Majestic Research

Florida Business Journal

Pricing Issue Raised Regarding Oasis

By Kevin Gale
Published: December 07, 2009

A report by Majestic Research is raising the issue of whether Oasis of the Seas is cannibalizing sales elsewhere in Royal Caribbean’s fleet.

“We’ve seen the Oasis garner some pretty strong premiums for its initial several months’ sailings. However, one thing, which I think investors may not be appreciating, is the impact it may be having on its other ships,” Majestic Research analyst Matthew Jacob said. “Oasisappears to be cannibalizing some of the other ships, particularly the Freedom- and Solstice-class ships.”

Before Oasis, which is home ported at Port Everglades, Freedom was the newest class on the Royal Caribbean International brand and Solstice was the latest on Celebrity Cruises brand. Both brands are part of MIami-based Royal Caribbean Cruises Ltd. (NYSE: RCL).

Cruise Industry Report has a call in, seeking comment from Royal Caribbean about the report.

Jacob said the cruise industry in general is fighting not only the economy, but roughly 6 percent to 7 percent overall growth in capacity at the same time.

“We are unfortunately seeing a time when capacity is coming online and it was planned years ago,” he said.

The timing could be better, said Jacob, who voiced a widespread view that the cruise industry has been seeing some tentative signs of recovery in pricing after the recession screwed things up.

Royal Caribbean shares were up 39 cents to $25.73 in late morning trading. It’s 52-week range is $5.40 to $26.08.

The Majestic report is getting some play on the Web.

Jacob is quoted in an article in Time magazine’s current issue: “Will the World’s Largest Cruise Ship Sink or Swim?”

The headline has to do with financial matters, not the ship’s seaworthiness. The article talks a lot about the strategy of the cruise lines when it comes to pricing, and Royal Caribbean President Adam Goldstein said it’s been a frustrating time. (That mirrors past comments he’s given to Cruise Industry Report.)

CayCompass.com also highlighted the Majestic Research report.

As to the accuracy of Majestic’s report, the company makes this claim on its Web site: “Our proprietary methodology allows us to track cruise ticket data for virtually every sailing on Carnival Cruise Lines and Royal Caribbean ships on a daily basis, and we now have an exclusive database of ticket information going back more than four years. This data allows us to predict net yield guidance estimates with great accuracy.”

Majestic would need a pretty complex system to accomplish this because cruise prices vary greatly from ship to ship and according to the time of year.

For example, starting per-person prices for balcony cabins on the Liberty of the Seas out of Miami vary from $664 for three weeks in the fall of 2010 to $1,310 for a cruise in July, according to Royal Caribbean’s Web site late Monday morning. Similarly, Oasis listed prices of $979 for balconies on two September cruises, but $1,779 for two cruises in July.

Cruise lines always have the option of tweaking prices to yield the most revenue. Traditionally, they try to offer the biggest discounts to those who book well in advance, but the economy has, at times, spurred cheap prices closer to sailing dates.