Cruise shares sink after Royal Caribbean dampens Q1 expectations

Cruise shares sink after Royal Caribbean dampens Q1 expectations

Shares in Royal Caribbean Cruises sunk by as much as 18% in New York yesterday on weaker-than-expected guidance on the first quarter of 2016 and the full year.

The world’s second-largest cruise conglomerate cited increased costs of expansion in China, the launch of new marketing campaigns for core brands and the strength of the dollar.

“In addition, although Ovation of the Seas and Harmony of the Seas are being delivered in the second quarter, there are some preparatory costs incurred in the months before delivery. As a result, costs are more concentrated than usual in the first quarter,” the company said.

Shares in Carnival Corporation slipped by 6% and Norwegian Cruise Line Holdings by 8.4% on the back of the weaker guidance from Royal Caribbean.

The company also faces restructuring and related charges as the weakness of economies in Latin America forces a refocus of the Pullmantur subsidiary on its core market of Spain and “right-sizing” the brand.

The parent company of Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises reported bookings to date for 2016 to be “roughly equal” to last year's record high but at higher rates. 

“Continued strength from North American consumers is driving strong demand for North American products such as Caribbean, Alaska, and Bermuda which represent over 50% of capacity for the year. 

“These North American products combined with strong demand for Northern Europe and Asia sailings are expected to more than offset current pricing challenges impacting the Mediterranean, Australia and Brazil,” the company said.

Chief financial officer, Jason Liberty, said: "Despite some challenges in select destinations, our strong brands, innovative hardware and deployment optimisation are continuing to deliver strong yield growth in 2016.

"These yields coupled with continued cost discipline are expected to result in another year of step change performance."

Liberty added: “We did experience a softening in North American demand for a short period after the Paris attacks in November, and there was a minor drop in bookings from European-sourced markets. Demand quickly returned to typical levels, although pricing remains below same time last year for eastern Mediterranean sailings.”

Royal Caribbean International president and chief executive, Michael Bayley, the Zika virus had not had any impact on the company.

Overall capacity is set to rise by 6.3% in 2016 with the introduction of two new ships, with the majority of growth coming in the Asia-Pacific region and the Caribbean.

Revenue rose 4.4% to $1.9 billion in the three months to December 31, but missed the average analyst estimate of $1.96 billion.

Net income surged to $206.8 million against $70 million in the same period the previous year.

Net profits for the whole of 2015 rose by 42% to $1.07 billion over the previous year.

Chairman and chief executive, Richard Fain, described the results as “gratifying” combined with a strong start to the new year wave peak booking period.

"Our core brands are firing on all cylinders, our new ships are performing exceptionally well and our costs are well controlled,” he said.

“This is driving 40%-plus earnings growth in two consecutive years."

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