Royal Caribbean cuts profit forecast but tackles last minute discounting in North America

Royal Caribbean cuts profit forecast but tackles last minute discounting in North America

The world’s third largest cruise ship, Anthem of the Seas, departs on its maiden voyage from Southampton tomorrow on the back of parent company Royal Caribbean Cruises cutting its profit forecast for the year.

The company cited the strengthening US dollar and an increase in fuel prices as negatively impacting the current year.

Fuel prices have risen 14% and the dollar has gained 3.5% since the world’s second largest cruise company's previous forecast in January.

Earnings expectations were cut to $4.45-$4.65 per share for the year ending December, from the $4.65-$4.85 it previously forecast.

The latest forecast includes a 20 cents per share impact from the strong dollar and 16 cents from higher fuel prices.

Shares in the company fell 9.3% to a more than four-month low on Monday, Reuters reported.

The parent of brands such as Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises saw first quarter net profits decline to $45.2 million from $46.1 million in the same period a year earlier.

This came despite higher booking levels being achieved during the wave peak booking period even after the introduction of more capacity.

Chairman and chief executive Richard Fain delivered an upbeat message about future growth, saying that the company remained focused on doubling its record 2014 profitability in 2017.

He outlined efforts being made in its home market to tackle last minute discounting and said Anthem in the UK had been attracting “disproportionately high pricing”.

“The profitability of our new ships, coupled with the power of our family of brands, is enabling us to deliver step change performance again in 2015,” he said.

“On our last earnings call we were pleased to report that earnings for 2014 were up 40% over the previous year. We were then pleased to give guidance that projected a further 40% increase in our earnings this year.

“Unfortunately the currency markets have not co-operated and, as a result of the weakness in sterling, Aussie dollars, euros, etc., we now expect 34% earnings growth year over year. Not quite 40% but definitely not bad.”

The company has extended its booking curve by opening deployments earlier, starting marketing sailings earlier and by enhancing its yield management systems, Fain added.

“The objective is to fill our ships earlier and reduce the number of state rooms we have to fill closer in. With fewer staterooms to fill at the last minute there is less need to offer the kind of drastic last-minute discounts that are so disruptive,” he said.

The company took action in North America last month in an effort abolish all last-minute discounting.

“Depending on the type of cruise that last-minute may be 10, 20, or 30 days out. But from that point on we will hold our price at the prior level,” said Fain.

“Obviously this may cost us some bookings in the short-term and our guidance reflects that. But we believe that the long-term advantage for our brands is worth the small short-term cost.

“Over time we think this will lead to happier guests, happier agents and better branding.

“The only exception to this rule is for very short-term cruises, i.e. two to four nights where last-minute bookings is more a reflection of the decision process.”

Caribbean itineraries saw particularly strong demand in the first three months of the year, and bookings were also up year-over-year for Europe and China itineraries, according to the company.

“Overall, European itineraries are booked at a higher load factor than last year. Western Mediterranean itineraries have been booking well, while trends have been a little weaker for eastern Mediterranean itineraries, particularly those that turn in Turkey.

“Demand for China remains strong and bookings have been outpacing expectations despite the significant capacity growth in the region.”

 

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