RCCL execs pleased with pricing-discipline policy

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
*InsightForming 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.*TomStieghorst

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
Allure of the SeasRoyal 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.