Cruising's Big Three look to rate, yield rebound

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NEW YORK -- Recent financial statements from cruising's top three suppliers - Carnival Corp., P&O Princess Cruises and Royal Caribbean Cruises Ltd. -- confirmed what cruise observers had contended for months: Cruise rates and net revenue yields (revenues per available passenger cruise day), slipped markedly in 2000 after two straight years of incremental improvement.

Still, cruising's largest suppliers are reporting stronger results for 2001 and expressing optimism that rates and yields will rebound.

A combination of factors, the operators said, was responsible for cruising's rate and yield declines in 2000. Increased capacity and competition in the Caribbean affected all of the Big Three operators.

Higher fourth-quarter fuel prices were another factor. Also, pricey millennium cruises in 1999 created artificially high rate and yield levels that couldn't be matched in the fourth quarter of 2000, suppliers said.

P&O Princess, parent company of Princess Cruises, was the latest of the industry's Big Three to lament the 2000 pricing picture.

P&O's fourth-quarter 2000 results included an 11% decline in net revenue yields compared with the same period in 1999. Fourth-quarter operating profits also fell, to $15.9 million for 2000 compared with $56.9 million for the same period in 1999.

For the year, P&O Princess reported operating profits of $373.1 million on gross revenues of $2.42 billion for the 12 months ended Dec. 31, 2000, compared with profits of $388.3 million on gross revenues of $2.11 billion for the same period in 1999.

P&O's Los Angeles-based Princess Cruises division increased its capacity by 12% in 2000 with the addition of the 1,950-passenger Ocean Princess, which spent its inaugural season in the Caribbean. P&O recently announced that Ocean Princess will be transferred to the company's U.K.-based P&O Cruises division in 2002.

Peter Ratcliffe, P&O's chief executive officer, blamed "lower yields and $4 million of additional costs due to higher fuel prices" for the fourth-quarter yield decline.

"Pricing conditions were challenging for Princess in the Caribbean and transcanal trades" in the fourth quarter, according to a P&O statement. The company's declining operating profits, meanwhile, "[reflected] the lower yields."

At Carnival Corp., chairman Micky Arison cited "continued pressure on cruise pricing resulting in lower net revenue yields" and "higher fuel costs" as factors in Carnival's reduced totals for 2000.

For the year ended Nov. 30, 2000, Carnival reported net income of $193.8 million on revenues of $850.3 million, compared with net income of $251.0 million on revenues of $791.2 million in 1999.

Carnival put four new ships into service in 2000: Costa Cruises' CostaAtlantica, Carnival Victory and Holland America Line's Amsterdam and Zaandam. That capacity increase, combined with other factors, affected pricing and yields for cruising's largest operator.

"We went into last year thinking we'd have increased prices," said Gerald Cahill, Carnival's chief financial officer.

"We got more bookings initially, but our passenger growth lagged behind our capacity increase so we felt the need to reduce prices," he continued. "As a result, we wound up with lower yields."

Royal Caribbean's Explorer of the Seas.While Royal Caribbean posted a 16% increase in net income in 2000 (with $445 million on revenues of $2.9 billion versus income of $384 million on revenues of $2.5 billion in 1999), "net revenue yields were the same in 2000 as in 1999," according to a company statement.

Moreover, Royal Caribbean's net revenue yields fell 7% in the fourth quarter of 2000, due at least in part to "the impact of the millennium, which positively affected both the fourth quarter of 1999 and the first quarter of 2000."

Net income for the quarter was $30 million, compared with $38 million in the fourth quarter of 1999.

Nevertheless, the top three cruise operators say 2001 is off to a better start. P&O officials said 2001 results are, to this point, improved over last year.

"Whilst trading conditions for the first quarter of 2001 have been competitive, they are improved compared to those for the fourth quarter of 2000," according to a company statement.

"As a result, Princess has experienced a significantly lower level of yield reduction than in the previous quarter."

In February, midway through cruising's Wave period, Carnival officials said its ships were filling faster than they were at this time in 2000, with booking activity up 20% despite a 10% increase in capacity.

Rates are higher than last year's average price, although below Carnival's first-quarter 2000 figures. Carnival is expected to hold firm on pricing this year.

"We tried too hard to ratchet up prices [last year] and we don't want to make that mistake again," said Arison.

Also in February, Royal Caribbean chief financial officer Richard Glasier told investors in Norway that booking levels for 2001 will match or exceed 2000 levels.

"We think we will do as well as we did last year, and may do even better," Glasier said.

An analysts' report from Legg Mason Wood Walker said the investment firm is "encouraged by the growing evidence of strong consumer demand for cruises thus far this year, which we believe supports our view that prices have bottomed."

The same report observed that P&O officials predict "Booking trends for the industry as a whole are positive and this may make it possible to obtain price increases as the year progresses."

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