Royal Caribbean Cutback

Royal Caribbean Cruises (RCC) has laid off 400 employees and eliminated 100 unfilled positions as part of a company-wide cost review, representing an 18 percent decrease in the total shoreside staff of 2,700. RCC’s IT department sustained the heaviest losses.

As the layoff process was getting underway, Royal Caribbean International (RCI) President Jack Williams commented, “There will be a significant cutback of capital expenditures in IT. What we call ‘Project Leapfrog’ (RCI’s ongoing IT initiative) will be put on hold.” Williams asserted, “We will be aggressive, but we will not be taking any action that impacts our shipboard product.” RCI also announced that it would cut additional costs by suspending all charitable donations and grants, requiring coach-class seats for all employees traveling for business, and delaying any other capital expenditures where possible.

According to RCC Chairman Richard Fain, the company is also seeking to restructure its schedule of shipbuilding expenses, with “very preliminary” negotiations underway to delay newbuildings already under firm contract.

Fain would only say that talks covered ships scheduled to be delivered both in 2002 and 2003, and that “clearly, the more complete the ship is, the less likely we would want or they would consider a postponement.” Fain said he “can’t remember ever having conversations with yards about delaying ship deliveries” in the past, but “this is an unprecedented situation, and everybody is trying to come to grips with it.”

RCI is also reportedly pressuring major vendors to reduce their contract prices in light of the events of Sept. 11, sources claimed.


Discussing the current business environment, Fain commented: “The real question is: what’s happening to bookings since Sept. 11? Overall,” he said, “the impact has been very negative: clearly bookings are down and cancellations are up. But the trend has been surprisingly positive,” he said during a conference call on Oct. 2, prior to the United States attack on Afghanistan.

“Since Sept. 11,” he explained at the time, “total bookings for the company’s brands were down 43 percent (adjusted for RCI’s 16 percent year-over-year capacity increase: down 49 percent). But over the last week, bookings were down 26 percent. Every day it’s a little bit better. For example,” he continued, ”Monday is normally a very busy booking day for us. The first Monday after the incident, bookings were down 58 percent, the following Monday, they were down 42 percent, and last Monday they were down 13 percent.”

Fain also pointed to an increasing trend towards very close-in bookings. “People are not making long­ term plans as much as we would like,” he said. “The near-term bookings are actually up year over year.”

On a more positive note, Fain said that “cancellations have actually not been the problem people seem to think they are.” Total cancellations for bookings in year 2002 totaled less than 10,000 guests, or 4,500 more than normal for this time of year, equating to 10 percent of the people RCI ships carry during a single weekend. “So the real issue is not the cancellations but getting more bookings – overcoming the inertia. There has really been a dramatic shock from this event and a sort of paralysis has set it. People are not taking the initiative to book – but gradually, we are seeing that turn around.”

Williams offered additional statistics: October sailings were 90 percent booked, with seven-night sailings 94 percent booked. Sailings the week of Sept. 24 were 90 percent booked, with seven-night cruises 95 percent booked. For the fourth quarter overall RCI was currently 84 percent booked, said Williams, noting that with the increased close-in booking trends, he believed fourth quarter 2001 load factors would be at about the same level as fourth quarter 2000.

RCI has also been closely monitoring the level of onboard spending since Sept. 11, and has found that there has been no impact.

Williams explained that the company is currently focused on security, cost cutting and strategic redeployments and related marketing. “On the security front, we are on the highest alert. We are installing the A-Pass photo ID system on all ships of both brands, with that process accelerated, and to be completed by the end of the year. We also screen 100 percent of the provisioning and baggage, and we are purchasing additional X-ray machines.”

As for redeployments, both RCC brands have made immediate shifts of itineraries for summer 2002 by bringing vessels from Europe. Williams said the company came to the conclusion that “Americans will have a propensity to cruise much closer to the U.S., in the Caribbean and perhaps Alaska.” The departure from Europe is a short-term strategy only, noted Williams, to cut down on flights to homeports. “In the long term we are very committed to Europe,” he said. Fain reaffirmed RCC’s commitment to its joint venture, Island, with U.K.-based First Choice: “That is geared to the British market, and if anything, we value that joint venture more than we did a month ago.”

According to Williams, the repositionings will be complemented by a new marketing strategy which emphasizes aggressive, targeted newspaper campaigns with a value message, versus TV ads to build brand awareness. “We will be hitting the drive markets very, very hard,” said Williams, “with taglines such as ‘All the Way to Bermuda on a Quarter Tank of Gas’.” In general, explained Williams, “we believe there will be a larger drive market than we’ve seen in the past.”

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