P&O Princess Cruises (POC) has reported net income of $94.0 million, or $0.54 per ADS, on revenues of $638.1 million for the second quarter ended June 30, 2002, compared to net income of $89.0 million, or $0.52 per share, on revenues of $647.6 million for the second quarter of 2001.
POC reported 2,649,000 passenger cruise days and an occupancy level of 101.2 percent for the second quarter of 2002, compared to 2,372,000 passenger cruise days and an occupancy level of 100.6 percent for the second quarter of last year. POC offset a yield decline by carrying more passengers and boosted its net income by cutting costs year-over-year.
POC offered 11 percent more cruise days in the second quarter of this year compared to last year.
In North America, POC introduced the Golden Princess in May of 2001 and the Star Princess in February of 2002, which were partially offset by the transfer of the Crown Princess to Germany. In Europe, POC introduced the AIDAvita in May 2002 and the A'Rosa Blu (ex-Crown Princess) in June 2002, as well as A'Rosa Cruises' two riverboats.
According to POC, net revenue yield, including onboard revenue, was six percent lower than the second quarter of 2001. This was partially offset by favorable exchange movements which resulted in an absolute yield decline of five percent. The reduction in yields was attributable to the Princess Cruises brand, which was significantly affected by the disruption in bookings from the events of 9111, according to POC.
However, POC pointed out that the yield performance was better than previously forecasted, with ticket yields being ahead of expectations, and with a strong onboard revenue performance during the quarter.
Underlying unit costs were eight percent lower than in the second quarter of 2001 due to the company's cost reduction program. In addition, operating costs declined due to a lower air/sea mix, and lower commission costs due to lower yields.
Peter Ratcliffe, CEO, said that for North America, Princess was fully booked for Q3 and that bookings for Q4 were running ahead of last year's bookings at this time. He also said that ticket prices were in line with last year's. Ratcliffe added that bookings for the U.K. and Australia continued to be positive but that he expected some pricing pressure for the winter season. In Germany, Aida has been booking well for the summer - despite doubling its capacity year-over-year, and has just started marketing its winter program, according ·to Ratcliffe, who also said that while the A'Rosa brand booked well for the summer, he anticipated some weakness in the long-haul German market for the winter.
Ratcliffe also noted that Q1 03 was booking ahead of Q1 02 this time last year (before 9/11) with yields only minimally down.
The most significant deployment change for 03 will be the Princess brand's return to Europe where it will nearly triple its capacity compared to 02.
Ratcliffe also pointed out that by this time next year, 52 percent of all the cabins aboard Princess ships will have balconies (which command higher prices) and that the company will continue its work to reduce costs.
Nick Luff, CFO, added that onboard spending was also trending upwards. "We focus on maximizing on board revenue opportunities," he said.
"We will also continue to develop our multi-brand strategy in the U.K. and Germany as well as international sales for the Princess brand," Ratcliffe added.
He said that POC will continue to explore what he called "opportunities" and that he believes in continued market growth. But Ratcliffe does not expect to exercise the company's newbuilding options at Chantiers De L'Atlantique. Instead, he said POC and the yard were in discussions to postpone the options. "At this point, there is no pressing need to order ships," he said. "First we have to settle all the commercial issues (presumably referring to RCC/Carnival deals)."
However, Ratcliffe underlined that the postponement would be a "short-term deferment." "We will grow the Princess brand," he added. Ratcliffe said he expected capacity to grow about 10 percent in the North American market in 03 but said it was more difficult to forecast European growth with more ship movements and with American brands selling capacity in Europe as needed to fill up the ships.
Merger or Takeover?
Ratcliffe would not comment on the pending merger or takeover, but reiterated that he believed that the merger with Royal Caribbean Cruises would be most beneficial to POC and its shareholders.
Ratcliffe also said it was premature to ask shareholders to decide on whether to merge with RCC or accept the offer from Carnival Corporation, pending the decision by the federal Trade Commission. In addition, he noted that the value of the Carnival proposal is going up and down based on Carnival's share value.