For RCCL, 'solid' start to Wave tempered by Europe weakness

By Tom Stieghorst
Royal Caribbean Cruises Ltd. (RCCL) reported fair skies for its U.S. cruise bookings so far this year, but the company said slow sales in Europe are clouding the overall forecast.

In the first comments on 2013 bookings by a major cruise line, RCCL Chairman and CEO Richard Fain said during a conference call to discuss the company's 2012 results that the Wave season "has started on a nice, solid note."

Overall, RCCL's annual Wave is off to its strongest start in three seasons, he said.

In recent weeks, bookings are up about 20% year over year, although the Costa Concordia accident last Jan. 13 foreshortened the 2012 Wave season, making comparisons difficult. But RCCL said booking volumes are still ahead of the same period in 2011, and pricing is higher than at this time in both 2011 and 2012.

Adam Goldstein, CEO of Royal Caribbean International, said he expected 2013 to be a record year for yields in the Caribbean, where the company, which also owns Celebrity Cruises and Spanish line Pullmantur, will deploy about 44% of its capacity.

"There was a lull in Caribbean bookings following Superstorm Sandy, but we have seen notable year-over-year improvement during the first weeks of the Wave," Goldstein said. He attributed the gain to increased consumer confidence because the housing market has turned more positive and Congress reached a compromise to avert the fiscal cliff.

Bookings in Alaska also appear to be on track. Goldstein said that business in Asia and Australia has more than matched the capacity increases put in place in those regions.

Goldstein said RCCL is seeing more interest in Europe from the U.S. source market than it did last year and that complaints about the lack of airline seats have abated.

Weakness in U.K., Spain

Fain told analysts, "We're happy with the strong bookings we're seeing in the United States, but we're unhappy about the weakness we're seeing in many of the European Union countries, most notably Spain and the U.K."

Europe has been "pretty solid," with the exception of the U.K. and Spain, according to CFO Brian Rice.

"The U.K. has been disappointing from a volume standpoint, but pricing is above last year," Rice said. "Spain, however, is down significantly in both volume and pricing."

In a sign of how far Spain is from recovery, RCCL took a write-down of its investment in Pullmantur of about $414 million, to reflect the diminished value of its brands and goodwill.

Pullmantur became Royal's first wholly owned European brand when it was acquired in 2006 for about $900 million in stock and assumed debt. After the writedown, Royal put the value of Pullmantur's trademarks and name at $208 million and its goodwill balance at $144 million.

The write-down was based on cash flow forecasts that take a "rather grim" view of the Spanish economy, Rice said.

Last year, Carnival Corp. wrote down the value of its Spanish cruise subsidiary, Ibero Cruises, for similar reasons.

RCCL posted net income of $18.3 million for 2012, compared with $607.4 million in 2011; before the write-down, net income was $432 million. Revenue was up 2% for the year, to $7.69 billion.

For Q4, RCCL lost $392.8 million compared with net income of $36.6 million in 2011. Without the Pullmantur write-down, net income would have been $21.1 million. Revenue rose 2%, to $1.8 billion.
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