Learning from RCCL’s cruise line partnerships

By Tom Stieghorst

Forming partnerships to operate cruise lines is a tricky business that can have hard-to-predict consequences.

Take, for example, two cruise lines that Royal Caribbean Cruises Ltd. (RCCL) got involved with in Europe.

One, Spain’s Pullmantur, has been a qualified disaster. As the economy in Spain soured over the past decade, Pullmantur’s results worsened. Because RCCL had acquired Pullmantur outright in 2006, it had to accept the subsidiary’s losses as its own on profit or loss statements.

Last year, RCCL took a $414 million writedown of Pullmantur’s assets. The only positive has been Pullmatur’s growing business in Latin America.

The other cruise line Royal took an interest in is Germany’s TUI. It remains 50/50 partners in TUI with TUI AG, which means it can’t incorporate either losses or profits directly in its bottom line.

In this case, it wishes it could. Unlike Spain, the German economy has mostly been strong and TUI has been highly profitable.

“TUI Cruises has been a very solid performer,” RCCL Chairman and CEO Richard Fain said in a recent conference call with Wall Street analysts. “I dearly wish they were included in our yield stats because it would make them look very good.”

Royal Caribbean reported $18.8 million of “other income” in a third quarter in which it earned $490.2 million. Most of that came from TUI, CFO Jason Liberty said.

The exact structure of how cruise line partnerships are formed is worth keeping in mind as both Royal Caribbean and Carnival Corp. negotiate joint ventures in China to further their interests in that key country.

The devil is in the details, as they say. It should be interesting to see what the details are if and when these Chinese ventures are finalized.