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October 23, 2015By: Susan Young
A strong performance in Asia propelled Royal Caribbean Cruises Ltd.’s third quarter 2015 earnings to a bit higher level than financial analysts had expected. The world’s second largest cruise company also said it was experiencing very good close-in demand for Caribbean sailings and also seeing positive 2016 booking trends.
Onboard revenue sales were up 10 percent due to food & beverage and VOOM, the line’s high-speed Internet, popular with techies and Millennials who want to stay connected at sea.
Adjusted net income was $628 million for the quarter, which compares to $492 million posted last year for the same period. Revenues were $2.4 billion, versus $2.5 billion the previous year.
That said, the company was forced to write down nearly $400 million for Pullmantur, given softness in Latin America. It said it will refocus Pullmantur’s efforts on Spain. It will also right-size the brand’s fleet, by returning Pullmantour’s Empress to Royal Caribbean in February; the ship will sail again as Empress of the Seas.
But “even though we are disappointed to have such a large non-cash charge related to Pullmantur, we are enthusiastic about the overall strength of our brands and our ability to continue our dramatic profitability growth,” said Richard Fain, chairman and CEO, Royal Caribbean Cruises Ltd.
No Last-Minute Discounting Policy Extended
During the company’s Friday earnings call with financial analysts, Fain also revealed that the line’s recently adopted North American strategy of not fielding deep, last-minute discounts simply to fill cabins 30 days prior to sailing has now been extended to the United Kingdom and Ireland.
While citing results from that new policy as “encouraging,” Fain did say more time is also needed to fully evaluate results, but stressed that both frequent customers and travel partners support it. He also said the company hasn’t granted a single exception to the policy since it began.
While the company does lose money on cabins that sail empty, the long-term strategy is to avoid rampant last-minute discounting that agents hate because it trains customers “to wait” to the bitter end to book. Over time, by avoiding that last-minute discounting, customers will hopefully learn to book farther out for the best prices. That can help the line get higher pier diems overall, which also helps travel agents in their commission pay.
For the full year 2016, the company raised earnings per share guidance to $4.80, up $.05 from the high end of its former guidance. The company also announced a share repurchase program, and improved its full year guidance on earnings per share – upping that by $.05 to $4.80 per share.
Early Bookings for 2016 Look Good
The line reported good early booking trends for 2016. Booked load factors and average per diems are higher than the same time last year and the booking window has extended farther out.
For the full earnings report, visit www.rclinvestor.com
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