Monday, February 1, 2010

Royal Caribbean: Promising Start to 'Wave Season'

The Wall Street Journal

It appears Royal Caribbean Cruises Ltd. (RCL) sees calmer water ahead.

"Wave season is off to a promising start," Chief Executive Richard Fain said Thursday in a conference call with analysts. Wave season, which typically runs from January through March, is prime time for consumers-- stuck inside during winter--to start booking their cruise vacations.
Royal Caribbean said since the beginning of September, new bookings have been running about 30% higher than the same period a year ago. The company added current price levels are also ahead of the same time last year across the majority of its product groups. Echoing predictions of several industry watchers, the cruise operator expects European bookings to generally be a growth area for 2010.

Shares of the cruise company received a jolt after the company posted a surprise fourth-quarter profit and projected first-quarter earnings well ahead of analysts' expectations. Shares were recently up about 1.6% to $25.84. The stock has nearly tripled in the past year.

For the first quarter, Royal Caribbean expects earnings of 25 cents to 30 cents, while analysts polled by Thomson Reuters, on average, projected 3 cents. Profit for all of 2010 is pegged at $2 to $2.20, including 39 cents related to a legal settlement, while analysts forecast $1.48. Analysts' estimates typically exclude items.

The second-largest cruise-ship operator by market share, behind Carnival Cruises (CCL), said it continued to see improvements in the booking environment and expects net yields to rise about 2% in the current quarter, and by 3% to 6% this year, in contrast to last year's sinking yields that were hurt by lower pricing and promotions. Meanwhile, the decline in net yields has slowed, with Royal Caribbean expecting an upturn in the current quarter and year.

Royal Caribbean--whose brands include Celebrity, Pullmantur and Azamara Cruise Lines -- reported a profit of $3.4 million, or 2 cents a share, compared with $1.5 million, or 1 cent, a year earlier. The company in November expected a 5-cent loss, a bit wider than analysts expected at the time.

Revenue was flat at $1.5 billion, while the number of passengers carried rose 9.5%. Analysts polled by Thomson Reuters most recently expected $1.44 billion.

Net yields, or revenue per available passenger cruise days, fell 7.2%, at the upper end of company expectations. Strength in both ticket and onboard revenue helped boost net yields from the previous quarter. Net cruise costs fell 10.5%.

Addressing some of the negative publicity surrounding its decision to return its ships to its Labadee, Haiti port immediately after getting clearance, Fain said the company "agonized over the idea of the people taking their holiday so near the devastation."

"In the end, we decided that the moral imperative demanded that we bring the people of Haiti much-needed relief supplies and equally needed tourist and economic activity from Caribbean cruises."

Bernstein Research analyst Janet Brashear wrote in a note that the "litmus test" for the company's decision from a business perspective will be Royal Caribbean's brand image with customers and their willingness to return to cruising in the Caribbean and Haiti. "So far, there appears to be very little impact," she wrote.

Royal Caribbean Cruises launched the world's largest passenger ship, the Oasis of the Seas, with a capacity of 5,400 guests last month, despite the weak economy. Fain said Oasis, along with its Solstice-class vessels, are generating "very healthy returns."