Royal Caribbean Profit Plunge

Posted by Michelle Howard
Monday, April 28, 2014

Royal Caribbean Cruises Ltd, the world's second-largest cruise operator, said its quarterly profit fell by two-thirds as costs rose and six cruises were canceled or shortened due to several mishaps.



Shares of the company, whose cruise lines include Royal Caribbean International, Celebrity Cruises and Azamara Club Cruise, fell as much as 3.2 percent in early trading.



The company shortened or canceled six cruises during January-March, typically the strongest season for cruise operators.



Voyage disruptions hurt yields, which include ticket sales and spending on board, by about 0.5 percent in the first quarter ended March 31.



Royal Caribbean said its cruise operations were hurt by several mishaps in the first quarter.



The company and its larger rival Carnival Corp faced disruptions when a collision between Kirby Inland Marine oil barge and a cargo ship in March spilled residual fuel oil in the Gulf of Galveston, shutting the Houston Ship Channel.



The cruise industry has just started recovering from negative publicity after a series of headline-grabbing mishaps, including virus outbreaks and engine fires, over the past two years.



Carnival, the world's No. 1 cruise operator, forecast a full-year profit below analysts' estimates in March as it cuts prices and spends more on advertising.



Royal Caribbean has also been struggling to boost sales in the Caribbean, its biggest market.



"While we were seeing strong bookings for the Caribbean with recent booking volumes trending well above last year's levels, the environment remains very promotional," Chief Financial Officer Jason Liberty said on a post-earnings conference call.



Royal Caribbean said it expected pricing in the Caribbean to remain under pressure this year.



"We needed to introduce more promotions (in the Caribbean) in March and April to close the occupancy gap," Chief Operating Officer Adam Goldstein told Reuters.
 


Net cruise costs, excluding fuel, rose 1.3 percent on a constant-currency basis in a quarter in which cruise liners usually offer their best deals.


Smooth Sailing Ahead

Royal Caribbean said it expected smoother sailing in the coming quarters as bookings were seen rising and demand for its Chinese and European cruises was expected to stay strong.
 


The company said it expected double-digit percentage rise in yields in its Europe and Asia Pacific cruises this year.
 


Europe cruises account for 22 percent of the company's capacity, while Asia Pacific sailings make for 12 percent.
 


Royal Caribbean said booking volumes rose about 18 percent in the past three months. Bookings jumped 20 percent in the past eight weeks.



"The company experienced a record booking week at the end of February, which is an unusual time for so much activity," Royal Caribbean said in a statement



Royal Caribbean raised its full-year earnings forecast to $3.25-$3.45 per share from $3.20-$3.40 per share. The company said it expected net yields to rise by 2-3 percent.



The cruise operator forecast earnings of 45-55 cents per share for the second quarter ending June 30.
 


Analysts on average were expecting 46 cents per share, according to Thomson Reuters I/B/E/S.



Royal Caribbean's net income fell 65 percent to $26.5 million, or 12 cents per share, in the first quarter.



Excluding items, the company earned 21 cents per share, well below the average analyst estimate of 28 cents.



Revenue fell 1 percent to $1.89 billion, in line with analysts' expectations.



Royal Caribbean's shares were down 1 percent at $51.93 on Thursday afternoon on the New York Stock Exchange. Carnival shares were up 1.3 percent at $37.89.

 

(By Devika Krishna Kumar, Additional reporting by Siddharth Cavale in Bangalore; Editing by Maju Samuel, Saumyadeb Chakrabarty and Kirti Pandey, Reuters)

  • Photo courtesy of RCCL

    Photo courtesy of RCCL

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