Royal Caribbean Readies Titanic Twin, Allure of the Seas -- But Profits Might Not be Buoyant

Last Updated May 26, 2010 1:37 PM EDT

Royal Caribbean's megaship, Oasis of the Seas, a $1.4 billion, 225,000-ton ship, labeled the largest in the world may have had a lot of press, a Rihanna concert and other fanfare, but it's doubtful the company can follow that when the Allure of the Seas, the Oasis's sister ship, launches this year.

According to its quarterly report, Royal Caribbean is up to its neck in debt by financing not one but two multibillion-dollar megaships and a small fleet of other new cruise ships. According to its SEC filing, 55% of Royal Caribbean's long-term debt is on a "floating" interest rate, and starting in 2012, if its credit rating drops below BBB, it has to post collateral. (Currently, its rating is BB- with a negative outlook.) And despite the company saying things are picking up, the company said in its annual report that in 2009 total annual revenue was $5.9 billion, a 10% drop from $6.5 billion in 2008.

Plus, the Allure doesn't have what the Oasis did -- novelty. Being a sister ship means that it's fundamentally the same luxury liner with only some cosmetic changes alternating with its twin between western and eastern Caribbean voyages. Because of this, it's in Royal Caribbean's best interests to promote the differences, such as the Broadway show, "Chicago: The Musical," cheap restaurants, and 3-D movie theaters. The Oasis has "Hairspray," Johnny Rockets and ziplining. (The cheaper restaurants in the Allure may be an attempt to give passengers a break from pricey cruise living, where in-room movies cost $11.99 and facials can cost $325.)

While promoting the Allure will be much more difficult, Royal Caribbean may also find that it has saturated the market for those wanting to pay $1,800 per person for a cruise similar to a busy island resort, but where escape is impossible.

But not everyone is so easily amused. Donna Carrasquillo of New York complains of the dearth of port calls. "It's confining. When are we getting off already?" she says. "Of course, my son loves it. He's drinking, partying, out picking up girls."
Once the novelty of a giant ship wears off, Royal Caribbean may find itself with two white elephants and a crippling amount of debt.

Photo: Cruise News Weekly

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