P&O Princess Cruises (POC) has reported net income of $89.0 million, or $0.52 per ADS (four shares), on revenues of $647.6 million for the second quarter ended June 30, 2001, compared to net income of $82.4 million, or $0.48 per ADS, on revenues of $642.0 million for the second quarter of 2000.
Second-quarter results included a $1.9 million loss related to the sale of the Pacific Princess to an undisclosed buyer, for between $15-$20 million (the ship will be leased back by Princess Cruises through Nov. 2002).
Yields during the period were three percent lower than last year, which the company attributed to “competitive trading conditions, particularly in Alaska.” Passenger cruise days were up 6.3 percent, with cruise days essentially static in the North American market, and up 19 percent in the international markets. Revenues increased more slowly, at 0.9 percent overall, as a result of “lower yields and adverse exchange rates.”
POC reported net income of $107.0 million, or $0.62 per ADS, on revenues of $1.19 billion for the six months ended June 30, 2001, compared to net income of $127.1 million, or $0.74 per ADS, on revenues of $1.16 billion for the same period of 2000. Yields were down four percent for the first half of 2001 versus the previous year.
Commenting on 2001 as a whole with more than 90 percent of capacity booked for the year, the company stated, “We anticipate that the group’s net revenue yields for the third quarter will be around four percent lower, compared with the third quarter of 2000. For the year as a whole, we anticipate a reduction in group net revenue yields of three percent” – in line with previously reported estimates.
Said Princess CEO Peter Ratcliffe, “In 2000, our yields were down three percent compared to 1999, and in 2001, our yields will be down another three percent. But looking forward to 2002 we are cautiously optimistic that there may be some improvement, some element of stabilization … that we won’t see a major further deterioration of yields at this stage.”
Ratcliffe continued, “Our current estimate is that capacity in the United States will increase by 10 percent next year, which is still a significant increase.” He said Princess is proceeding under the assumption that “a competitive price situation in the U.S.” will continue next year.
Ratcliffe explained that the new Golden Princess and Star Princess would represent higher onboard revenue potential in 2002 than the rest of the fleet (with more ocean-view ana balcony cabins than the fleet average), while Princess was reducing its rate of growth in the competitive U.S. market by transferring the Crown Princess and Ocean Princess to POC European brands, and selling the Pacific Princess.
“We will reduce our rate of growth (in North America) to approximately 10 percent next year, the majority of which will occur in the first quarter.”
Commenting on the relative strength of the current U.K. cruise market versus North America, Ratcliffe explained, “We have held a leadership position in the U.K. for many years, and we are the only company introducing purpose-built ships for the U.K. market. We have historically had the same levels of profitability in the U.K. and U.S. markets, but the U.S. now has a more competitive economy, and we don’t have the same extent of competition in the U.K.”
“The overall tone of business for our operations in the U.K., Germany and Australia remains positive,” said the company. Ratcliffe said yields were “up a little” in non-U.S. markets. In Germany, he added, “Our AIDA brand is doing very well. The other operation, with a slightly older ship, the Arkona, has not actually been doing well.” He said the addition of newer vessels to the German sector, with more balcony and outside cabins generating more revenue, will have a positive impact looking forward. He said the German operation would not achieve U.S./U.K. levels of profitability in 2002, but “will grow quickly” to those levels.
Explaining the strategy of covering both the river cruise and deep-sea cruise market with its new German brand, A’Rosa, Ratcliffe explained, “In Germany, river cruising is actually quite significant. The people we want to attract to our more destination-oriented deep-sea ships are the very same people that are on the river. Riverboats only cost about $15 million apiece, and by having a common brand for both the river and deep-sea cruises, we basically use the river cruises as a marketing tool to get people into the deep-sea market.”
POC has also embarked on a long-term plan to reduce costs by 10 percent by 2005, with the full-year goal of two percent for 2001, according to Ratcliffe. Costs were reduced on a per unit basis by five percent in the second quarter, and by a rate of three percent for the year to date. Both POC’s U.S. and U.K. offices have been relocated to reduce the cost structure, with the closing of the London branch recently announced. Other savings arose from integrating purchasing and other systems, management action, and economies of scale.
In 2002, “economic conditions will be a factor,” said the company, “but with anticipated further progress on our cost-reduction program, we believe we are well positioned to compete effectively in North America.”