Royal Caribbean Impacted By Swine Flu

Royal Caribbean (RCL) announced this morning that the outbreak of the H1N1 virus, or “swine flu,” would negatively impact the company’s earnings by approximately $0.22 per share.

Last month, Royal Caribbean’s competitor Carnival Corporation & plc (CCL), (CUK) announced that it would be negatively impacted by approximately $0.05 per share, with the potential for an additional negative $0.05 per share going forward.

The fact that the impact of the outbreak was notably greater to Royal Caribbean, relative to Carnival, is not surprising. The flu outbreak occurred just prior to the scheduled launch of a new Royal Caribbean product, Pacific Dream, targeting Mexican nationals. The company was forced to cancel the launch, and the ship sat idle. The associated expenses and lost revenue added to the expense of changing existing itineraries away from Mexican ports.

Given the state of the economy and pressures on consumer spending, the cruise industry certainly does not need additional obstacles such as the flu outbreak to put increased pressures on pricing and demand. While bookings have held up relatively well, the cruise lines have been forced to cut prices in attempts to entice passengers. Significant cost-cutting measures, along with fuel prices that remain well below year-ago levels, have enabled the companies to limit some of the margin deterioration, however.

As was the case with the announcement by Carnival last month regarding its swine flu impact, we believe that investors are more likely concerned with any lingering impact from the flu outbreak on Royal Caribbean’s future bookings, as opposed to the disruptions already incurred. Therefore, we would not expect the news to significantly impact the stock in the near term.

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