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Royal Caribbean's Q1: Better Than Expected

April 23, 2009 By: David Eisen


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Rough patch in Q1 for Royal Caribbean could have been worse


In these operating times, announcing a net loss isn't always grounds for stockholder upheaval. Granted, Royal Caribbean International did report a 2009 first quarter net loss of $36.2 million, which is almost surreal since the company reported a net income of $75.6 million at the same time last year. As bad as it might look, apparently, it could have been even worse.

"Obviously, we are never happy to report a loss, but I am pleased that the full year earnings outlook has not changed materially," said Richard Fain, Royal Caribbean International chairman and CEO. "Given the horrible economy, I am encouraged by a more stable revenue environment and I am proud that our people have been able to reduce expenses and deliver better than expected results."

Of significance, net yields for the first quarter decreased 13.5 percent versus 2008, which was actually better than what Royal Caribbean predicted (14 percent to 16 percent). Also, its net cruise costs per available passenger cruise days declined 7 percent, better than guidance of down 4 to 6 percent.

Part of revenue declines can be attributed to the hail of discounting that has beset the cruise industry ever since the economy's precipitous downward spiral began in September. "Discounting continues to be aggressive, yet remains within the range of previous guidance and booking volumes have been sufficient for the company to achieve its forecasted occupancy levels. In January, we noted that our booking patterns had begun to stabilize but that there was still a high level of uncertainty in the market," said Brian Rice, executive vice president and CFO. "Since then, we have seen consumer behavior stabilize even further. We are obviously not completely back to equilibrium yet, but the predictability of our bookings gets better every day and the risk of a dramatic deviation continues to fall."

Wachovia analyst Tim Conder concurs: "Booking patterns continue to stabilize within the context of an aggressive discounting pricing environment." The high degree of close-in bookings is in stark contrast to years past when booking windows were farther out. Now, consumers look to wait as long as possible in order to obtain the most attractive price.

No matter what the economic climate, Royal Caribbean continues to push forward building new ships. This month, the company announced it had obtained most of the financing for Oasis of the Seas, which is scheduled for delivery in the fourth quarter. The company also says its received financing for its Celebrity brand ships, Celebrity Equinox, scheduled for delivery in the third quarter, and another Celebrity ship scheduled for delivery in 2011.


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