NEW YORK – The cruise industry has touched bottom and is now stabilizing, but questions linger about when a rebound will occur, Royal Caribbean Cruises Ltd’s CEO said in an interview .
“We’ve been at the bottom and we’ve stabilized at the bottom,” Chief Executive Richard Fain said. “There have been an awful lot of indicators that things are improving.”
Miami-based Royal Caribbean will soon unveil the world’s largest cruise ship for its namesake cruise line, the Oasis of the Seas. Its maiden voyage is slated for early December.
The ship is nearly 1,200 feet (366 meters) long, spanning the length of more than three football fields. It scales 16 passenger decks, or roughly 20 stories high, and features a “Central Park” with more than 12,000 plants.
The ship is being launched at a time when U.S. unemployment has climbed to nearly 10 percent, but Fain points out that consumer confidence has improved since earlier this year. Bookings and prices for the Oasis ship have been “heartwarming,” he added.
The introduction of the Oasis has also spurred demand for the company’s other offerings, casting a “halo effect” on the company and its cruises, Fain said.
Consumer confidence is a key precursor for an economic rebound, but “the operative syllable there is ‘pre,'” said Fain, who has led the world’s second-largest cruise operator for 21 years.
“We’re still in the pre-stage,” he said, adding: “We may look back on this a year from now and say that was a pretty good time, because that was the beginning of the end of the financial meltdown.”
SUPPLY GROWTH TO SLOW
Wall Street analyst have grown increasingly bullish on the cruise industry as signs of a recovery emerge. Of the 23 brokers following the stock, 13 have a “buy” or a “strong buy” rating on Royal, according to Thomson Reuters I/B/E/S.
Royal Caribbean shares have risen about 80 percent in the third quarter, the best performance for the stock to date. But short interest has also stacked up, reflecting investor worry about the company’s leverage and sustainability of the recovery.
As of June 30, the end of its second quarter, Royal reported net debt of $6.5 billion, while net asset value was slightly above $7 billion. Fain expressed confidence that the company will be able to pay off the debt from cash flow generated from its new ships.
“Once we start to take delivery of the ships and they start to generate their cash flow … that pays down the debt pretty quickly,” Fain said.
Royal Caribbean expects its capacity to grow 28 percent from the third quarter of 2009 to the end of 2012, according to its 2008 annual report. Next year marks the company’s largest increase in supply.
Fain said the company has no plans to unveil another project of Oasis-like proportions as of now and said he expected industry supply growth to slow in coming years.
“Society has become more risk-averse,” he said. “I think that attitudinal shift will lead to slower (capital expenditure) growth in many of these areas.”