Kloster Cruise Limited has announced first quarter earnings of $10.3 million on revenues of $208 million, compared to $18.5 million on undisclosed revenues for the same period last year, and $6.6 million in 1988.

According to an official statement from VARD, parent company to Kloster Cruise, the "result was as budgeted." Trygve Hegnar, Chairman of Kloster Cruise, said that the earnings for the first quarter of 1989 were particularly favorable due to the high load factor and high rates of the inaugural 100-day around-the-world cruise of the Royal Viking Sun.

Hegnar also said that load factors for the Royal Viking Line vessels were lower in the first three months of this year than last year. He said that this was particularly the case for the Royal Viking Sea which is sailing in the Far East and has been operating at a loss.

(Last year, Hegnar said that the inaugural sailing of the Royal Viking Sun generated $25 million in revenues. CIN estimated that if the Royal Viking Sun sailed 90 days in the first quarter of 1988 at full occupancy of 740 passengers at per diems averaging $375, fare revenues would be about $25 million, excluding onboard spending. This year, however, if the vessel sailed at 70 percent occupancy at per diems averaging $300, fare revenues would be slightly less than $14 million. Since most cruise ship operating costs are fixed, at a certain point revenues would equal net profit.)

Hegnar said that Royal Cruise Line is ahead of projections and that Norwegian Cruise Line is "exactly where we expect to be." A spokesperson pointed out that RCL's best season is in the second and third quarters when the ships operate in Europe.

Last year, Kloster posted earnings of $6.8 million in the second quarter; $11.2 million in the third quarter; and $6.8 million the fourth quarter. Its bi-annual report stated that second quarter earnings were affected by seasonal downturn in demand and the redeployment of RVL ships to new areas.

Hegnar added that he expected total earnings for 1990 to significantly exceed those of 1989. Annual earnings were $43.3 million in 1989; $34.8 million in 1988; $22 million in 1987; and $12 million in 1986.

Perspective

Comparing the first quarter of 1990 with the first quarter of 1988, earnings were only up slightly on a per berth basis. In the first quarter of 1988, Kloster posted earnings of $6.6 million with a total of 6,876 berths, generating earnings of about $959 per berth. This quarter's earnings of 10.3 million spread over a larger fleet of 10,674 berths, generated earnings of $964 per berth. Since 1988, moreover, Kloster Cruise has trimmed costs, instituted a sophisticated yield management system and increased onboard spending.

Tough First Quarter

Both Kloster Cruise Limited and Carnival Cruise Lines (first quarter reported in Cruise Industry News, April 15, 1990) have reported earnings that measured as a percentage margin of revenues are respectable by most industry norms: five percent for Kloster and nearly 10 percent for Carnival. These figures though are less than what the two companies would be expected to generate based on their past history of earnings growth.

Several conclusions may be drawn: 1) the often referred to "economies of scale" concept continues to be elusive for both of these operators inasmuch as it is not at this time generating visible earnin growth at the bottom line; 2) the first quarter of 1990 must have been a tough one - with soft load factors and increased selling and administrative costs further diluting earnings; and 3) as both companies now operate with products in several different cruise categories, sales and marketing becomes increasingly demanding and expensive. This may particularly be the case for Carnival which for years has operated with one product only. That company now has three different cruise products plus a resort hotel and casino, plus an airline. While it is spreading its risk so to speak and seeking to become a comprehensive travel company, it also has to tackle many different markets at the same time.

In 1989, Carnival's selling and administrative expenses went up by more than 106 percent and increased by 32 percent in the first quarter of 1990 compared to the same quarter last year. (The dramatic increase in 1989 can largely be attributed to Carnival's acquisition of Holland America Line, yet the increase is larger than what observers had expected. The increase in the first quarter of 1990 can be attributed to the opening of the Crystal Palace Resort, introduction of the Fantasy and three full months of ownership of HAL compared to two months in the same quarter last year. Nevertheless, in 1989 costs slightly outpaced revenue growth, while cost increases in the first quarter of this year greatly outpaced revenue growth. The short term result is a downward trend for earnings.)

Consequently, while becoming larger and stronger, ironically both companies also seem be more vulnerable to the many variables that affect the different cruise segments and, in Carnival's case, also the overall travel industry.

Executives at both Kloster and Carnival have stated that the first quarter for various reasons does not provide a good indication for the rest of year and have promised a solid pick-up throughout the year with solid year-end results.

At press time, first quarter results were not yet available from Regency Cruises nor Princess Cruises or Cunard Line.

Recession

The United States is presently in a mild recession according to financial analysts who expect the recession to last for another 12 to 18 months. Clear signs of the recession are found in faltering big ticket sales such as cars and in decreasing newspaper retail and real estate advertising.

While 1990 may be characterized by a mild recession, it is also the year in which the cruise industry will be seeing the largest influx of new ships. Consequently, analysts feel that the cruise lines that will continue to post earnings this year are those that are poised for the future.