Majestic Research

The Wall Street Journal

Royal Caribbean's Profit Falls

By Kelly Nolan and Tess Stynes
Published: November 02, 2009

Royal Caribbean Cruises Ltd. reported its third-quarter earnings fell 44%, as pricing remained soft amid a prolonged travel industry slump. The cruise operatior also projected a loss for the current quarter.

The second-largest cruise-ship operator by market share, behind Carnival Corp., predicted it would have a loss of about five cents a share in the current quarter; analysts polled by Thomson Reuters recently expected earnings of four cents a share.

"While there’s no question that the cruise industry is recovering and pricing has improved from the depths it was at last year, the question now is what’s the trajectory for recovery,” Majestic Research analyst Matthew Jacob said. “The answer may be a little flatter than some were expecting."

Royal Caribbean, whose brands include Celebrity, Pullmantur and Azamara, reported a third-quarter profit of $230.4 million, or $1.07 a share, down from $411.9 million, or $1.92 a share, a year earlier. The company in July forecast 95 cents to $1 a share, below analysts’ estimates at the time.

Revenue decreased 15% to $1.76 billion, slightly below analysts’ views for $1.77 billion.

“Like many other travel companies, we saw more strength than we expected during our peak season but have been experiencing more pricing pressure on some of our traditionally softer fall season sailings,” Chairman and Chief Executive Richard Fain said.

The company said Tuesday that booking volume since mid-September was up about 40% from a year earlier. The strength of bookings made closer to the sailing date helped Royal Caribbean exceed its own expectations for the third quarter.

However, net yields, or revenue per available passenger cruise days, fell 17% and would have been down 15% on a constant currency basis. Net cruise costs fell 10% amid lower fuel costs

Amid a tough economy, cruise ship companies have had to slash prices in order to attract skittish consumers, who generally have preferred booking shorter, less expensive cruises and waited until closer to the sailing date to book trips. However, ticket pricing has shown some signs of stabilizing in recent months, and some may have been hoping for further signs of improvement, Mr. Jacob said.

Royal Caribbean also put its 2009 earnings target at the low end of its prior forecast of 70 cents a share to 80 cents a share. The cruise company predicted a slightly-more-than-expected fourth-quarter net yield decline of 7% to 8%, which would be an improvement from the third quarter’s decline.