No Consumer Recovery Just Yet, Royal Caribbean CEO Says

Date : 11/03/2009 @ 7:38PM
Source : Dow Jones News
Stock : Royal Caribbean Cruises Ltd. (RCL)
Quote : 115.29  -0.9 (-0.77%) @ 4:01PM

No Consumer Recovery Just Yet, Royal Caribbean CEO Says

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Royal Caribbean Cruises Ltd. (RCL) Chairman and Chief Executive Richard Fain expects an eventual consumer recovery, but he says his company hasn't seen it come to fruition yet.

"The good news is it's not getting any worse," Fain said in an interview with Dow Jones Newswires. "We are anxious to see the upturn, but we haven't seen it yet."

The comments come after the second-largest cruise ship operator by market share behind Carnival Corp. (CCL) reported third-quarter earnings Tuesday that beat company expectations, helped by last-minute bookings. The company's earnings fell 44% in the third quarter, as pricing remained soft amid a prolonged travel industry slump.

However, Royal Caribbean projected worse-than-expected earnings and yield results--the industry's measure of ticket pricing and onboard spending--for the current quarter.

Royal Caribbean shares closed Tuesday down 4.5% to $19.75. So far this year, the stock has gained about 44%.

Amid a tough economy, cruise companies have had to discount trips significantly to attract skittish consumers, who are generally waiting until closer to sail date to book travel. While prices have improved sequentially from a steep drop off last fall, they're still generally catching up to prior levels.

"We're giving people more of a good deal than I would like," Fain said.

That said, Royal Caribbean's chief executive sees some reasons to be encouraged. While onboard spending is down, consumers are still making purchases, especially where they see bargains, he said, and ships are also sailing full, given the discounts.

There's also been some anecdotal evidence that people may be starting to book trips farther in advance, but it's too early to say that with any decision, Fain added.

"Reading between the tea leaves... I'd say any significant improvement in consumer sentiment or spending, we're poised to benefit quickly," Fain said.

Looking ahead, Fain is also excited about the launch of the world's largest passenger cruise ship, Oasis of the Seas, set to launch Dec. 1. Advance bookings for the ship, which has a capacity of 5,400 guests, have been strong, the company has said.

New ships like Oasis generally command a pricing premium, which should help Royal Caribbean next year, as bookings also tend to stay healthy during a debut period, analysts say.

Tuesday, Royal Caribbean reiterated its expectation that net yields should improve for the first quarter and the full year 2010, in part due to the success it expects for ships like Oasis.

Navigating the pricing environment should be easier next year, too, Fain said.

Last fall, "we were in unchartered waters," Fain said. "And when you're in unchartered waters, it's hard to plot the most efficient course. Now we have a lot more experience and we're much better able to chart a more effective course."

-By Kelly Nolan, Dow Jones Newswires; 212-416-2167;


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