Royal Caribbean Bets Big on Largest Cruise Ship

Bookings with Royal Caribbean Cruises Ltd are up for the rest of the year, but Chief Executive Richard Fain admits to keeping a close eye on reservations just in case anything changes.

As the U.S. economy weakens and fuel prices soar, Fain constantly monitors demand for his product. Analysts expect sections of the U.S. leisure industry to struggle as consumers tighten their belts, and hotel executives have expressed concern about demand when the summer vacation season is over.

But so far, Fain said business for Miami-based Royal Caribbean Cruises, the world’s second-largest cruise company after Carnival Corp is holding up well. Royal Caribbean has made a big bet on the cruise industry with its roughly $1.4 billion investment in Oasis of the Seas, the biggest cruise ship in the world.

Oasis of the Seas will have 16 decks and carry up to 5,400 people. It is so big that it will have seven “neighborhoods” including “Central Park” and “Boardwalk” and feature multilevel loft suites of up to 2,000 square feet.

On April 24, the U.S.-Norwegian cruise company reported a bigger-than expected jump in profits for the first quarter, but cut its 2008 earnings forecast. It said the cruise market remained strong but higher fuel costs would dent earnings.

The sky-high price of oil, which has doubled in the past year, has forced major US airlines to raise fares, introduce fees -- and cut services, jobs and capacity.

Nonetheless, fuel costs for cruise ships have jumped roughly 80 percent in the past year, the CEO said. Recently, the one-day increase in fuel was higher than the absolute price in 1998, he said.

Royal Caribbean is also cutting costs where it can do so without harming its product -- and targeting new customers in Europe, Latin America and Asia, where “markets are really beginning to wake up to the value of cruising,” Fain said.