Royal Caribbean: 'Aggressive' discounts have stabilized cruise bookings

mercedes · April 24, 2009

The deals are working.

That's the word from Royal Caribbean, which says the hefty discounts the company has been offering in recent months for cruises on its namesake brand and sister line Celebrity Cruises have been successful in getting people booking again.

"Discounting continues to be aggressive," the line said today in a statement accompanying its first quarter earnings release. "Yet (the discounting) remains within the range of previous guidance and booking volumes have been sufficient for the company to achieve its forecasted occupancy levels."

Royal Caribbean said it lost $36.2 million, or $0.17 per share, during the first quarter, a sharp reversal from a year ago when the company had a first quarter profit of $75.6 million. Still, the loss is not as bad as some Wall Street firms had expected, and it beat the company's earlier guidance.

Helping Royal Caribbean: A significant drop in costs. Net cruise costs, excluding fuel, fell by 6.8% on a per passenger basis.

Like other travel companies, Royal Caribbean has been hard hit by the downturn in the economy as vacationers cut back on spending, and the company had warned investors earlier this year that its net yields -- a measure of how much money it generates per cabin -- could be down 14% to 16% for the quarter. But yields were down just 13.5%, helped by stable close-in bookings.

Still, the company projects the second quarter will be tough with yields down 17%, and for the full year the company now projects yields toward the lower end of its previous guidance at down 12% to 13%.

"A later booking pattern continues to make forecasting difficult, but our visibility gets better every day," says Royal Caribbean chief financial officer Brian Rice. "We have lowered our revenue forecast marginally to take into account selected areas of weakness including a more cautious view of onboard revenue, but overall, our bookings continue to come in within the range of our earlier expectations. In today's world, that is significant."

Rice says the company has seen consumer behavior stabilize in recent months. "We are obviously not completely back to equilibrium yet," he says. "But the predictability of our bookings gets better every day and the risk of a dramatic deviation continues to fall."