Royal Caribbean: It's taking 'substantial discounts' to fill ships

mercedes · January 29, 2009

Royal Caribbean today confirmed what anyone shopping for a cruise in recent weeks already knows: The economic downturn has forced the company to offer some monster deals.

With the economy tumbling, "both ticket sales and onboard revenue have been impacted," the company says in a statement accompanying the release of its most recent quarterly earnings. "It has required substantial discounts to generate the requisite volume."

Royal Caribbean says its profits for the fourth quarter of 2008 plunged by 97% from a year ago to just $1.5 million, or one cent per share, and the company offered a grim outlook for the coming months. The results were below already lowered Wall Street expectations.

"As previously described, bookings began to suffer a substantial downturn in September," the line says in the statement.

Royal Caribbean says net yields for the 4th quarter -- the amount it brought in per cabin -- dropped 5.9% from the same quarter a year ago. It says net yields for the first quarter of 2009, currently underway, could be down a far heftier 14% to 16%. The company expects to lose tens of millions of dollars this quarter (it estimates the loss at 30 to 35 cents per share).

"The fourth quarter was an extremely difficult operating environment, and we expect even more challenges in 2009," Royal Caribbean Chairman and CEO Richard Fain was quoted as saying.

Still, Fain sees some signs of hope in the bookings coming in this month -- the start of the busy "Wave" season when many cruisers make their plans for the year. "Pricing is still very difficult, but booking patterns have begun to stabilize," he says.

Wall Street analysts have grown increasingly concerned about Royal Caribbean's financial position in recents months, noting that the company already is heavily in debt and has obligations to pay out billions of dollars more for ships it has ordered for delivery over the next three years.

On Wednesday, a Barclays Capital analyst warned that investors don't appreciate the magnitude of the decline in cruise ship demand. "While we believe RCL will stay solvent, we estimate the company would become precariously close to facing liquidity issues," Barclays noted. The firm slashed its price target for Royal Caribbean from $20 to $1 a share.

Royal Caribbean Cruises is the parent company of several cruise lines including Royal Caribbean, Celebrity Cruises and Azamara Cruises.