Friday, June 2, 2000

P&O says more competitive pricing trends could cut
into cruise revenues

Releasing first quarter results for its cruise division, P&O today said that operating profit increased by 4% to $60.4 million despite fuel prices being $9 million higher,

However, P&O--which is planning to spin-off the cruise division--warned that "net revenue yields are likely to be lower for the year as a whole compared to 1999.   This reflects the significant additional capacity we are introducing and a more competitive pricing environment in the U.S., particularly in Q4. "    It added that "the fundamentals of cruising ... remain strong and the medium to longer term prospects are highly positive. " 


P&O said that the acquisition of Festival Cruises, following that of Aida Cruises last year, will "further strengthen the position of P&O Princess as the global cruise company."

In the first quarter 2000, P&O Princess increased operating profit by 4% to $60.4 million compared to $58.0 million for Q1 1999. The main positive factors contributing to this strong result were increased capacity of 9%, higher occupancy and a net revenue yield improvement of 2%.These were partly offset by higher fuel prices.

The increase in capacity resulted mainly from the introduction of Ocean Princess in February and the inclusion of Aida Cruises for the first time.   Turnover increased by 11%.   This reflected the increase in capacity, the higher occupancy and increased net revenue yield.  Both occupancy and net revenue yield benefited from the millennium as cruises straddling the year end have been time apportioned.  

"The current year has started well in the U.S.," commented P&O.   "Ocean Princess (77,000 gross tons, 1,950 berths) was successfully introduced in February ... and has been well received."

P&O Cruises (U.K.) had a strong first quarter.   Aurora (76,000 gross tons, 1870 lower berths) was introduced in May.   Its inaugural cruise was lost because of a problem with one of its bearings.   The costs were fully met, largely by insurance.     The ship "is now operating successfully and has received highly favorable comment."  Aurora's introduction will result in a 37% increase in capacity for P&O Cruises (U.K.) in 2000.    "The year-on-year effect is mainly in the second half and this will have some impact on net revenue yield," says P&O, adding that "despite the significant increase in capacity, bookings are going well."   

P&O's acquisition of 51% of Aida was completed in November 1999.   The year-on-year effect of this is the main reason for the 22% increase in capacity offered in Q1 2000 for P&O's other brands, i.e. excluding Princess Cruises.   Aida is having a good year.    P&O has now also completed the DM30 million acquisition of the whole of Seetours, one of the best known names in German cruising.

P&O announced on May 11, 2000 that it had agreed to acquire Festival Cruises, which has a particularly strong position in France and Italy.    It is expected that this will be completed within the next two month.

P&O is the only year round cruise operator in Australia.   We announced at the start of the year that Sky Princess would be transferred there from Princess Cruises in November 2000.   Her name will be changed to Pacific Sky and she will replace our current Australian ship Fair Princess.

Fuel prices are continuing at their previous high levels.  The year-on-year effect will diminish but, says P&O, if prices remain at present levels, the additional operating expense in the remainder of 2000 could be of the order of $15 million. 



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