P&O Princess Cruises (POC) has reported net income of $25.7 million, or $0.15 per ADS, on revenues of $512.1 million for the first quarter ended March 31, 2002, compared to net income of $114.8 million, or $0.66 per ADS, on revenues of $542.1 million for the first quarter of 2001. Last year's net income was restated from $18.9 million to $114.8 million to include a $95.9 million tax credit.

"We will be ordering more ships," said Peter Ratcliffe, president of POC, "but not at the same pace as in recent years." He also said that no decision has been made yet regarding two options for deliveries in 2005 and 2006, which are due to expire in July.

Ratcliffe said that POC believes in the globalization of the industry. "We expect a higher rate of growth outside the U.S.," he said. "But the U.S. market is not mature; it will continue to grow, but at a slower rate." He also said that Princess continues to book well ahead of last year and that an increase in bookings was ahead of the increase in capacity year­ over-year. Pricing has also improved so that it is now close to where it was last year, according to Ratcliffe.

Meanwhile, in Germany, POC's SeeTours subsidiary is seeing a substantial increase in capacity with a second ship for Aida and the introduction of the new A'Rosa brand. "Aida is booking well, with little erosion of pricing," Racliffe said. "But A'Rosa is sluggish."

Overall, POC yields were down eight percent in the first quarter and are expected to be down seven percent in the second and third quarters.

Ratcliffe said that the pricing pressure was primarily in the U.S.

"We had more of our capacity deployed in Europe and on exotic programs," he explained, noting that 12 percent of Princess' capacity was redeployed for 2002. "We believe the impact of 9/11 will be limited to the first three quarters," Ratcliffe said.

POC is also introducing a new brand in the U.K. in 2003, Ocean Village. Ratcliffe said that the new brand will tap a younger market and at a lower price point than P&O Cruises.

Ratcliffe pointed out how POC will have a family of brands in the U.K. - P&O Cruises, Princess, Ocean Village and Swan Hellenic Cruises -­ targeting different market segments, and has the same in Germany.

Regarding the proposed merger with Royal Caribbean Cruises, Ratcliffe would only say that the "decisions are now in the hands of the authorities."

Q1 02

POC reported that passenger cruise days increased by 13 percent in the first quarter, including 22 percent growth in North America, due to the introduction of the Golden Princess in May of 2001 and the Star Princess in February of 2002.

Revenues were down reflecting lower fares, adverse exchange rates, and a significantly lower air/sea mix due to an increase in cruises departing from U.S. ports, according to POC. Unit costs were down by 11 percent due to the cost reductions initiated in 2001, ship redeployments, a lower air/sea mix, lower commission costs because of lower prices, and lower fuel prices.

POC has restated its 2001 Q1 earnings, which now include a one-time tax credit of $96.8 million. Analysts set a 12-month share price target in the low $30s. At press time POC was trading at $26.65.