Tuesday, 2 August 2011

Despite sluggishness in Med, RCCL's Q2 profit surges 74%

Despite sluggishness in Med, RCCL's Q2 profit surges 74%

By Donna Tunney
Royal Caribbean Cruises Ltd. reported that its second-quarter net income was $93.5 million, a 74% jump from the $53.7 million reported in the same period a year earlier.

Load factors this year are ahead of 2010, the company said, with “all brands showing positive trends for remainder of the year.”

Chairman and CEO Richard Fain, however, said that Eastern Mediterranean itineraries have “suffered.”

“The Arab Spring had a huge impact on Eastern Med ports,” he said. “It continued to fester and spread to other countries. During the second quarter we reached a tipping point and saw declines in pricing.”

He added that cost-savings elsewhere have largely offset losses in the company’s Eastern Med programs.

“Fortunately,” Fain said, “our other markets are performing exceptionally well, and we have been able to take our cost reductions to the next level.”

For the third quarter, RCCL has 18% of its capacity in the Eastern Med, and year-over-year yields are “down significantly.” Yields in the Western Mediterranean are “up modestly.” Yields in the Caribbean, the Baltic and Alaska are “up double digits.”

RCCL also announced a revision of its past financial statements to fix an accounting error made in 2009 tied to interest expenses, which impacted the quarter’s earnings per share by five cents, to $0.43.

The revision will contribute to a forecasted reduction in earnings per share for the full year 2011 by 20 cents, resulting in a guidance of $2.85 to $2.95.

The company said that cash flows, operating income, net yields and net cruise costs were not impacted by the revision. The error occurred in the amortization of certain fees on guaranteed loans, the company said, and the revision accelerates the interest payments.

“While the initial error was internal, it was the same internal team that found it and reported it,” Fain said. “There isn’t a soul here who doesn’t regret the error, but it does not affect our business projector as we enter a more stable commercial environment.”

The company also reported that it sold some fuel options to avoid a negative market adjustment as fuel prices fell.