Cheap Seats Hurt Princess Cruises

Cheaper tickets for Caribbean cruises filled the decks but hit the finances of P&O Princess Cruises Plc last year when profits fell 11 percent. Most of the damage was reported in the fourth quarter, when operating profits fell more than 70 percent to $15.9 million due to high fuel prices, choppy exchange rates and the suspension of cruise calls to ports in Israel because of Middle East violence. And with prices of cruises booked so far through next autumn still lower than last year, trading conditions at the company -- which cast off from British shipping giant P&O last year -- are likely to remain tough in 2001. "We are already fully booked in the first quarter. But when you look further forward, there is still a competitive price situation in the U.S. and prices are a little below where they were the previous year," Chief Executive Peter Ratcliffe said. "If things stay as they are, we would anticipate yields coming down one to two percent," he added. Overcapacity and lower prices that shrink passenger yields plagued cruise operators internationally over the past financial year. An earnings warning at the start of last year by the world's biggest cruise group U.S. Carnival Corp. sent waves through the industry. As operators shifted their ships around the globe in the hope of catching more market share, supply in certain market has abounded and -- to the benefit of customers but dismay of operators -- prices have fallen. Ratcliffe said that by the fourth quarter, P&O's luxury liner Ocean Princess was facing tough competition from other ships in Caribbean and trans-Canal waters. Fuel costs in the fourth quarter were also $4 million higher, contributing to an overall $30 million oil bill for the year. There was good business throughout the year in Alaska, Europe and the British market, however, which helped mitigate the North American downturn.