Fri 30 Jan 2009 09:58

Royal Caribbean: Bunker costs 'higher than expected'


Operator reports fuel expenses of $36.1 million as net income plummets.



Royal Caribbean Cruises Ltd., the world’s second-largest cruise operator, said bunker fuel expenses of $36.1 million for the fourth quarter of 2008 were higher than expected, as net income plunged 98 percent to $1.5 million.

The cruise ship operator reported a net income for the last three-months of 2008 of $0.01 per share, or $1.5 million, compared with $0.33 per share, or $70.8 million in 2007.

Revenues were $1.5 billion, the same as in 2007. Net Yields decreased 5.9 percent from the prior year.

Royal Caribbean said the overall revenue environment was in-line with previous guidance but foreign currency weakness negatively impacted this by approximately 2 percentage points.

The company experienced higher-than-anticipated fuel and insurance expenses during the last quarter, but said it was able to significantly offset these items through cost containment and other initiatives. Net Cruise Costs per APCD increased 0.3 percent, and Net Cruise Costs excluding fuel per APCD decreased 1.7 percent.

Fuel cost per metric ton for the fourth quarter increased 11 percent to $565 versus 2007. This resulted in fuel expenses of $36.1 million, or $0.17 per share - higher than the company's previous fourth quarter calculation.

Commenting on the higher-than-anticipated prices, Royal Caribbean said "Most significantly, while crude oil prices followed an erratic downward trend during the quarter, at-the-pump pricing lagged crude oil, resulting in higher than expected pricing at-the-pump. In addition, certain issues relating to weather and vessel operations contributed to the difference. While such factors are not always predictable, the company has made adjustments for these items in its 2009 fuel calculation."

Royal Caribbean said that it does not forecast fuel prices and its cost calculation for fuel is based on current at-the-pump prices net of any hedging impacts.

Based on current fuel prices, the company has included $580 million in fuel expenses in its full year 2009 guidance. This figure is $55 million, or $0.26 per share, lower than its previous calculation. The company is currently 58 percent hedged for the first quarter of 2009 and 47 percent hedged for the full year.

First Quarter 2009 Full Year 2009
Fuel Consumption 300,000 mt 1,265,000 mt
Fuel Expenses $165 Million $580 Million
Percent Hedged 58% 47%
Impact of $10 Change in WTI $8 Million $46 Million


Speaking about the company's financial results, Richard D. Fain, chairman and chief executive officer, said "The fourth quarter was an extremely difficult operating environment and we expect even more challenges in 2009. Nevertheless, I am pleased by our success in reducing costs without compromising the guest experience. Although the WAVE Period has only just started, we are encouraged by what we have seen so far; pricing is still very difficult, but booking patterns have begun to stabilize."

Summarizing the company's outlook Fain added, "Obviously, we are very disappointed at the outlook for 2009, but we are confident that with continued focus on our product delivery and cost control, combined with the steps we have taken to strengthen our liquidity and finance our order book, we are well positioned to weather these tough economic conditions and prosper when the recovery begins."

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