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Royal Caribbean Expresses Sadness at Concordia, Reports Earnings

February 2, 2012 By: Susan Young

In its annual earnings press release issued today, Royal Caribbean Cruises Ltd. (RCCL) led with expressions of sadness and support for the victims and families impacted by the Jan. 13 accident onboard Costa Concordia.

"First and foremost, our thoughts are with the guests, crew members and families who have been affected by the tragedy in Italy," said Richard D. Fain, RCCL's chairman and chief executive officer. "Like so many who have spent their working lives in this industry, a tragedy like this just breaks our hearts."

Fain said: "All of us in the industry, who are so devoted to providing safe and exceptional vacations to millions of people around the world, are devastated and humbled when something like this happens. Ironically, this tragedy is so noteworthy partially because it is so rare.

"Cruising has an extraordinary record of safe operation but this tragic incident is a reminder that there is no such thing as perfect safety, only perfect dedication to safety," Fain continued. 

"And I can assure you that we strive toward this perfect dedication to safety each and every day. Stunned by the tragedy, we and the rest of the industry are determined to learn whatever lessons we can and rededicate ourselves to continue providing the best and safest vacations for our guests," he said.

RCCL then went on to report results for 2011 and provided its preliminary outlook for 2012. The company said last year ended on a "strong note with good bookings" and that the company's cost control measures more than compensated for the increased cost of fuel and foreign exchange impacts.

2011 Results

For the full year 2011, net income was $607.4 million, or $2.77 per share, versus $515.7 million, or $2.37 per share, in 2010. Net yields increased 2.4 percent, while net cruise costs, excluding fuel, increased 1.3 percent.

For the fourth quarter 2011, net income was $36.6 million, or $0.17 per share, versus $31.9 million, or $0.15 per share, in 2010. Net yields for the last quarter increased 3.5 percent while net cruise costs, excluding fuel, increased 3.7 percent.

"The year ended on a strong note which more than offset the rise in oil prices and the strengthening U.S. dollar," said Brian Rice, chief financial officer. "For the year as a whole, adjusted for fuel price increases and geopolitical events, our earnings would have meaningfully exceeded the midpoint of our January 2011 guidance."

Outlook for 2012

In talking about its earnings outlook for the coming year, the line said: "Because the tragedy in Italy is having such a significant near term effect on bookings and because that impact on the company's earnings is so uncertain," the company was providing analysts with two assessments - one before the Costa Concordia accident and another after.

Prior to the accident, the line was experiencing strong booking patterns from the end of 2011. "Wave season was off to an excellent start," the company said.

During the two weeks prior to the accident, RCCL said bookings averaged five percent more than the same period last year and at higher prices. Booked load factors and pricing were ahead of the same time last year in all four quarters.       

RCCL also looked at two others factors in estimating performance for the coming year. The first involved changes to the company's international (not domestic) distribution system, which RCCL said will increase yields and expenses, but have little bottom line impact.

A second factor is an increase in investment for foreign deployment. For example, China represents a strategic market initiative the company is augmenting significantly.

Based on those factors, pre-Costa Concordia the company felt it likely would have experienced a yield improvement characterized in the two-to-four digit range for the year.

Impact of Costa Concordia

RCCL said it's "very difficult to assess the impact of the incident on our revenues," given the extensive Costa Concordia media coverage and worldwide attention.

In addition, the company - like most cruise lines and travel agencies - curtailed its marketing activities for a time after the accident.

"We believe that most observers and potential guests understand that cruising is safe and that this incident was a very rare anomaly in an otherwise reliably safe vacation," the company said. "But in the near term it has a significant impact on our bookings."

One good sign? RCCL said there was no material change in cancellation of existing bookings. The cancellation rate has remained at normal levels.

"However, new booking activity has been hurt," the company said. Overall booking volumes from North America have fallen by low to mid-teen percentages versus same time last year for the last few weeks.

In Europe, where media coverage has been more extensive, the decline has been higher, though results vary significantly by country. In aggregate the company's other markets, including Asia/Pacific and Latin America, are down slightly.

For the year as a whole, booked load factors and pricing are still higher than they were at the same time last year. "This reflects the very robust starting position the company was in before the incident," the company said.

The impact on RCCL brands' bookings has been greatest in the first three quarters and wanes as the year progresses. On the other hand, the first quarter also has more of its capacity booked making it less affected by changes in booking patterns.

Spring and summer sailings are showing the largest declines in new bookings, RCCL said, noting that longer-term bookings remain healthy.

In addition, the company noted that the impact is much greater for first-time cruisers compared to experienced cruisers.

Including the contribution from distribution changes and deployment initiatives noted above, the company currently anticipates yield improvement for the full year 2012 to be in a range between 1 percent and 5 percent versus the previous year.

Moving forward, the picture may brighten. "Already, bookings have started to recover, particularly in North America and the company does not expect that this event will have a significant long term impact on its business."

Taking into account the high degree of uncertainty surrounding current booking patterns, current fuel pricing and currency exchange rates, and the factors detailed above, the company anticipates 2012 earnings to be in the range of $1.90 to $2.30 per share.

"Fortunately, we had a very strong order book before the tragedy," Rice said. "Our brands are back in the market advertising and we do not expect any significant long term impact to our business."

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About the Author

Susan Young
A veteran of 100-plus cruises, Susan J. Young, is senior contributing editor for cruises – covering ocean, river and niche cruises for Travel Agent and

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By Susan Young | February 2, 2012
For the full year 2011, net income was $607.4 million, or $2.77 per share, versus $515.7 million, or $2.37 per share, in 2010. The company also said Costa Concordia had dampened bookings, although the accident had not impacted its cancellation rate.
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