News Analysis: Royal Caribbean Posts Better Results

Sandals Royal Caribbean Montego Bay has brought the Pacific islands-inspired overwater suite concept to Jamaica.


Oasis of the Seas

Royal Caribbean Cruises Ltd. (RCCL), parent firm of Azamara Club Cruises, Royal Caribbean International and Celebrity Cruises, reported that it sailed into more positive financial waters in the first quarter of this year.

“The first quarter turned out better than we were expecting and the full year is looking better as well,” said Richard Fain, the cruise company’s chairman and CEO. “We did substantially better than the first quarter of 2009.”

First Quarter Results

First quarter, RCCL had a profit of $87.4 million or $.40 per share, which was better than the company’s previous guidance to analysts of $.25 to $.30 per share. Net yields were also better than the company’s previous guidance. Load factors also improved, and for the quarter the company said it sailed at 103.4 percent occupancy.

Consumer demand continues to improve, although it’s not back to pre-recession demand levels. Booking volumes since the start of the year are running about 20 percent of the same time last year, the company said. The booking window has improved modestly, with European and Alaska itineraries being the biggest beneficiaries of that trend.

While revenue performance has shown improvement, “I’m definitely not excited by a 2.6 percent yield improvement,” said Fain. “The economy is clearly still weighing on our performance…We’re not where we want to be but turning the corner is the first step toward real improvement.”

Fain said “good old-fashioned focus on the task at hand” in terms of cost control contributed heavily to better than anticipated results, while he also said the strengthening of the U.S. dollar helped.

RCCL expects yields to improve in the second quarter by about 6 percent and to improve 4-5 percent for the full year 2010 versus the same period in 2009. Second, third and fourth quarter bookings are well ahead of where they were at the same time last year.

Effects from the volcanic ash situation will result in a financial hit of less than $.05 per share, the company said. It doesn’t appear the volcano ash situation is having any major effect on cruise bookings this summer. Adam Goldstein, president and CEO, Royal Caribbean International, said it appears that bookings have normalized as people realized that situation was a bizarre, one-of-a-kind event. 

International Growth

Fain said the company continues to focus strongly on “expansion of our global footprint.” He said that globalization effort is going well both strategically and from the perspective of booking volumes.

Most of the net new capacity that the cruise firm is adding is dedicated to the global markets.  “Said a bit differently, most of the first-time cruisers we’re introducing our product to are international guests,” Fain stressed. “In fact, our North American guest sourcing has been flat for the past several years.”

New ship orders? Fain said he didn’t have much new to report. On one hand, he sees a stronger U.S. dollar, more accommodating shipyards and exceptional performance from the company’s new ships. But the company also wants to strengthen its balance sheet.

As a result, “we will continue to grow – but probably at a slower pace than heretofore,” Fain said.  Again, he stressed that any new capacity will be extended across “a broader global sourcing platform.” He also said upgrades to the existing fleet are also important, and “I think it’s likely you will see more of this going forward as well.”

Fain said he just returned from the Celebrity Equinox inaugural festivities in Southampton. The ship is the third vessel of the Celebrity Cruises’ Solstice-class. “I must assure you that she is every bit as spectacular and as compelling as her sisters,” Fain emphasized, noting that consistent with the company’s strategy of international growth, the ship is now providing voyages from the UK this summer. “She is selling well,” he said.

Royal Caribbean Brand

Goldstein also cited the positive results from his brand’s so-called developmental products; six Royal Caribbean ships operated in Brazil, Australia, Singapore, Dubai and Panama during the first quarter. In addition, Mariner of the Seas will leave her base in Los Angeles in January 2011 and operate 2011 cruise programs from ports in Brazil, Italy and Texas.

But, “we have a long history operating from California to the Mexico Riviera and certainly we hope to return in the future,” Goldstein said. That said, he sees potential for further development of European markets, and as a result of the redeployment of Mariner, in summer 2011, half of the line’s 22 ship fleet will be in Europe including two out of three Freedom-class ships and four of five Voyager-class ships.

How much have the RCCL brands expanded globally? “It is possible that from May to October 2011, Royal Caribbean International will carry more guests on European cruises than any other line,” Goldstein said. While the clear majority of guests onboard those European cruises will come from European points of sale, Goldstein said: “We are pleased with the demand we are seeing from North America at this point in the selling cycle.”

With just six months yet prior to delivery of Allure of the Seas, Goldstein said the construction was proceeding smoothly. In response to an analyst’s question, he stated that the onboard revenue from sister ship Oasis of the Seas is tracking as the best in the fleet – and even stronger than what his brand had anticipated.

Celebrity Brand

Dan Hanrahan, president and CEO, Celebrity Cruises, just returned from the Celebrity Eclipse’s inaugural activities in Southampton, England. Despite the volcano’s impact on international travel, “our naming cruise out of Southampton and our pre-inaugural cruise out of Hamburg came off very well,” he said.

The addition of Eclipse brings Celebrity’s fleet to 10 ships. Hanrahan says two new venues on that ship stand out -- the Celebrity iLounge and a new specialty restaurant, Qsine, which will deliver a fresh new dining experience with guests ordering their food and wine via iPad. With Celebrity Eclipse, though, “I’m most excited about broadening the guest sourcing capabilities for Celebrity,” he said, referring to the ship’s dedication to the UK market this summer.

During the first quarter, Hanrahan said “we saw healthy demand for all of our products, the majority of which were Caribbean.” He said Solstice-class ships continue to command a healthy premium for both fares and onboard revenue when compared with other ships in the fleet. But it’s also worth noting, he said, “that our other ship classes generally performed as planned for the first quarter.”

“This year’s summer Europe season continues to book well for Celebrity and we expect to see healthy year-over-year volume and price increases for our European products,” Hanrahan said. “Our efforts to build our brand beyond the U.S. market continues to be successful, and for the first time, we are expecting to see a higher percentage of our total bookings for our European cruises coming from outside the U.S. this season.”

In Alaska this year, Hanrahan said Celebrity is operating three ships in the market, those are booking well and they are doing better than what the line experienced last year.

Hanrahan said Celebrity’s entry back to Bermuda for the first time since 2007 is a plus. “I’m particularly pleased to be back in the Northeast, which has always been an important market to source guests for Celebrity,” said Hanrahan.

All three Solstice-class ships will operate to the Caribbean this fall and winter, and for the first time, the line will have two Solstice-class ships operating to the Caribbean from South Florida. Strategically, Hanrahan highlighted the recent announcement that the new Celebrity Silhouette, the fourth Solstice-class ship, will debut in summer 2011 and operate 12-night Holy Land cruises from Rome.

For 2011, all four Solstice-class ships will operate in Europe, along with Constellation, which is currently being “Solsticized” in a Hamburg drydock. With the addition of Silhouette in 2011, almost half the brand’s capacity will be Solstice-class.