Royal Caribbean 2009 Q1 Results

Royal Caribbean Cruises’ (RCC) executives expressed optimism for the rest of the year on the company’s first quarter earnings call and the market responded by boosting the share price. On the April 23 earnings cal!, the company gave a full year earnings guidance of $1.35, compared to actual earnings of $2.68 for last year. Guidance for the second quarter is from flat earnings to a loss of $0.05 per share.

Chairman and CEO Richard Fain commented that the revenue environment is stabilizing, and that revenue continues to track as expected. He added that this year is “horrible with dreadful pricing,” but while “it is not an enjoyable business environment, it is at least manageable.” Fain he said he expects continued yield improvement.

Fain also noted that passenger ratings are higher than ever which, he noted, shows that the company’s cost management is effective without subtracting from the product quality.

Looking forward, Fain said that last year Alaska was strong and the Caribbean weak in contrast to this year and noted that ships can be moved to the strongest markets. RCC’s international expansion will also continue.

According to Brian Rice, executive vice president and CFO, demand has been driven by aggressive pricing over the last three months, but discounting has leveled off, he said, and the consumer is becoming more predictable again.

Q1 Loss

Meanwhile, RCC posted a net loss of $36.2 million, or $0.17 per share, on revenues of $1.3 billion for the first quarter ended March 31, 2009, compared to net income of $75.6 million, or $0.35 per share, on revenues of $1.4 billion for the first quarter of last year.

Adam Goldstein, CEO and president of Royal Caribbean International, said that market conditions continue to be very challenging, but that he believes that “we get premium pricing compared to other lines.” However, pricing is down materially, he pointed out.

The Caribbean was the most successful market in the first quarter, Goldstein said, and will favorably influence the rest of the year. Two Freedom-class ships in the market are generating premium pricing, he said.

Europe will have a neutral to slightly favorable impact on the year, but the yield will be weak year-over-year, Goldstein said. He attributed that to fewer Americans cruising in Europe in 2009, and said that three-fourths of the passengers for the brand’s European cruises will come from European markets.

Overall onboard revenue is meaningfully down, but not as much as ticket prices, Goldstein explained. The onboard revenue decline is further exasperated in Europe with fewer Americans who tend to spend more onboard and buy more shore excursions.

As for Alaska, Goldstein said that “with no capacity growth year-over-year, we did not expect this decline.”

Dan Hanrahan, CEO and president of Celebrity Crillses and Azamara Crillses, said he is seeing similar results in Alaska and Europe, while the new Solstice is finishing a Caribbean season with favorable yields compared to 2008. He said the new Celebrity ships are commanding a premium, compared to other hardware.

Onboard revenue continues to be a challenge, according to Hanrahan, who singled out gaming and art auctions as weak areas, while Internet services and shore excursions were doing well.


Goldstein said the Oasis of the Seas is demanding remarkable rates and that the ship has 37 different categories of staterooms, all of which are managed individually for each sailing.

“On the whole, we are getting spectacular rates,” be said.

Rice said at this point, the brands’ capacities are three-quarters booked for the rest of the year, which is behind 2008 and 2007, but ahead of 2002 and 2003, he said. The booking curve is generally within three months, according to Rice, but a little movement from three to six months, but basically nothing beyond six months. “People are holding back,” he added.

Goldstein added that there will be a variety of discounts continuing to fill the ships and generate revenues, until the market trends up.

For the fourth quarter, Goldstein said he expects Royal Caribbean to benefit more from the Caribbean, and especially the Oasis, although she will only sail one month of revenue cruises in 2009.

Itinerary Changes

For 2010 Royal Caribbean is pulling one ship out of Alaska and will instead sail the Serenade of the Seas year-round from San Juan.

Next year, Royal Caribbean will have two ships in Alaska, and Celebrity continues with three, offering seven-day cruises.

“It is too early to talk about 2011,” Goldstein said. “The next six months is the strategic window to decide; you can expect an announcement in early 2010.”

Meanwhile, Royal Caribbean has been ramping up its presence in Europe by adding one more ship a year, Goldstein explained. “We have a presence in all the countries and long-term relationships with agents and the markets, giving us a solid platform for the year,” he· said, noting, however, that there may be a little more variability for the outlook for the short cruises out of Scandinavia.

Both Royal Caribbean and Celebrity have made subtle itinerary changes that have helped reduce fuel consumption, Hanrahan commented.

In other itinerary announcements, Royal Caribbean will have five ships year-round in the Caribbean 2010-2011, sailing from Miami, Port Everglades, Cape Canaveral and San Juan.

Royal Caribbean will also be expanding its short cruise sailings from Tampa with the Radiance of the Seas. Altogether, the brand will offer a total 331 cruises comprised of 20 distinctive itineraries and 15 ports of call aboard five ships in 2010.

Celebrity will also have its first year-round four-and five-day program from Miami starting in May 2010.

In addition, Celebrity will be dedicating the Equinox, arriving in 20 I 0, to the UK market seasonally, and Royal Caribbean will be basing the Independence of the Seas year-round in the UK, starting in April 2010.

Among other markets, Fain said that the Spanish market is one of the hardest hit of the many economies the company deals with. As far as start-up brands are concerned, such as CDF Croisieres De France in France, he said there is no particular timeline that these are assessed against. “We look at each brand individually to see if they are moving in the right direction,” Fain said. “But none are particularly material to the overall company.”

In related developments, RCC announced that bas $1.1 billion in liquidity, including $100 million from the sale of the Galaxy to the company’s German jointventure, Till Criuses.

Last month, RCC also obtained financing commitments for up to 80 percent ($1.05 billion) of the cost for the Oasis of the Seas. The company has also entered into a similar credit agreement for the delivery of the Equinox as well as the fourth Solstice-class ship, scheduled for delivery in 2011.

For the Oasis, RCC said the financing will be 95 percent guaranteed by FINNVERA, the Finnish export credit agency, and amortized over 12 years. BNP Paribas, Nordea Bank and SEB have each committed to provide 20 percent of the financing. Finnish export credit will cover the remaining 40 percent.

Based on current ship orders, RCC’s projected capital expenditures are $2.1 billion in 2009, $2.2 billion in 20 I 0, $1.0 billion 2011 and $1.0 billion in 2012.

Projected capacity increases for the same four years are 5.9 percent, 11.4 percent, 8.4 percent and 3.0 percent, respectively.

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