P&O Princess Cruises (POC) has reported net income of $276.7 million, or $0.40 per share, on revenues of $2.4 billion for the year ended Dec. 31, 2000, compared to net income of $310.8 million, or $0.46 per share, on revenues of $2.1 billion for the year ended Dec. 31, 1999.

POC attributed the 2000 results to lower yields, higher fuel costs, currency exchange rate movements, and millennium cruises, which had greater beneficial impact on 1999 than 2000.

POC also reported 8.7 million passenger cruise days and a fleet-wide load factor of 99.3 percent for 2000, compared to 7.1 million passenger cruise days and a load factor of 100 percent in 1999.

POC said that Princess Cruises grew its capacity by 12 percent in North America in 2000 due to the introduction of the Ocean Princess, and P&O Cruises grew its capacity 32 percent in the UK with the Aurora. The remaining increase in passenger cruise days resulted from the acquisition of AIDA in 1999 and Seetours in 2000.


POC Chairman Peter Ratcliffe said that 2001 bookings were on track, but that the market was very competitive. If the company can maintain its current pricing and booking levels, he expected to end the year with net yields down in the range of one to two percent compared to 2000.

Ratcliffe said that current pricing in the U.S. was below where it was last year at this point, but higher than at the end of last year. He also said that booking trends for the industry were positive and could make price increases possible as the season progresses.

With new capacity entering the market stabilizing at around 10 percent per year, Ratcliffe said he expected less need to use price stimulation to grow the U.S. market, which he believes has further growth potential, predicting that 10 million Americans will soon be cruising each year.

Meanwhile, POC expects to cut costs by 10 percent over the next five years. Its new ships also have a lower cost structure and higher revenue potential, according to Ratcliffe.

But Ratcliffe emphasized that the cost reduction will not come at the expense of product quality, operating standards or travel agent support.

Meanwhile, POC will incur some one-time costs associated with moving Princess' U.S. headquarters out of Beverly Hills to Valencia, California, and moving P&O Cruises from London to Southampton.

Additional costs are also expected in conjunction with building up the AIDA cruise business in Germany, according to Ratcliffe.

Ship Movements

In a surprise move, POC announced that its newest ship in service, the Ocean Princess, will be transferred to P&O Cruises in the UK in the fall of 2002.

The move will coincide with the delivery of the new Coral Princess to the U.S. market, according to Ratcliffe, who said that P&O Cruises needs additional capacity to meet demand.

In addition, POC announced the sale of the Victoria but did not say when she will leave the market.

Last fall, POC transferred the Sky Princess from Princess Cruises to P&O Cruises Australia and sold the aging Fair Princess. 

The Crown Princess is being transferred to the German AIDA operation in the spring of 2002 when the Arkona will leave the German fleet. In addition, POC said it expects to move the Regal Princess to Germany in 2004.

Economy and Strategy

While Ratcliffe believes a strong U.S. economy is advantageous to the cruise industry, he believes the industry will grow even under more difficult conditions.

"We expect the same drivers of demographics, rising disposable income, and most importantly, product satisfaction, that are growing cruising in North America, to grow the European and other international markets," Ratcliffe said in a prepared statement.

In a conference call, he said, "The industry is at a much earlier stages of development in these markets (outside the U.S.) and has the potential for sustained growth rates."

4th Quarter

POC reported a net loss of $3.4 million (including a $6 million write-off on the sale of the Victoria), or $0.07 per share, on revenues of $484.8 million for the fourth quarter ended Dec. 31, 2000, compared to net income of $44.3 million, or $0.6 per share, on revenues of $465.3 million for the fourth quarter of 1999.

POC also reported 2.2 million passenger cruise days and a load factor of 97.6 percent for the fourth quarter last year, compared to 1.8 million passenger cruise days and a load factor of 99.1 percent for the same period the previous year.

Net revenue yields year-over-year were 11 percent lower in the fourth quarter of 2000 compared to the fourth quarter of 1999. This was primarily a result of the competitive conditions in North America, according to POC, which said that the Caribbean and transcanal trades were most affected.

Suspension of calls in Israel also resulted in cancelled bookings, reducing results by some $3 million according to POC.

Segment Analysis

POC also provided breakdowns of its results. Of the total revenue of $2.4 billion for 2000, $1.8 billion or 75 percent is from North America (Princess Cruises), and $670 million or 25 percent is from Europe and Australia.

Nearly $280 million, or 75 percent, of the $373 million in operating profit is also from North America, while $94 million, or 25 percent, is from Europe and Australia.

The North American market also generated 5.9 million passenger cruise days for an average of $305 per passenger cruise day in 2000, compared to 2.8 million passenger cruise days for Europe and Australia and an average of $236 per passenger cruise day.

POC listed its current capacity at 24,770 berths, with 15,660 or 63 percent in North America, 6,210 berths or 25 percent in the U.K., 1,700 or seven percent in Germany, and 1,200 or five percent in Australia.

Ratcliffe also repeated that Princess does not intend to be a major player in the Caribbean, but for the foreseeable future that is where the North American­ based brand will have most of its capacity. In 2001, Princess will have 2.1 million passenger cruise days in the Caribbean, compared to 1.3 million in Alaska, 800,000 in the Panama Canal, 650,000 in Europe, 300,000 in Mexico, and 1.1 million on its so-called exotic trades, for a total of 6.2 million passenger cruise days.

In 2002, Princess will increase its presence in the Caribbean to 2.3 million passenger cruise days, compared to 1.4 million in Alaska, 800,000 in Europe, 700,000 in the Panama Canal, 400,000 in Mexico and 1.3 million in its exotic trades, for a total of 6.9 million passenger cruise days.

Ratcliffe also pointed out that "POC is 100 percent owned by the public" and that its debt-to­ capitalization ratio is only 28 percent.