Royal Caribbean Cruises Ltd. reported profits of $1.5 million for the fourth quarter 2008, a drop of 98 percent compared to the $70.8 million earned during the same period in 2007. Earnings per share were 1 cent, compared to 33 cents a year earlier. Revenues were $1.5 billion, the same as in 2007. For the full year 2008, net income was $573.7 million, or $2.68 per share, compared to $603.4 million, or $2.82 per share, for the full year 2007. “The fourth quarter was an extremely difficult operating environment and we expect even more challenges in 2009,” said Richard D. Fain, chairman and CEO. “Nevertheless, I am pleased by our success in reducing costs without compromising the guest experience. Although the Wave Period has only just started, we are encouraged by what we have seen so far; pricing is still very difficult, but booking patterns have begun to stabilize.”

During a conference call with analysts, RCCL executives said they instituted cost-saving measures to help offset high fuel costs and insurance expenses. “Extreme pricing measures” helped fill ships, Fain said, but the line is now trying to maintain pricing integrity by accepting slightly lower occupancy levels. CFO Brian Rice said occupancy rates might dip a few points from the usual 105 percent.

Executives also said the Agent Support Action Program, or ASAP, helped spark some business. The program offers a 1 percent bonus commission for bookings made Jan. 1 to Feb. 28. One analyst, Steve Kent of Goldman Sachs, asked why the company doesn’t work to increase direct bookings rather than pay more agent commission. Royal Caribbean International President Adam Goldstein said agent book about 80 percent of the business. “The percent of direct business is growing very incrementally, coming up to the high teens in the past few years,” he said. “We believe we have the best relationship in the business with the trade, and maintaining and fortifying that relationship is a very high priority for us. Trying to increase direct business would run counter to that.”

Fain repeated that view. “We don’t want you to get the idea that this is a bad commercial decision. We honestly believe that what we are getting for those commission dollars is well worth the expense,” he said. “We simply believe the travel agent community is good business for us, and that’s why we continue to use that as our absolutely dominant way of doing business.”

Royal Caribbean also commented that the booking window has seen significant compression from five to four months in advance. “We recognize this will be a very challenging year and do not expect any quick turnarounds in our pricing,” Rice said. “Consumers are certainly delaying their purchase decisions, but as they get closer to their vacations, they appreciate a great value and are buying cruises.” The company also disclosed that its core Caribbean products are seeing stronger demand than its premium seasonal products such as Europe and Alaska. Onboard revenue, which until the fourth quarter of 2008 had remained resilient, has also been reduced in the company’s guidance.

RCCL said the revenue outlook for 2009 remains weak. The company expects net yields for 2009 will be down 9 to 13 percent from 2008 and that earnings per share will be in a range around $1.40. In summarizing the company’s outlook, Fain said: “Obviously, we are very disappointed at the outlook for 2009, but we are confident that with continued focus on our product delivery and cost control, combined with the steps we have taken to strengthen our liquidity and finance our order book, we are well positioned to weather these tough economic conditions and prosper when the recovery begins.” For more information, visit www.rclinvestor.com.

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