Business really fell off a cliff for these guys beginning in September. However, there has been no deterioration since the tough Q4. Pricing is probably down 10-15% but consumers are responding, which is serving to stabilize the market. On the margin, the wave season and pace of forward bookings are probably a bit better than what the market is expecting. Here are some observations about current trends:
• Near term yield, revenue, and earnings guidance still looks reasonable
• Looks like industry has restored booking volume and price equilibrium (granted at lower pricing) post last quarter. That has gotten the ball rolling again for a more normalized pace of business
• Wave season, seems to not have tapered off yet and bookings are going at a healthy pace (again at lower prices with greater incentives being offered).
• Europe has been surprisingly robust, especially the UK, despite the large capacity additions.
• There will be a big mix shift towards cheaper cruise options (shorter, inner cabin booking vs balcony, closer ports).
• Alaska is faring poorly because of this mix shift and due to the short booking window. People are just not booking for Q3 yet.
• Agent commissions are being pressured higher, but not by much. RCL is providing an extra 1% incentive to travel agents in January and a bit towards February, which has benefitted volumes but this extra incentive isn’t material enough to matter. Two very small brands have gotten aggressive including Regent.
None of this changes our intermediate and longer term concerns surrounding capacity increases, demographics, and the sustainability of the decent European trends. However, the stocks are ripe for a potentially big move given stabilizing business levels. The high leverage and short interest probably makes RCL the more interesting near term trade.