Fuel Surcharge to Impact Bottom Line, Not Bookings on RCCL

Royal Caribbean Cruises Ltd.’s recent fuel surcharge will dampen the impact of fuel price spikes for the company and will not deter bookings, said Bank of America equity analyst Michael Savner.

RCCL pegged a daily $5-per-person fuel supplement on sailings departing on or after February 1, on its Royal Caribbean International, Celebrity Cruises and Azamara Cruises brands, following the lead set by Carnival Corp. two weeks ago, and now duplicated by every major cruise brand, with varying amounts.

The report said that the fuel supplement equals only 4 percent of the cruise ticket revenue per diem, and is therefore largely immaterial.

“We believe this surcharge will be largely immaterial and not likely to defer bookings,” Savner wrote. “We think the relative price proposition of cruising will remain unchanged as pricing for most of other leisure travel, namely air travel, is also increasing. We have also noted that during uncertain economic times consumers who still want to take a vacation may ‘trade down’ to a cruise from a more expensive land-based vacation.”

Mr. Savner pointed out that RCCL benefits from having hedged 38 percent of its 2008 fuel. The report said that the surcharge could add $125 to $135 million of revenue for RCCL in 2008, or roughly 1.9 percent of additional revenue from current revenue estimate of $6.62 billion.