The Allure of an Oasis of the seas

Royal Caribbean has named its two new Genesis class ships, or ULPS (Ultra Large Passenger Ship as I will call them), currently under construction at Aker FinnyardsTurku shipyard in Finland. The first ship, Oasis of the Seas, is due in Sept 2009 and will trade in the US starting December 12, 2009. It will service the Caribbean cruise market with one week in the Eastern Caribbean, the other week in the Western, based out of Florida’s Port Everglades in Ft Lauderdale. You can see RCCL’s website for the Oasis, here.

Oasis’s sister ship, Allure of the Seas, is due for delivery in August 2010. At a cost of $1.4 billion each, powered by 8 Wartsila V12, and weighing in at 220,000 tons, they shatter most passenger ship records. Carnival Cruise Line’s CEO, Mickey Arison, publicly questioned the financial prudence of introducing this size ship into this US economic situation.

Maybe M. Arison is on to something, as this article, below, rumbled across my desk. Then again, fuel prices has affected all ships, including Mr. Arison’s, and therefore not really related to the economy of scales and “bling bling rating” that I believe RCCL is going for with the new Genesis class ships. You can check out the company`s quarterly announcement here.

Royal Caribbean slashes 400 jobs as fuel costs bite
Rajesh Joshi, 23 July 2008, Lloyds List

ROYAL Caribbean has confirmed that it has cut 400 shoreside jobs as part of an $125m-per-year cost-cutting plan.

Royal Caribbean chairman and chief executive, Richard Fain, pinned most of the blame on rocketing fuel costs, which have soared 55% since last year. “Too much of our profitability is being eroded by the increase in fuel prices,” Mr Fain said yesterday. “This is unacceptable and we are evaluating everything we do to find ways to do it more efficiently and effectively.

“This is a difficult period for virtually all businesses, but we are determined to improve operating results through tight cost controls, while preserving our outstanding guest experience.”

As part of the $125m restructuring, Mr Fain said that the shoreside jobs had been eliminated “as of yesterday”. The Scholar Ship, an educational partnership for college students studying on board cruiseships, has also been axed, along with other non-core operations. The company is taking a charge of $15m in its third quarter accounts to absorb the restructuring. Mr Fain admitted that Royal Caribbean’s brands “continued to attract premium pricing even in this difficult environment”.

But, addressing a company conference call yesterday, Mr Fain added that while the company’s revenues were healthy and predicted a “terrific year”, Royal Caribbean was not immune from consumer sentiment, in that cost pressures have begun to affect the cruise ticket buyer. The results noted that while net yields improved 1% on the quarter, net cruise costs increased 6.7%. The company expects net yields to increase around 2% for the third quarter, 4%-5% for the fourth quarter, and 3%-4% for the full year 2008.

“Although pressure on the consumer persists and there is much uncertainty in the market, demand for our cruises and on board spending continues to be resilient and yields should improve in all four quarters,” said Royal Caribbean executive vice-president and chief financial officer Brian Rice.

Despite the gloomy restructuring news, Mr Fain and Mr Rice highlighted Royal Caribbean’s longer-term vision of growing its international business. Mr Rice said: “We have made significant investments to seed our growth in many strategic markets. “These costs are now being absorbed by capacity and revenue growth in the emerging markets around the world.

“In addition, our scale and exceptional brand positioning in North America are enabling us to drive further efficiencies.” Net income for the second quarter fell to $84.4m compared with $128.7m a year ago. Corresponding revenues increased to $1.6bn from $1.5bn.

A leading cruise analyst in New York told Lloyd’s List that while most self-respecting cruise firms were reviving some versions of their post-9/11 austerity plans to weather higher costs, he was “not surprised” that Royal Caribbean appears to have taken the biggest hit. “Royal Caribbean has never been the lowest cost operator,” the analyst said. “Compared with Carnival, the company has always been more a corporate type, more formal in structure and less entrepreneurial. This means the company’s overhead is much higher.”

The analyst said that the luxury cruise sector has so far remained immune from cost pressures because of less pressure on revenues. Other mainstream firms are all “keeping a watchful eye on increasing costs and taking whatever steps they can”.

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