Royal Caribbean Cruises today announced net income for the fourth quarter 2008 of $1.5 million, or $0.01 per share, compared to net income of $70.8 million, or $0.33 per share, in 2007.
Revenues were $1.5 billion, the same as in 2007. Net Yields decreased 5.9% from the prior year. The overall revenue environment was in-line with previous guidance but foreign currency weakness negatively impacted this by about 2 percentage points.
The company experienced higher than anticipated fuel and insurance expenses during the quarter, but said it was able to significantly offset these items through cost containment and other initiatives. Net Cruise Costs per APCD increased 0.3%, and Net Cruise Costs excluding fuel per APCD decreased 1.7%.
Selling, general and administrative expense decreased 12.6% per APCD as a result of cost control initiatives.
Included in the fourth quarter results is a $13.3 million P&I insurance club call related to group claims from 2006-2008. Absent this insurance call, Net Cruise Costs excluding fuel per APCD decreased 3.6%, significantly better than the company’s previous guidance of down approximately 1%.
Fuel cost per metric ton for the fourth quarter increased 11% to $565 versus 2007. This resulted in fuel expenses of $36.1 million, or $0.17 per share higher than the company’s previous fourth quarter calculation. Most significantly, while crude oil prices followed an erratic downward trend during the quarter, at-the-pump pricing lagged crude oil, resulting in higher than expected pricing at-the-pump, according to Royal Caribbean. In addition, certain issues relating to weather and vessel operations contributed to the difference. While such factors are not always predictable, the company has made adjustments for these items in its 2009 fuel calculation.
Full Year 2008 Results
Net income for the full year 2008 was $573.7 million, or $2.68 per share, compared to net income of $603.4 million, or $2.82 per share, for the full year 2007. Revenues for the full year 2008 increased to $6.5 billion from revenues of $6.1 billion for the full year 2007.
The demand environment has remained weak over the last few months, although booking volumes have been successfully stimulated through aggressive pricing actions. “The start of the WAVE period has produced booking volumes consistent with last year, albeit at significantly lower prices,” said Brian Rice, executive vice president and chief financial officer.
The company also commented that the booking window has seen significant compression and load factors are lagging behind levels achieved the last few years. Because of the contracted booking window, the company provided a widened range of yield guidance for 2009. Net Yields are currently expected to decrease between 9% – 13% for the full year and 14% – 16% for the first quarter. These projections include the lost revenue from the fuel supplements that the company recently refunded.
“We recognize this will be a very challenging year and do not expect any quick turnarounds in our pricing,” Rice continued. “Consumers are certainly delaying their purchase decisions, but as they get closer to their vacations, they appreciate a great value and are buying cruises.”
The company also disclosed that its core Caribbean products are seeing stronger demand than its premium seasonal products such as Europe and Alaska. Onboard revenue, which until the fourth quarter of 2008 had remained resilient, has also been reduced in the company’s guidance.
The company continues to successfully expand the proportion of its business that comes from outside the United States, which also makes currency issues more relevant to the company’s results.
Earnings Guidance
The level of volatility in commodity prices, exchange rates and other economic factors makes forecasting even more difficult than usual, according to Royal Caribbean. Accordingly, the range of outcomes is broader than usual, the company stated, and instead of providing a larger range, the company is providing a single mid-point figure.
On the basis of the factors and assumptions described above, the company expects 2009 earnings per share of approximately $1.40.
