RCCL execs pleased with pricing-discipline policy

By Tom Stieghorst 

Royal Caribbean’s campaign to curb last-minute deep discounts is off to a good start.

So say top execs at Royal Caribbean Cruises Ltd., who had several things to say about what they’re calling Royal’s “price integrity policy,” in talking to Wall Street analysts last week.

Starting in March, Royal said it would stop filling its ships by offering very low prices within a month of sailing. Depending on the itinerary, Royal said it would stop discounting either 10, 20 or 30 days before the ship leaves the dock.

In an earnings call with analysts, Royal Chairman Richard Fain said the company was extending the policy in some cases to apply to bookings within 40 days of departure.

That is what is called incremental progress. If Royal sticks with it, there may be positive results for both Royal and travel agents.

Fain said that Royal is trying hard to be more consistent in its pricing, in part to keep travel agents in its corner.

“There's probably one thing that frustrates the travel agents that we work with as much as anything else, [and it] is those late last-minute discounts,” he said. “And we can't afford to frustrate them.”

A bit later in the call, CFO Jason Liberty raised a second reason why curbing the deep-discount cycle will benefit Royal.

“It's really very important to the branding,” said Liberty. It lacks credibility, Liberty said, to contend that you are a brand that is high quality and has high respect in the industry — “and you can have us for half-price.”

“So the ability to maintain your image as a higher-quality product, which really has to permeate everything you do, is probably a big driver, as big a driver of our thinking as anything else,” Liberty said.

Fain said Royal recognizes that the policy is costing money in the short term. But Royal’s second-quarter earnings were up 34% from a year ago, so any losses are being offset elsewhere.

“It's still early days, but the impact we have seen from a load factor perspective is relatively small, and it's in line with our expectations,” Fain said.

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.

Royal Outlook Improves

Post-Wave bookings on a tear, says Royal Caribbean chairman

By Tom Stieghorst

Royal Caribbean Cruises Ltd. reported an unusual surge in bookings in from mid-February to mid-April, a stretch when the booking pace typically decelerates.

Company chairman Richard Fain said that while the Wave season had been merely “typical,” which was slightly concerning, bookings in the past eight weeks were up more than 20%, driven by promotions.

“The volumes have just been unprecedented,” for a period in which the booking pace usually slackens, Fain said in a conference call with Wall Street analysts on Thursday.

He said promotions such as Royal Caribbean International’s Kids Sail Free and Celebrity Cruises’ 123Go had allowed RCCL to make up most of the booking deficit it had going into the last week of February.

Although occupancy levels are surging, pricing remains lower than a year ago. Fain also said “quality demand” in regions outside the Caribbean is contributing to the surge.

RCCL profit falls 65%, but outlook improves

By Tom Stieghorst

Royal Caribbean Cruises Ltd. raised its 2014 earnings guidance by a nickel a share despite reporting lower earnings for the first quarter.

Net income was $26.5 million, or 12 cents a share, in the quarter ended March 31, down from $76.2 million, or 35 cents per share, in 2013.

But Royal Caribbean said booking volume for the past three months have risen 16% year-over-year, with bookings for the past 8 weeks up by more than 20%, stronger than typical post-Wave periods.

The company raised its profit forecast by 5 cents a share, or about $11 million, to between $719.2 million and $763.5 million.

"Despite pressures in the Caribbean, the diversity provided by our global footprint is proving its value," CFO Jason Liberty said.

In 2013, Royal Caribbean earned $473.7 million.

Tallies of 2014 Wave range from ‘normal’ to ‘fantastic’

By Tom Stieghorst

Record month for Carnival

Carnival Cruise Lines said it booked 17% more reservations in January than in the same month in 2013, setting a new single-month record. Read More 

Cruise retailers said last week that sales appeared to be off to a promising start in 2014, following two years of disappointment during the Wave season that ushers in each new year’s bookings.

The only cruise company that has reported earnings so far this year took a more cautious approach. Executives at Royal Caribbean Cruises Ltd. (RCCL) used words like “typical” and “normal” to describe the first month of cruise sales in a conference call with Wall Street analysts last week.

All three of the major cruise companies are publicly traded and can only release sales figures that have been submitted to the U.S. Securities and Exchange Commission.

But several travel agents were decidedly upbeat.

“It’s been fantastic for us,” reported Joseph Giampietro, president of Cruise Brothers, a large retailer based in East Providence, R.I.

Matthew Jacob, an analyst at ITG Investment Research, suggested that RCCL might be portraying its bookings conservatively.

“The data we have up until now is probably stronger than what their guidance indicates,” Jacob said. “They are leaving some cushion for softness in close-in bookings.”

But even just a “normal” year might sit well with the industry and agents after two seasons running in which a negative event collapsed the momentum that Wave season is designed to generate.

The most memorable thing about the 2014 Wave season so far is the bone-chilling cold weather that gripped the northern areas of the country after New Year’s and extended into much of the South last week.

The first week of 2014 cruise sales at RCCL was somewhat softer than last year, CFO Jason Liberty said.

“The severity of the weather kept people indoors and clearly resulted in lower bookings for several days,” he said.

Demand was weakest in the Northeast and Midwest but stronger in the warmer markets, he said.

By last week, another front had pushed through the Deep South, badly snarling traffic in Atlanta and other Southern areas.

Adam Goldstein, president of Royal Caribbean International, said the frigid conditions worked in the industry’s favor.

“Obviously, we are continuing to root for cold weather, and we are seeing what is more or less an endless stretch of it,” he told analysts on RCCL’s earnings call.

That could be a stroke of luck for an industry that has emphasized the Caribbean this year. Caribbean capacity, both industrywide and for RCCL, is up 13% over last year, raising questions about how much discounting will be needed to fill all of the ships.

Cruise Brothers’ Giampietro said that at a recent consumer show, many of the cruise sales it booked were for Caribbean sailings in March, April and May. He said that was unusual because in other years inventory that close in would not be available.

“A lot of those ships have redeployed from Europe,” he said. “That’s why you’re seeing that [availability].”

Cruise Brothers’ higher sales are being driven by “price points,” he said. “It’s the best value. It’s within people’s reach, and they realize it now more than ever.”

Most cruise lines are staging promotions during Wave season, featuring low deposits, onboard credits, complimentary beverage packages, reduced airfares and other incentives as well as favorable ticket prices.

Goldstein said that the level of promotions is vigorous but not exceptional.

“I think all of the industry is working very hard to get load on the ships at the desirable rate,” he said.

Giampietro said add-ons like the 123Go! offer from RCCL’s Celebrity Cruises brand make a difference on the margin.

“Does it get the phones ringing? I’m not so sure,” he said. “But it does help to close [the sale], I can tell you that.”

Other agents said cruise inquiries have been steady through January.

“What’s hot is Norway,” said JoAnne Davis, a Cruise Planners franchisee in Coral Springs, Fla.

Davis said demand is strong for river cruises and Europe in general. “And they’re not letting the airfares stop them.”

Air to Europe still costs $1,200 to $1,500 per person, but Davis said her clients have resigned themselves to paying it. She said cruise fares in Europe are also higher, citing a $4,500 price on a 12-night Baltic cruise she recently booked.

ITG’s Jacob said the lines have been pleasantly surprised by demand and pricing in Europe and Asia.

“The cruise industry has taken capacity out, and the supply is more reasonable compared to demand,” he said. “And that has led to better pricing and better booking patterns for Europe than many in the industry were expecting in 2014.”

He said pricing improvement will be a multiyear process that will depend in part on avoiding external shocks, such as the Costa Concordia accident in 2012 and the Carnival Triumph fire in 2013.

“Without those occurring, you probably would have seen some real cruise ticket growth, and maybe I think this year we’ll see some rebound in ticket pricing,” Jacob said.

Cruise executives are keeping their fingers crossed that the outbreak of gastrointestinal illness that prompted Royal Caribbean International to shorten a cruise on the Explorer of the Seas last week won’t become this year’s Wave season spoiler.

More than 20% of the passengers on the Explorer were hit by the outbreak, which was heavily covered by news media when the ship returned to port for “barrier” sanitizing before its next cruise.

In 2006, a similar number of passengers and crew were affected by norovirus on a Carnival Liberty sailing in November. The impact on 2007 bookings isn’t known, but a generally strong economy at the time seemed to be the foundation for a year of higher revenues at both RCCL and Carnival Corp.

Pricing this year remains a key question for both cruise lines and travel agents.

Katrina May, owner of YamaGogo Travel in Apopka, Fla., said she booked a five-night cruise on the Brilliance of the Seas from Tampa recently for $600. “For the close-in sailings, the price has almost been cheap,” she said.

May said cruise lines have been quietly extending promotions that were set to expire at the end of last year.

Though her agency is in Florida, May said the polar vortex that threw much of the country into a deep freeze was helping her sales. May said she’s completed three or four bookings in January for departures as close as two weeks.

“Cold weather has a lot to do with it,” she said.