider FTSE 100 by almost 50pc. At the results for the half-year ended May 31, the company reported improving profits. The cash flow was strong and the balance sheet is backed by $32bn in tangible assets, largely made up of the cruise ships. The company had $9.1bn in net debt at the end of May 2013 but this doesn't look excessive against shareholders" equity of $24bn, or 38pc leverage. The cruise operator's shares are by no means cheap. Analysts are forecasting revenues of $15.8bn, giving adjusted pre-tax profits of $1.26bn and earnings per share of $1.62. So at today's prices the shares are trading on 26 times forecast earnings. However, if the earnings recover as expected they could accelerate quickly, and analysts are pencilling in earnings growth of about 30pc for the next two years from the end of 2014 onwards. Cruise industry shares have struggled as real incomes get squeezed and oil prices rise. In the coming year we could see those circumstances change, which would drive a longer-term recovery. Carnival shares have risen 8pc since Questor last recommended buying them (£23.89p, December 2013) and we retain that advice.