An upward trend

Richard Fain shares his thoughts about RCL's future
An upward trend

By Michele Witthaus |

This year, Richard D. Fain marked his 26th year at Royal Caribbean Cruises Ltd. (RCL) and he enters his second quarter century as chairman and CEO with a continued focus on leading the corporation’s growth as the world’s second largest global cruise company. In April, it was announced that Royal Caribbean International president and CEO, Adam Goldstein, would step up to become president and COO of Royal Caribbean Cruises Ltd. Since then, Fain has been fielding a lot of questions from the media regarding how the senior management roles and structure will change as a result of the appointment.

“I’m very excited about it and happy for Adam,” says Fain. “Most of all, it is a real improvement to Royal Caribbean as we grow and become more complicated as a global entity, and as the opportunity to exploit best practices grows proportionately. I think being able to consolidate all the shared service areas under one leader will make us a lot more effective and efficient.”

With several of the other major cruise brands having carried out high-level reorganisations in recent months, it seems to have become the mode du jour of introducing needed changes – an energy boost here, a shot in the arm for a tired brand there.

While such an extensive reshuffling of the senior roles brings with it significant changes in responsibilities, Fain does not expect there to be much visible alteration to ‘business as usual’. “As the world and our operations become more complicated, more and more of the work is done collaboratively and having somebody of Adam’s stature and experience leading that process will provide a tremendous boost to all of our plans.

“We are a large organisation so hopefully any organisational change is not something that the public sees directly. What we hope the public sees with anything we do organisationally is that we continue to produce a better product, that we are more responsive. Basically our mantra here is continuous improvement. So, our goal is to continually demonstrate that to the public, by continuing to produce better cruises for our guests.”

The outlook for the corporation is positive at a time when improved results have been posted for 2013, attributed to factors including strong demand for Europe and Asia sailings coupled with continued strong performance in onboard revenue.

In April when the company reported its first quarter results for 2014, it raised its outlook by a small but significant US$0.05 per share for the full year and announced that the financial year was progressing along its previously anticipated course. Voyage disruptions were blamed for lower than expected first quarter results but it said the effects were expected to be offset over the rest of the year.

Going forward, the global business will benefit from the completion of the sale of its Pullmantur brand’s non-core businesses and the related restructuring activities that saw net income dip to $46.1 million, or $0.21 per share, in early 2014 versus $78.2 million, or $0.35 per share, in the same period during 2013. Over the course of this year, net yields are expected to increase 2% to 3%. There are geographic blips – like other major cruise companies active in the Caribbean, Royal Caribbean has been hit by the drop in cruise profitability in that region – but overall, Fain is buoyant about the outlook for the company in the coming months and beyond.

“I think there are short-term and longer-term perspectives,” he observes. “There are differences among the markets: this market is doing particularly well this year and that market is weaker this year but stronger and different another year. The longer-term trend is that the cruise industry is more and more being recognised as providing an outstanding product at a very reasonable price.” He adds wryly: “Today it’s providing it at a too reasonable price and we hope to change that… But it is that price-to-value relationship which continues to be our strength.

“I would say that the improvements in the markets today are less specifically market-driven and more driven by just gradually recovering from headwinds that have affected our industry over the last five years or so. And so, relying a little on my training in economics, I would argue that what you’re seeing is more a return to an equilibrium level of revenue- and market-specific factors.”

Fain hopes to grow cruise yields across the Royal Caribbean brands in the coming months despite sometimes challenging conditions. In particular, there have been some quite dramatic shifts in the geographic outlook for cruise yields in recent years and he sees the markets continuing to ring the changes – at least in the short term.

“Last year growth was driven from the US market and we saw weakness in Europe – and this year we are seeing exactly the reverse. There has been terrific growth in Europe, both because there’s a little less capacity there and because the economies have recovered, or are recovering quickly. In the States we had terrific economic improvement in 2013 and in 2014 as the economy continues to improve, just not as dramatically. This year we had lot more capacity in the Caribbean. So I think what we’re seeing is that both markets are moving in the right direction.”

He notes: “I think it’s important to emphasise that the US market is improving: it’s absorbing a 13% capacity increase in one year. It’s filling all that capacity, and it’s doing so very much around zero price deterioration. That to me is a sign of a very healthy market.”

The biggest drivers of cruise growth across the Royal Caribbean brands come down to two factors, says Fain. “One is that the industry continues to improve the product. We offer better ships and amenities; the food is better. We’ve seen a dramatic improvement by all companies in entertainment, breadth of activities, and culinary. We pride ourselves at Royal Caribbean on being in the forefront of those kinds of innovations. So we think that’s been a good driver for us.

“The other thing that has been a good driver for the industry is that we are doing a better job of getting our message across. The industry still labours under a lot of misconceptions about what cruising is all about, but I think we are doing better at conveying that message, and that is allowing us to attract first-timers to the industry and reassure our loyal past guests.”

This article appeared in the Autumn/Winter 2014 edition of International Cruise & Ferry Review. To read the full article, you can subscribe to the magazine in printed or digital formats.

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