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Royal Caribbean Sees Lower 2009 Profit on Sales Slump

By Lipcon, Margulies & Alsina, P.A.

Jan. 29 (Bloomberg) -- Royal Caribbean Cruises Ltd., the world?s second-largest cruise operator, projected 2009 profit will fall more than analysts estimated as it slashed ticket prices to stimulate demand. The shares dropped 13 percent.

The operator of 38 cruise ships today forecast 2009 earnings will drop to $1.40 a share, trailing the $1.77 average estimate of 29 analysts and below the $2.68 it earned last year.

?We?re terribly disappointed at the kind of pricing levels that we have to offer in this market,? Chief Executive Officer Richard Fain said today on a conference call. ?Until a few months ago, we were doing substantially better.?

Royal Caribbean cut prices to boost sales as consumers made vacation decisions later than usual. Ticket prices and onboard spending are ?way down? from last year, but the number of bookings is ?stabilizing,? executives said on the call.

?Bookings may have begun to stabilize, but pricing remains extremely challenging as new bookings slowed considerably year- on-year since September,? Tim Conder, an analyst at Wachovia Corp. in St. Louis, wrote today in a note to clients.

Royal Caribbean fell $1.21 to $7.85 by 4:15 p.m. in New York Stock Exchange composite trading, the biggest one-day decline since Nov. 19.

Quarterly Drop

Fourth-quarter net income plunged 98 percent to $1.48 million, or 1 cent a share, and revenue fell 2.3 percent to $1.46 billion, the Miami-based company said in the statement. Twenty- three analysts surveyed by Bloomberg estimated profit of 7 cents.

Revenue after operating costs per available passenger cruise days, a measure known as net yield, fell 5.9 percent, more than the company projected, because of a ?substantial? decline in bookings, higher-than-anticipated fuel costs and unfavorable currency changes, Royal Caribbean said.

The Celebrity Cruises operator forecast a net yield drop of at least 14 percent in the first quarter and 9 percent this year.

Royal Caribbean is tackling ?truly dramatic levels of volatility? in fuel prices and currency, said Fain, 61.

The company expects to spend $580 million on fuel in 2009. Royal Caribbean bought contracts that locked in prices for 47 percent of its anticipated fuel expenses in 2009.

This month, the dollar has gained against 13 of 16 major currencies, according to Bloomberg data.

Passenger Forecast

The forecast is predicated on no economic recovery in 2009 and on ?slightly lower? passenger levels to avoid ?extreme? discounts and maximize yields this year, Fain said.

Royal Caribbean and bigger rival Carnival Corp. are trying to woo cash-strapped travelers by marketing cruising as an all- inclusive vacation that usually costs 30 percent less than comparable land and hotel trips.

Both cruise operators in November said they would suspend dividend payments to conserve cash. Royal Caribbean said in July it would cut 400 jobs to trim $125 million in annual spending.

Barclays Plc cut its recommendation on Royal Caribbean?s stock, saying the company ?could come precariously close to facing liquidity issues.?

?Very Comfortable?

Royal Caribbean is ?very comfortable? with its cash on hand, Chief Financial Officer Brian Rice said today on the call. It may extend maturities on some debt and sell interest-rate swaps that are ?in the money,? he said. The company had $1 billion in liquidity as of Dec. 31, executives said on the call.

The operator of the Pullmantur Cruises and Azamara Cruises lines last year changed some itineraries to lower fuel consumption and imposed passenger surcharges that have since been scrapped. Fuel expenses increased 11 percent in the quarter and 30 percent for the year, it said.

Full-year 2008 profit of $2.68 a share missed $2.71 estimated by 29 analysts surveyed by Bloomberg. In the year- earlier quarter, it earned $70.8 million, or 33 cents.

Royal Caribbean will build another six vessels and doesn?t plan to postpone deliveries because new ships generate ?tremendous cash? and are cheaper to run, said Rice, 50.

Full post as published by Cruise Ship Law on January 29, 2009 (boomark / email).