It's bad, it might get worse and, frankly, it's not all Royal Caribbean's fault. Nonetheless, the cruise line on Thursday said its fourth-quarter earnings dropped 98 percent to $1.4 million from $70.8 million at the same time a year ago. This drop is traced to higher-than-expected fuel costs and a sharp decline in the total number of cruise bookings.
Royal Caribbean, along with all the cruise lines, has sailed into the perfect storm, one where the first wave was astronomical fuel prices, then, second, a precipitous drop in discretionary spending due to the foundering economy. As such, less people are spending their incomes on vacations and, when the are, booking windows have contracted.
Royal Caribbean Chairman and CEO Richard Fain, during a morning earnings call, didn't try sugarcoating the situation. "This is a disaster economy," he said, "I wish we could skip 2009. We are confused as anyone as to where the economy is going. Forecasting demand is as tough as its ever been since I've been with Royal Caribbean."
That's over 20 years, but Royal Caribbean is encouraged by early returns from wave season. "The start of the wave period has produced booking volumes consistent with last year, albeit at significantly lower prices," said Chief Financial Officer Brian Rice. Going forward, however, Fain said that extreme pricing discounts may not be productive and that it would accept slightly lower occupancy levels to keep pricing up.
Royal Caribbean was quick to applaud travel agents for their continued support and the line trumpeted its ASAP agent program, which consists of a slew of initiatives designed to
ensure that agents emerge from the recession as unscathed as possible.
ASAP incorporates a
series of incentives for North American agents during the wave season, most noteworthy is a 1
percent commission supplement on any cruise bookings for sailings from
January 2009 through March 2010. Said Fain, "What we are getting for those commission dollars is well worth the extra dollars spent." Travel agents account for approximately 80 to 85 percent of Royal Caribbean's sales.
Nevertheless, 2009 is shaping up to be a difficult stretch. "Yields aren't looking great for 2009," said Rice. The company said the revenue outlook is expected to remain weak this year and it forecasted a first-quarter loss between 30 cents and 35 cents per share.