Royal Caribbean Cruises Ltd (RCCL), the
world’s second largest cruise shipping group, said that new booking activity
fell sharply from a high level in the wake of Costa Concordia accident on 13
January, with European bookings falling more than those originating in North America. The company forecasts 2012 earnings per share in the range of $1.90 to $2.30 compared to $2.77 achieved in 2011.
“Because the tragedy in Italy is having
such a significant near term effect on bookings and because that impact on the
company's earnings is so uncertain, the company first described the situation
prior to the event and then discussed the possible consequences,” the company
said in a statement.
Booking patterns at the end of 2011 were
strong and WAVE season was off to an excellent start. During the two weeks prior to the tragedy,
bookings averaged 5% more than the same period last year and at higher prices. Booked load factors and pricing were ahead of
the same time last year in all four quarters.
Based on the bookings in hand at that time
and the pattern of forward bookings through the period, the company anticipated
Constant-Currency yield improvement in the mid single digits for the year. This figure was influenced by two unique
Firstly, the company made some changes
related to its International distribution system in 2011 which carry on into
2012 and will increase yields by about 130 basis points. The changes also increase expenses, but the
bottom line impact is not material.
Secondly, the company has increased its
commitment in certain deployment initiatives which increase revenues but also
increase related expenses. For example, China represents a strategic market
initiative the company is augmenting significantly.
Altogether, these factors are expected to
cause both Net Yields and NCCs for the full year 2012 to increase approximately
200 basis points and 300 basis points, respectively. Absent these factors, the company estimates
that its "normalized" Net Yield growth would have been in the range
of 2% to 4% on a Constant-Currency basis.
Impact of Costa Concordia
It is very difficult to assess the impact
of the incident on our revenues. It has
been the subject of extensive media coverage and world-wide attention. In addition, we curtailed our marketing
activities as did most cruise lines and travel agencies. We believe that most observers and potential
guests understand that cruising is safe and that this incident was a very rare
anomaly in an otherwise reliably safe vacation.
But in the near term it has a significant impact on our bookings.
"We are pleased to note that there has been
no material change in cancellation activity which has remained within normal
levels. However, new booking activity
has been hurt. Overall booking volumes
from North America have fallen by low to mid-teen percentages versus same time
last year for the last few weeks. In
Europe, where media coverage has been more extensive, the decline has been
higher, though results vary significantly by country. In aggregate the company's other markets,
including Asia/Pacific and Latin America are down slightly. For the year as a whole, notwithstanding the
recent slowdown, booked load factors and pricing are still higher than they
were at the same time last year. This
reflects the very robust starting position the company was in before the incident, RCCL said.
The impact on bookings has been greatest in
the first three quarters and wanes as the year progresses. On the other hand, the first quarter also has
more of its capacity booked making it less affected by changes in booking
patterns. Spring and summer sailings are
showing the largest declines in new bookings, while longer term bookings remain
healthy. In addition, the company noted
that the impact is much greater for first time cruisers compared to experienced
cruisers. This reflects the greater knowledge
experienced cruisers have about cruise vacations and ships.
Including the contribution from
distribution changes and deployment initiatives noted above, the company
currently anticipates yield improvement for the full year 2012 to be in a range
between 1% and 5% on a Constant-Currency basis and between flat and 4% on an
As-Reported basis versus the prior year.
Already, bookings have started to recover,
particularly in North America and the company does not expect that this event
will have a significant long term impact on its business. Taking into account the high degree of
uncertainty surrounding current booking patterns, current fuel pricing and
currency exchange rates, and the factors detailed above, the company
anticipates 2012 earnings to be in the range of $1.90 to $2.30 per share.
The company's booked load factors in the
first quarter were already very strong prior to the incident. Subsequently, the quarter experienced a big
percentage decline in new activity, but the bookings already in hand mean the
company still expects yield improvements of 5% to 7% on a Constant-Currency
basis (+4% to 6% As-Reported basis.)
This estimate includes approximately 300 basis points relating to the
previously referenced distribution and deployment items.
"We are still on track to achieve our
original projections for the first quarter, but there is a high degree of
uncertainty and it is difficult to judge the impact of the tragedy on the
balance of the year," said Brian J. Rice, executive vice president and
chief financial officer. Rice continued,
"We have clearly lost some of our positive momentum in the short
term. Fortunately, we had a very strong
order book before the tragedy; our brands are back in the market advertising
and we do not expect any significant long term impact to our business."