Royal Caribbean: No big rebound yet for cruise business

[mercedes]

The cruise business may no longer be in freefall. But it's not bouncing back rapidly, either.

That's the word from executives at Royal Caribbean, who say the hefty discounts the company has been offering in recent months have helped stabilize the business but haven't yet caused a big turnaround.

"Bookings and pricing are at stable levels that are far better than many of the more bearish predictions," Royal Caribbean CEO Richard Fain told Wall Street analysts today during a conference call to discuss second quarter earnings. "Having said that I have remained extremely frustrated that we have not yet seen a more significant upturn in the market."

Royal Caribbean said it lost $35.1 million, or $0.16 per share, during the second quarter, a sharp reversal from a year ago when the company had a second quarter profit of $84.7 million. The loss -- the line's second in a row -- was slightly worse than some Wall Street firms had expected.

Like other travel companies, Royal Caribbean has been hard hit by the downturn in the economy as vacationers cut back on spending, and the company had warned investors earlier this year that its net yields -- a measure of how much money it brings in per cabin -- could be down 17% for the quarter. But yields ended the quarter down an even worse 17.9%.

The company, which operates several brands including its namesake Royal Caribbean, Celebrity Cruises and Azamara Cruises, projects the third quarter will be equally tough with yields down 18%. For the full year the company now is projecting a yield decline of 14% vs. previous estimates of a 12% to 13% decline.

The company blamed some of the decline on the ongoing impact of the H1N1 swineflu outbreak earlier this year, which has reduced demand for voyages to Mexico. The company says the H1N1 virus cost it more than $10 million in the second quarter and will end up costing it nearly $60 million this year by the time all is said and done.

Helping Royal Caribbean in the second quarter: A significant drop in costs. Net cruise costs, excluding fuel, fell by 8.4% on a per passenger basis.

Fain told analysts he has seen "tentative signs of encouragement" in the booking climate but not the rebound one might have expected by now.

"We would have hoped that the upturn would have started at least by now," he said. "We hope it will soon, (but until it does) we have to take comfort from the fact that the situation has stabilized."

Later during the conference call, Royal Caribbean CFO Brian Rice made clear that the fact that things have stabilized doesn't mean they're rebounding.

"I dont think we've said that the market has gotten any better," he said in a response to a question by an analyst from investment firm Goldman Sachs.