POC Resports 2001 Earnings

P&O Princess Cruises (POC) bas reported net income of $286.3 million, or $0.41 per share, on revenues of $2.5 billion for the year ended Dec. 31, 2001, compared to net income of $274.1 million, or $0.40 per share, on revenues of $2.4 billion for the year ended Dec. 31, 2000.

Year-over-year, revenues were up 1.1 percent, operating income was down 3.2 percent and net income was up 4.5 percent.

POC attributed the results to an increased load factor, lower unit costs and lower interest expenses, partially offset by lower net revenues.

2001 also included direct costs and charges of $12 million following 9/11 in addition to the impact these events had on yields, according to POC. Also included were a $7 million one-time relocation cost and an $11 million benefit from the Millennium cruises. Lower oil prices also benefited 2001 to the tune of some $10 million.

Passenger cruise days grew by five percent in the U.S. due to the introduction of the Golden Princess in May, which was offset by the transfer of the Pacific Sky (ex-Sky Princess) to Australia in November of 2000.

Passenger cruise days grew by 15 percent in Europe and Australia due to the full-year operation of the Aurora in Europe (introduced in April 2000), the acquisition of SeeTours in April 2001, which added the Arkona to the German business (the ship was withdrawn at the end of 2001), and the expansion in Australia, with the larger Pacific Sky replacing the Fair Princess.

4th Quarter

POC reported net income of $16.3 million, or $0.02 per share, on revenues of $485.3 million for the fourth quarter ended Dec. 31, 2001, compared to a loss of $3.6 million, or $0.05 per share, on revenues of $484.8 million for the fourth quarter ended Dec. 31, 2000.

While the company carried more passengers, net revenue yields, including onboard revenue, were down five percent from the previous year, according to POC.

POC said the reduction was mainly attributable to Princess Cruises, which was significantly affected by the events in the U.S. on Sept. 11. The booking pattern was severely disrupted and there was a significant increase in cancellations.

However, the company was able to generate what it called a significant increase in bookings for fourth quarter sailings through the use of price promotions (read: discounts) and achieved an occupancy rate of 98 percent for the fourth quarter.

Yields fell as a result of the price promotions, but finished above expectations due to the high occupancy achieved, POC said.

Average on board spending per passenger day was unchanged from the fourth quarter of 2000.

The company said that both direct operating costs and selling and administrative costs were down, despite the increase in capacity.

According to CEO Peter Ratcliffe, the company continues to benefit from an improving cost structure and from economies of scale as it grows its business.

Fourth-quarter operating income nearly doubled year-over-year with reduced unit costs more than offsetting lower yields.

Looking Forward

POC said that by the beginning of the year (2002), booking patterns had more or less returned to normal with the first quarter back to its normal occupancy level, despite a 21 percent capacity increase.

But with bookings closer in, POC also said it had a significant shortfall remaining in the percentage of capacity booked for the second and third quarters.

In general, bookings for the company’s European and Australian businesses were much less impacted.

As of the first week of February, POC said the first quarter was almost fully booked and that it anticipated revenue yields to be around eight percent lower than the first quarter of 2001.

Based on the shortfall in bookings and the effects of fleet redeployments, POC said it expects yields for the second and third quarter to experience the same sort of pressures as those in the first quarter.

POC added that it continues to achieve cost reductions ahead of targets, without affecting the onboard product. The company achieved cost reductions of five percent in 2001 and expects to achieve another seven percent in 2002, it said.

POC believes what it calls its “modernization” program will further reduce unit operating costs and also increase the revenue-earning potential of the fleet both in fare revenues and onboard earnings.

Thus, POC is retiring the Victoria, Pacific Princess and Arkona, while it will continue to introduce new ships (at least through 2004).

Ships are also being moved between POC brands: The Crown Princess will join Seetours in May as the A’Rosa Blu targeted to the German market. The Ocean Princess will be renamed the Oceana and will be redeployed to P&O Cruises for British passengers.

The Seetours operation will grow by 80 percent in 2002. POC said that bookings for the AIDA brand, with double capacity from May onwards, are “positive,” while bookings for the A’Rosa brand were slower than expected. POC attributed that to the introduction of a new brand and what it called a fall in German consumer demand for East Coast itineraries.

In 2002, POC will have approximately 64 percent of its capacity in the North American market, 23 percent in the U.K., 10 percent in Germany and three percent in Australia.

In North America, Princess will have 31.4 percent of its capacity in the Caribbean, 23.1 percent in Alaska, 14.5 percent on its so-called exotics programs, 12.8 percent in Mexico (West Coast), 10.8 percent in the Panama Canal, and 7.4 percent in Europe.

(For 2001, the corresponding numbers were 34.7 percent for the Caribbean, 20.2 percent for Alaska, 15.8 percent for the exotics programs, 13.2 percent for the Panama Canal, 12.4 percent for Europe, and 3.7 percent for Mexico.)

By 2005, the planned fleet deployment calls for more than 56 percent of POC’s capacity in North America, approximately 25 percent in the U.K., 16 percent in Germany, and a little less than three percent in Australia.

From 2002 to 2005, POC projected its annual capacity growth to be nine percent in North America, 15 percent in the U.K., 43 percent in Germany, and zero percent in Australia.

New Ship Introductions

2002: the Star Princess enters service in March; the AIDAvita in the second quarter and the Coral Princess in the fourth quarter.

2003: the AIDAaura in the second quarter, the Island Princess in the second quarter, and the Diamond Princess in the third quarter.

2004: an unnamed ship for P&O Cruises and the Sapphire Princess, both in the second quarter.

In addition, three river vessels for POC’s German operations, are scheduled for delivery from 2002 to 2004.

The total capital commitment for newbuildings is estimated at approximately $3 billion.

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