RCL equity report

Royal Caribbean Cruises Ltd Equity Report The Ohio State University

Equity Report

Royal Caribbean Cruises Ltd

Group 12

Elijah Li [email protected] Xin Lai [email protected]

Brad Woolard [email protected] Yunlu Peng [email protected]

Srinath Vedal [email protected]


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Royal Caribbean Cruises Ltd

Volume

StockPrice

RCL, Inc. Thesis

Team 12

Company Description: Royal Caribbean takes to the waves to see the sights. The company operates

about 43 ships with nearly 10,000 berths overall. Three major brands-Royal Caribbean, Celebrity Cruises,

carry about 4 million passengers a year to nearly 500 ports in North America, Asia, Australia, the

Caribbean and Europe. Its other brands include Azamara Club Cruises, Croisieres de France, and 50%

joint venture in TUI Cruises. The company is funded primarily by passenger ticket revenues, which

account for roughly 72% of total annually revenues. Looking to the future, its full steam ahead as the

company’s expanding to varieties of underpenetrated

markets as well as delivers more ships and increase

capacity.

Rationale:

RCL management and executive team have extensive

experience and insights towards the operation of the

company and the whole cruise industry. Overall, the

management incentives are well-aligned with the

company’s long-term growth strategy and shareholders ‘values. The management team is still striving to

achieve double-double program, which is to earn double digit ROICs and EPS by 2017.

The whole Cruise industry is expected to grow in the next few years with the same trend of the whole

industry, as RCL is actively expanding its business and try to maintain its market share. Therefore, RCL

will enjoy a growth in short run while its long run performance will be greatly influenced by the long run

performance of the whole industry.

Key Assumptions:

5-Yr Revenue Growth Rate: 8% (Capacity growth: 5.5%, Average per customer spending growth: 2.5%)

CAPEX (% of Revenue): 20% (2015-2017), 15% (2018-2020)

D&A (% of Revenue): 13% (2015-2017), 10% (2018-2020)

Terminal Growth Rate: 4%

Required Rate of Return: 9%

Key Risks:

Adverse worldwide economic and unstable geopolitical condition could reduce the demands cruise trips

and negatively impact RCL’s operating profits, free cash flow, and other conditions including impairing the value of

the ships, goodwill and other assets.

Capacity and pricing strategy expose to potential risks. An increase in capacity worldwide or excess

capacity of ship redeployment in a particular market would negatively impact RCL’s cruise sales and pricing, and

further adversely impact the net yield and revenues, which are the most relevant metrics measuring performance.

Ship construction, repair and upgrade delays from shipyards may result in the delay and/or cancellation of

cruise delivery, which could potentially results in lost revenue, increasing operating expenses and lost market shares.

Volatility in commodity prices, specifically energy, may affect profitability if fuel prices remain inflated

for an extended period (Royal hedges about half of current-year costs).

A longer-term concern is that changes to the company's tax status under the U.S. Internal Revenue Code

could materially affect profitability


Company Overview

Royal Caribbean Cruises Ltd (RCL), Formed in 1968, is a Norwegian/American global cruise

company headquartered in Miami, Florida. It is the second largest cruise company (behind the combined

Carnival Corporation and Carnival plc behemoth) in the cruise vacation industry. The company operates

about 43 ships with nearly 100,000 berths overall. All the ships operate in approximately 480 destinations

on all seven continents. The company competes largely in several areas, which are exceptional crew

services, customized experience, innovation and quality of ships. Specifically, by offering a broad

selection of destinations and prices, variety of itineraries and continually investing in the maintenance and

upgrade of ships, the company incorporates variety of key innovations to attract new customers as well as

consolidate customer loyalty for repeating Guests.

Several key operating metrics could be used to evaluate the company’s performance and identify key

revenue drivers. The company’s operating margin has increased dramatically, which was driven by higher

yield and volume.

•RCL has managed to increase its passenger count at compound annual growth rate of 5.3% and

capacity also increased at a growth rate of 5% since 2009.

•Volume is the key revenue driver. A high occupancy rate allows for higher revenue for a marginally

higher cost and therefore improves margins.

•Net revenue yield, which could be derived by deducting variable costs from revenue and divided by

available passenger cruise days has raised to 2% in 2014, which is higher than its major competitor,

Carnival Corp

•RCL occurs lower fuel expenses, one of the major costs in the last 2 years. RCL’s fuel cost was 13%

of its operating cost, which is 3% lower than Carnival Corp (CCL) and 1% lower than Norwegians

(NCLH).

•RCL share price shot up considerably in 2014. Its share price increased by 75% to $82.43 from

$47.2. It is the only company among the three major cruise operators to outperform the S&P 500

throughout the year.

The positive trend of the company’s performance is expected to continue due to the implementation

of 3 significant programs. The double-double program represents the long-term strategic plan of the

company to attain double-digit ROIC a doubling of 2014 year-end adjusted earnings of $2.02 by 2017.

The three pillars of the strategy-moderate capacity growth rate, consistent cost consciousness and

improved revenue yields remain intact. Secondly, the loyalty program, functions as frequent flyer

programs to reward and retain loyal customers by offering exclusive services and benefits to repeating

guests. Lastly, from the Macro economics’ perspective, in 2015, the easing of Cuba travel restrictions will

have a positive impact on RCL, even the whole cruise industry, as it will allow for increased trade and

travel between US and Cuba. It will be a valuable opportunity for the company to explore the

underpenetrated markets to gain strong market presence.

Industry Overviews and Key Highlights

There are 3 cruise companies, Royal Caribbean, Norwegian Cruise Line Holding and Carnival Corp

that dominate the cruise vacation industry. The cruise industry is expanding rapidly internationally and

also highly concentrated. The three largest companies generate more than 90% of industry revenue and

carry over half of the cruise passengers worldwide. Growth strategies of the industry have been driven by

large capacity, ship diversification, more destinations and on-board/on-shore activities that match the

demand of consumers. Even though the industry has high growth potential, the market penetration rate is


Barriers to Entry

Expected retaliation

Economies of scale

Access to distribution channels

Threat of Substitute

Highly Replicable Service

Homogenous Products

Low Switching Cost

Power of Supplier

Poor Bargaining Power

Fixed supplier

High swiching cost

Power of Buyers

Price Elastic demand

Low switching Cost

Numerous Substitutes

Competitive Rivalry

Carnival &Norwegian ≥ 70% Market

Geographical Concentration

still fairly low, only 53% of the target North American market (or 24% of the whole U.S population) has

ever experienced an ocean cruise. That being said, a total of 7 ships were added in 2015. From 2016-2017,

15 more new cruise ships will be adding 39,637 to worldwide passenger capacity, or 8.1% and $3.6

billion in annual revenue. In the past couple of years, major players in the industry were exploring

opportunities in some emerging markets in Asia, where the market is underpenetrated to take advantage of

the market share.

Porter Five Forces Analysis

To analysis the industry

competition, we pick Carnival Group,

Norwegian Cruise, MSC, and NCL as

major competitors to further evaluate

the strength and weakness of industry

competition. Moreover, we utilize the

Porter Five Force Model to take an

in-depth look of competition.

1) Barriers to entry: Entering

to cruise industry requires a large

initial investment to buy boats, cruise

line and to expand market. Furthermore,

new entering companies suffer from

economies scales oligarch retaliation from huge firms.

2) Threat of substitute: Cruises suffer from homogeneous competition since productions

and services offered by top companies are basically the same. Moreover, customers are not sticky to

any companies in this industry because of low switching cost.

3) Power of supplier: Switching costs of suppliers are very high therefore cruises try to

maintain a good relationship with their suppliers to accumulate credits and get lower prices and more

financial flexibilities, such as increasing account payable amount.

4) Power of buyers: All luxury goods or services share a common trait on price –Demand

Elasticity. With several substitutes and a very low switching cost of customers, RCL doesn’t have a

strong bargain power towards customers.

5) Competitive rivalry: 1) Industry competitions are mainly between top 5 companies but

RCL hasn’t shown a considerable competitive advantages. 2) Each major company remains relative

strong competitiveness in some geographic segments. Therefore, RCL is unlikely to explore market

which is already dominated by other major companies.

Conclusion: Competition disadvantages of RCL overweigh the advantages. Both threats from

outside environment and competition inside the industry all limit the growth and the expansion of RCL.

Therefore, we think RCL is likely to maintain its current market share but to gain more market shares in

the future competition. Besides, RCL may only keep current percentage market shares in future

expansion.

PEST Analysis

To analyze the future growth or decline of the whole industry, we choose to use PEST analysis model

to measure influences from four major factors: Political, Social, Economic and Technological.


Political: Cruise line business could be very risky if entering into hostile water. Moreover, taxation

policies and environmental concerns may limit the profitability and industry growing.

Economic: With the economy retreating from great recession, cruise line industry enters to a high

speed development mode, with a more that 7.4% of growth in capacity coupled with an annual occupancy

exceeding 100% again in 2014. However, seasonal issues and increasing taxation put limitations on grow

of market.

Social: From social demographic perspective, customer tastes and preferences incline to be positive

for cruise, with a decrease of average customer age by 5 years and an annual increase of customer

expenditure of 5%.

Technological: Development of technology supports cruise ships with better capacity and smarter

maneuverability but lower cost. Entertainment innovations are key attractions for more passengers too.

Conclusion: In the next five years, the whole industry will keep growing. Growth of the industry

has been driven by revival of economy, customer preference and ever-accelerating technology. Meanwhile,

the cruise industry is also highly concentrated since more than 90% of industry revenue and half of the

cruise passengers are dominated by Royal Caribbean, Norwegian Cruise Line Holding and Carnival Corp.

Fierce peer competition and geographical market occupancy will dominate the future of the cruise

company.

Business Model

Due to the environment in which Royal Caribbean operates, our analysis examines significant factors

of RCL’s business model from two viewpoints:

RCL as an individual entity

Cruise industry as a whole

Usually, the industry or competitors would merely be a subsection of the business model. However,

with the close relation and small number of firms, the cruise industry firms face very similar business

environments.

Product Differentiation

Just for ease of analysis, we will assume that Carnival is the only competitor of Royal Caribbean due

to Carnival’s dominant market share that accounts for close to half of the industry. This is justified in the

fact that collectively, the two control 60% of the market. If Royal Caribbean wants to differentiate

themselves in the market, they must differentiate themselves from Carnival.

As a cruise provider, Royal Caribbean is in the service industry. As with many services and the

cruise industry in particular, there is often a tendency to view the supply as homogenous. However, the

continuous fight to differentiate their product from competitors and Carnival in particular is where there

competitive advantage lies.

Political

Economic


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Enterprise Value

MarketCapitalization

Inherently, there are two ways cruise providers can differentiate themselves:

Price

Amenities

It is evident that Royal Caribbean believes amenity offerings are keys to long-term success. While

Carnival has many similar offerings available, their vision relies on power of the masses.

Royal Caribbean is relying upon demand of a younger and more active population to fill their ships.

As with many other industries such as the hotel business, the younger generation, or “millennials” are

paying more, traveling more and ultimately demanding more. If this holds true, Royal Caribbean offerings

such as the “wave rider”, ice rinks at sea, climbing walls, aqua theaters, inside cabins with virtual views,

zip lines and bars that move between levels. It is noted that RCL offers different packages through 6

different brands in the RCL umbrella. Other major cruise lines offer varying packages as well. With that

being said, we feel that RCL’s model does not give them a competitive advantage to gain market share but

it does offer the competitive advantage to gain market share. RCL will increase its capacity by 39,637

berths via 15 new cruise ships, representing an occupancy increase of 8.1% and a potential increase of

$3.6 billion in annual revenue. Our analysis is supported below with the industry outlook that we find as

the most bullish aspect of RCL’s future outlook.

Management

The current CEO, Rickard D. Fain has been with the company since 1988 when he was 40 years old

and is now 67. Fain and the management team have extensive experience, with an average tenure of more

than 20 years at the company and over 40 years in the cruise line industry. We think the shareholders

would be better served if the Chairman and CEO role are divided to promote great independence across

the board of directors. The company has its board divided by into two classes, which will be declassified

in 2015 and directors will be re-elected annually, which we perceive favorably. In addition, the Wilhelsen

family (control 15%) and the Ofer families control about 20% of voting rights.

We think overall the management incentives are well-aligned. The compensation are based on basic

salary, performance-based incentive salary and long-term view awards. Executives are expected to

maintain a fair market value of company equity to equal or greater than their basic salary, usually 5 times

more. We think the compensation system is fair and aligned with management’s risk and decisions

towards shareholders’ interests and the company’s long term view, which are to reduce leverage, achieve

flexible capital structure and The initiative Double-Double program, which is to achieve double digit

ROICs and EPS by 2017.

Financial Analysis

In financial analysis part, we mainly focused on those factors that could drive the performance of

RCL or put great risks on it. Thus, we have analyzed and forecasted the change, trend and value about

stock price, revenue, leverage, profitability, efficiency, and

liquidity.

Firm value and Stock price: This graph presents

that stock volatility made the market capitalization

fluctuate greatly. Meanwhile, the debt capitalization grows

steadily and slowly. Therefore, the enterprise value

changed mainly due to the change of market capitalization.


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However, the Total Capital shows the book value keeps a relative stable growth. Book value of equity

following the growing revenue shows a stable and organic increase in past ten years. Combining both

types of firm value, we think that:

The book value may keep a steady growth and leverage structure may remain the same in next

five years. Since debt capital ratio volatile from 47% to 54% in past ten years, we think CFO in RCL

may incline to keep a relative stable leverage ratio to generate an organic growth. Managers in RCL

may follow the percentage method; growth of financing follows the increase of total capital value.

Therefore, we can estimate in the suture RCL may stay a 50% debt capital ratio like always, showing

a healthy and stable debt financing policy. Therefore it is unlikely for RCL to abruptly increase a

great deal of debt to increase book value of enterprise. Thus, the growth of book value will follow

the growth of revenue in the future. And revenue will be the driver of firm value.

Leverage and liquidity: When we look into

changes of financial ratios, in last ten years the

leverage ratio (debt/asset ratio) stayed below 50%. In

the next five years, the leverage ratio is likely to

remain the same, just like what we explained in last

part. However, the current ratio remains in a very

low stage, from 0.15 to 0.40, which may raise

worries about liquidity risks. To evaluate the

potential risk of such low current ratio, we searched current ratios of Carnival and NCL. It turns out they

are all below 0.2 in 2014. Therefore we think such low current ratio may be determined by the nature of

business. Besides, since current ratio of industry stays below 0.2, low current ratio is not a considerable

potential risk for RCL. In the next five years, RCL may remain the same current ratio.

Efficiency ratio (Asset turnover ratio) seems quite stable in last ten years. Since expansions and

developments in last ten years haven’t changed the efficiency of operation, it is likely to remain stable in

next five years even if RCL is trying to exploring Asian and European market. Moreover, we think even

though efficiency impacts the profitability and free cash flow like a driver, RCL is hard to improve the

efficiency a lot in next five years. Therefore, we estimate the efficiency ratio stay the same in next five

years.

Cost: In addition, in last five years cost remains about 56% of revenue, from 54% to 57%. Although

we think cost is key driver for enter price value too, it is unlikely for RCL to decrease the cost to achieve a

better profitability. Because the competitions between suppliers are global and perfect, cruise line

companies like RCL cannot get an even lower price from suppliers. Therefore, in the next five years, the

COGS will remain the same percentage of revenue.

ROE (profitability): Therefore, since leverage cost and efficiency will remain stable in next five

years, ROE is closely related to growth of net profit margin. To improve the net profit margin, RCL has to

increase Sales & Services Revenue and Other Revenue, decrease COGS and operating expenses. However,

we concluded that COGS may remain 56% of sales& service revenue in next five years. Thus, to boost

profitability RCL should implement diversification strategy to increase other revenues and decrease the

operating expenses.

Conclusion: It is undeniable that revenue, profitability, efficiency and leverage are all drivers of

enterprise value. However, basing on historical data, only revenue is more easily improved since rest of

them mostly remain the same. Therefore, in this case we mainly focus on improving revenue to further


develop RCL. The revenue (Sales& Service) is determined by passengers and spending of each customer.

Moreover, in last five years occupancy rate of RCL remain more than 100%, which implies the demand of

customers overweighed the supply of RCL. Therefore, we think the increase of carrying capacity is

another index for the growth of passengers. Basing on 2015 cruise industry overview, spending of each

customer stays in an uptrend in the future. Thus, the growing revenue in next five years could be

estimated by the growth of capacity and spending of each customer.

Risk Analysis:

Major Risks Overview

1．Macroeconomics and geopolitical risks

For the cruise industry, it is absolutely essential to take into consideration of the whole

macroeconomic risks when assessing potential risk factors. Royal Caribbean faces a number of inherent

risks that may affect its enterprise value. Adverse worldwide economic and geopolitical conditions such as

continued unrest economic instability could negatively affect the company’s ability on a) generating

operating cash flows, b) obtaining new borrowing from capital markets in amounts that is sufficient to

satisfy capital expenditures and debt repayments, c) impairing value of ships, firm values and goodwill.

However, in general, the world’s economy is heading to a positive direction. The company is

expected to experience less volatility on revenues and demands. In fact, as shown on the CLLA Europe

report, Europe actually manages to increase 0.5% in growth rate of booking. It is an extraordinary result

given the fact of its slowdown economic climate. We believe it is a sign of boosting consumer confidence

and an increase of disposal incomes toward cruise vacation industry.

2. Financial/Business model risks

We believe the primary concern for RCL over the long run is whether the company could sustain its

business model and core values. We conclude the key factors that could affect the sustainability of RCL’s

business model, net yields and earnings are capacity and pricing strategy, emergency ship repairs, global

expansion and competition.

As mention above, capacity and pricing strategy are critical in determining the net yield, which is the

most relevant measure of pricing performance and revenue earned. Cruise sales and pricing are impacted

by both the new introduction and redeployment of ships. According to the company’s annual report, a

total of 33 new ships with approximately 98,650 berths are expected for delivery by 2019. Without an

increase in the industry’s market shares in vacation market, the further growth of the in capacity would

result in the depression of cruises prices and the company’s abilities to achieve yield improvement. In

addition, an increase in capacity from both new and redeployed ships could exceed the actually demand of

a specific itinerary, which could result in a lower profitability and pricing.

In addition, construction, repair and upgrade of ships also expose risks to the company. RCL depends

on shipyards to construct, repair and upgrade cruise ships on a timely fashion with quality assurance.

Failure to do so would result in delay or cancellation of cruises and further in lost revenue, increased

operating expenses, which would drag down the new revenue yields. Financial difficulties, including

liquidations encountered by shipyards could result in the same negatively outcomes.

Conducting business globally and expanding to new markets may result in costs, such as fuel and

risks, such as foreign exchange risk and interest rate risk. Expanding to new markets requires high level of

investment without assurance that the company will gain success and recover the initial investment as

anticipated. Also, fluctuations in foreign currency exchange, fuel prices and interest rates would result in


high level of volatility and a disruption of all hedging activities. According to the RCL’s most recent

quarterly report, the strengthening of US dollar and the rise in fuel prices are negatively affecting earning.

SWOT Analysis

Strengths Weaknesses

Strong Brand positioning and recognition High liquidity risk from low current ratio

Global/ Diverse customer segmentation Increase In Expenses

Advance Technology and fuel efficient Systems

Slowing Demand in European Economy

Less price compatibility in cruise industry

Opportunity Threats

Expansion into different Demographics Full Competition and Growth restrictions in Australia

Favorable trends in global cruise industry Abnormal weather Patterns, terrorist

Port Miami Stringent Environment rules and regulations

Plans to build, finance and operate new terminals Fuel, Currency rate, Taxes, government regulations

Strengths: Usage of advanced technology to reduce energy consumption and fuel costs.

Advancements in technology have resulted in design of fuel-efficient ships and implementation of

efficient hardware, including propulsion and cooling systems incorporating energy efficiencies.

Weakness: The structure of the cruise industry itself has two major weaknesses. First, Cruise lines

mainly depend upon travel agencies to book tickets. Any relationship disturbances with agencies will have

adverse impact on sales, operations and re venue. Second, the Cruise industry business is seasonal and

accounts high revenue in certain times of the year.

Opportunity：Investing in Port Miami is expected to double the number of passengers and

controlling over 60% of the Miami terminal in coming years. Besides, the partnership with Clear trip

International could have an upper hand and dominate the Chinese cruise industry.

Threats: Royal Caribbean faces significant competition from top cruise lines such as Carnival and

Norwegian on the basis of cruise pricing, travel agent preferences and amenities offered to the guests.

Besides, RCL might hit a wall when expanding in Australia, because Carnival group has already booked a

spot for an unnamed ship, which would arrive in the market in 2016. In addition, RCL extends its business

globally. Economic factors such as Fuel prices, Currency rates, Government regulations, Taxes are highly

unpredictable and would have a direct impact on the revenue.

Risk Priority Number Model


The risk priority model clusters risks on the relationship analyses between impact of risk and

probability of occurrence. We cannot control the external factors, but the impact of risks could be reduced

by taking significant measures. After analyzing the risk priority number, we can conclude:

• Guidance from Maritime Advisory Board of experts will create awareness about the policies and

safety regulations.

• Strong connections with the government will enable us to handle the changes in tax regulations

and reduce the overall impact of risk.

• Local presence in new markets will burgeon our ability to react more quickly to local market

conditions and better understand our consumer base in each market.

• Stringent security measures would help us combat terrorist and private attacks

• Continuous advancements in technology and implementation would enable us to generate profits.

Eventually create a unique brand value.

Recommendations

• Focus more on of improvement of ports and destinations in the Asia when expanding market.

• Increase Partnership with other major travel agencies in new sectors.

• Partnership deals with other travel agencies.

• Set up unique ideas on the cruise: Underwater sports activities, have no destination cruises.

• Advertisement focuses more on the younger generation.

• Loyal benefits to existing customers.

Valuation

The whole cruise industry is under expanding. As, while the occupancy rate is remained

constant, we are expecting the capacity to grow by 5.5% for the next five years. Meanwhile, by

consider the higher consumption power in China, Europe and other newly explored markets, we

also expect a 2.5% grow rate of spending per customer, which may due to higher ticket price as

well as greater on board spending. To sum up, an 8% annual growth rate of revenue is applied in

our analysis. As mentioned above, more new cruise ships will be adding from 2016-2017.

Therefore, we are expecting a higher CAPEX and a higher D&A in 2016 and 2017 (20% and 13%

of Revenue), and lower them later on in 2018-2020 (15% and 10% of Revenue). The percentage

relationships between other elements and the revenue are assumed to remain constant according

to the historical performance.

We assume the WACC of RCL is 9%. Although the historical WACC for RCL is 8.6%, and

for CCL, the main competitor, is 8.8%, a more conservative WACC should be applied, as the

potential risk of exploring new market is considered. For the terminal growth rate, we weighted


the average GDP growth rate of different countries by different business size of these markets.

Therefore, we put 4% as the terminal growth rate.

DCF Valuation

Ticker RCL

2014 2015 2016 2017 2018 2019 2020 Terminal

Revenue 8,074 8,720 9,418 10,171 10,985 11,863 12,812

Growth rate 8% 8% 8% 8% 8% 8%

Cost of Revenue 4,883 5,274 5,696 6,151 6,643 7,175

% of Revenue 56% 56% 56% 56% 56% 56%

Gross Profit 3,837 4,144 4,475 4,833 5,220 5,637

Operating Expense 1,744 1,884 2,034 2,197 2,373 2,562

% of Revenue 20% 20% 20% 20% 20% 20%

Operating Income 2,093 2,260 2,441 2,636 2,847 3,075

NOPAT 2,051 2,215 2,392 2,584 2,790 3,013

D&A 1,134 1,224 1,322 1,098 1,186 1,281

% of Revenue 13% 13% 13% 10% 10% 10%

CAPEX 1,744 1,884 2,034 1,648 1,780 1,922

% of Revenue 20% 20% 20% 15% 15% 15%

NWC 262 283 305 330 356 384

% of Revenue 3% 3% 3% 3% 3% 3%

FCF 1,179 1,273 1,375 1,705 1,841 1,988 39,770

Growth rate 8% 8% 24% 8% 8%

Time 0 1 2 3 4 5 6

PV Factor 0.92 0.84 0.77 0.71 0.65 0.60 0.60

PV of FCF 1,082 1,072 1,062 1,208 1,197 1,186 23,713

Enterprise Value 30,519 Discount Rate 9%

Net Debt 8,139 Terminal Growth Rate 4%

Equity Value 22,380

Diluted Share Outstanding 219.9

Est. Stock Price $101.77 Current stock price $91.25

Conclusion

Although the estimated intrinsic value of stock price is slightly higher than the current stock price,

we still recommend holding RCL’s stock. RCL’s short growth can be foreseen while the

long-term performance can very dramatically according to the development of the whole cruise

industry.

We evaluate the uncertainty and risk rating for Royal Caribbean is moderate. The domestic

economy has moderately recovered from the most recent slowdown, Royal Caribbean is not


expected to experience in dramatic downturn of the economy. Additionally, competition from

new entrants would be nearly impossible considering high entry barrier. However, volatility in

commodity prices (Royal hedges about half of the current-year costs), tax regulation, diluting

pricing and excess capacity could still adversely affect profitability and market share in the long

run.

Documents

RCL equity report