Royal Caribbean Cruises' (RCL) earnings guidance for 2009 is for full year earnings of around $1.40 per share, compared to actual earnings of $2.68 for 2008, $2.82 for 2007, $2.94 for 2006 and $3.26 for 2005.

RCL Chairman and CEO Richard Fain cited the volatility of fuel prices, exchange rates and the difficult economic environment for the reduced earnings estimate for this year.

The forecast per share for Q1 is a new loss from $0.30 to $0.35 per share, compared to actual earnings of $0.35 in 2008, $0.04 in 2007, $0.55 in 2006 and $0.63 in 2005.

Looking forward, the revenue outlook for 2009 remains weak, RCL said in a prepared statement. "Both ticket sales and onboard revenue have been impacted by the general economic conditions. It has required substantial discounts to generate the requisite volume, and consumers are making their vacation decisions later than previously."

The market reacted by sending RCL shares sharply downward.

Responding to the Situation

Fain said on RCL's conference call that the company's "management teams are responding to the situation with successful cost cutting efforts, an excellent operating performance, constructive cooperation with travel agent partners, and strong diversification into international markets."

He said the company is working to get a better handle on the economy's implications on the industry, but that "we are as confused as anybody as to where this economy is going." Thus, forecasting is as tough as ever, he said, and noted his disappointment in the (low) pricing, considering the high value of the (cruise) product.

Fain said RCL feared the Wave Season would be worse, and prices have gone lower than he would like, but seem to have reached an equilibrium, allowing the company to yield manage more effectively. He added that the outlook now is quite encouraging.

According to RCL, "indications from the Wave period suggest that the booking situation may have begun to stabilize, although pricing remains extremely challenging.

2008

For 2008, RCL reported net income of $573.7 million, or $2.68 per share, on revenues of $6.5 billion, compared to net income of $603.4 million, or 2.82 per share, on revenues of $6. l billion for 2007.

For Q4 ended Dec. 31, 2008, RCL reported net income of $1.5 million, or $0.0 l per share, on revenues of $1.5 billion, compared to net income of $70.8 million, or $0.33 per share, on revenues of $1.5 billion for Q4 2007.

According to RCL, the booking environment has remained weak for the past several months, although booking volumes have been successfully stimulated through aggressive pricing actions.

"The start of the Wave period has produced booking volumes consistent with last year, albeit at significantly lower prices," said Brian Rice, executive vice president and CFO, in a prepared statement.

The booking window is also significantly compressed from before.

"We recognize this will be a very challenging year and do not expect any quick turnarounds in our pricing," Rice said.

According to RCL, its Caribbean products are in stronger demand than its premium seasonal Europe and Alaska products.

Onboard revenue has also been reduced in the company's guidance.

"The revenue outlook for 2009 remains weak," RCL said in its statement.

Going Forward

Going forward, Fain said while fuel has been so volatile as to be treated as a separate item in the financial reports, foreign exchange must be looked upon the same way and is added to the list being discussed separately.

As the company has enjoyed solid business coming from overseas, he said, it means bigger exposure to foreign currency.

At the same time, RCL is committed to its international growth strategy, according to Fain - continuing to substantially grow its non-U.S.-based passenger sourcing. He said it diversifies sourcing and increases the company's opportunities. And while it may incur some short-term earnings penalties, it will pay off in the long term.

Fain also said that RCL is prepared to accept lower occupancy to keep prices and yield up.

He also underlined the success of the new ships, noting that they are producing dramatically higher revenue at lower operating costs than the rest of the fleet. He called them "substantial cash flow generators."

And as RCL moves forward with less capacity growth in the long term (after 2012), this will enable the company to shift its focus from purely capacity growth and earnings growth to earnings growth.

In this environment, cash is king, Fain said, and RCL is curtailing capital expenditures and giving priority to cash generation over immediate earnings opportunities.

RCL bas $400 million in cash and cash equivalents and $625 million in an unsecured revolving credit facility. The Solstice class has financing commitments in Germany, and RCL is working with Finnvera, the Finnish export credit agency, to secure financing for the two Oasis-class vessels, Rice said.

RCL's newbuilding commitments over the next four years are estimated at $5.3 billion. And as RCL continues its aggressive cost cutting program, Fain said that cost cutting will not undermine product delivery.

Royal Caribbean and Celebrity

The revenue weakness is across Royal Caribbean International's product portfolio, said Adam Goldstein, CEO and president of the Royal Caribbean brand. To the extent there is relative strength, he said, it is in the Caribbean and on the Mexican Riviera. To the extent there is relative weakness, he added, it is in the line's more internationally oriented products, in Alaska and in the shorter market. Goldstein also said he was concerned about the upcoming European season given the increase in European capacity.

According to Goldstein, the Brazilian market was on track to a good year as late as October, when bookings slowed down, and while they picked up in January, it was too late to meet revenue targets. Other markets that have been especially challenging, he said, includes Singapore and Latin America.

Meanwhile, the UK and Germany have enjoyed a positive Wave Season to date, Goldstein said.

Dan Hanrahan, CEO and president of the Celebrity Cruises and Azamara Cruises brands, said the Q4 results for his brands were similar to Royal Caribbean's. He said tactical sales and marketing efforts were underway to finish the winter season and to generate the necessary demand for Europe and Alaska for Q2.

Hanrahan described onboard revenue as a mixed bag in Q4, with beverage, shore excursions, spa and communication services holding up well, with shopping and gaming off. Onboard marketing programs are helping to increase revenue, he said.

The new Solstice bas been an exception to the trend, Hanrahan said, producing strong ticket and onboard revenues.