Royal Caribbean Sinking as Tourists Stay Ashore
Shares in Royal Caribbean (NYSE: RCL) were up yesterday, but those gains are gone now that the company announced earnings of 17 cents per share, or $36.6 million. Those figures were a slight increase from last year's earnings of 15 cents per share and ahead of analyst estimates of 15 cents per share. Revenues were up to $1.8 billion--ahead of estimates of $1.78 billion and last year's income of $1.6 billion.
The Costa Concordia tragedy has been weighing heavily on investors' minds, as worries that the accident will negatively affect the already battered cruise industry could lower revenues for the cruise industry as a whole. Carnival (NYSE: CCL) was hit with a 15% drop on January 17th on the news, although the cruise giant's stock had been steadily declining over a year of disappointing sales.
Such performance should have surprised no one. Cruises are popular with the middle class, who have been hit hardest by the last recession. Some observers have noticed that the rise and fall of certain stocks is an indicator of the dying middle class. Losers targeting the middle class such as Target (NYSE: TGT) and Kohl's (NYSE: KSS), both of which are down over 8% over the past year, have been popular indicators of the middle class squeeze. However, it should be noted that both have shown signs of recovery in the past few months and other firms targeting the middle class have seen gains, such as Macy's (NYSE: M), which is up over 42% in the past year and reached its 52-week high just a few days ago.
Carnival also has itself to blame. The company has expanded aggressively over the past decade and may have overstretched itself. The company's profit margin has fallen to just 5.87% for the last quarter of 2011, whereas Royal Carribbean's profit margin has risen to above 17%, over double levels seen in 2010. The company is much leaner than Carnival, with just 40 ships--less than half of Carnival's fleet--serving 420 destinations. With a 24% market share, the company is positioned to profit from lost demand for Carnival's services, if the carrier's cost-cutting affects service quality so severely that tourists begin looking for alternatives. With the loss of the 952ft long Costa Concordia and the potential loss of business due to the tragedy, the company will need to continue to cut corners, and this may help Royal Caribbean.
Still, bookings will struggle to grow for as long as the Costa Concordia tragedy remains visible in the public consciousness. Royal Carribbean would not release details on how Costa Concordia has affected bookings, citing ambiguity. "It is very difficult to assess the impact of the incident on our revenues. It has been the subject of extensive media coverage and world-wide attention," Royal Carribbean said in a statement. The company also said that it "curtailed our marketing activities" but they hope "that most observers and potential guests understand that cruising is safe and that this incident was a very rare anomaly in an otherwise reliably safe vacation. But in the near term it has a significant impact on our bookings."
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