Royal Caribbean Cruises Ltd. (NYSE:RCL) might have experienced trouble on the high seas last week, but that has not stopped the leisure company from announcing its plans to construct a third quantum ship. This new mega-ship will have more high-priced state rooms and some of the best energy efficiency in the open ocean. But should Royal Caribbean Cruises Ltd. (NYSE:RCL) plan such large investments on the heels of its recent misfortune?
Fire on the water
Before the fire aboard Grandeur of the Seas, all negative cruise attention was focused on Carnival Corporation (NYSE:CCL). The extensive technical problems have led to price reductions, hurting Carnival Corporation (NYSE:CCL)’s margins. Carnival Corporation (NYSE:CCL) reduced its earnings per share estimate by $0.35 to $1.95, and its share price has dropped from $39 in February to around $32. In its most recent quarter, Carnival Corporation (NYSE:CCL) had a revenue growth of only 0.30% and saw net income decline.
It is clear that its operational problems have had a severe negative impact on the stock price. It has also drawn negative press for the industry as a whole. Carnival Corporation (NYSE:CCL) was the kid with lice on the playground that everyone wanted to stay away from. But since Royal Caribbean Cruises Ltd. (NYSE:RCL) has had an incident, it’s now apparent that bad things can happen regardless of the cruise line. The fire is expected to cost Royal Caribbean Cruises Ltd. (NYSE:RCL) $0.10 per share.
While this is no doubt a hit to Royal Caribbean Cruises Ltd. (NYSE:RCL)’s credibility, it also gives it an opportunity to show how well it can handle a crisis. When the fire broke out, the systems designed to keep the fire from spreading worked and the ship was able to dock safely in the Bahamas. Royal Caribbean executives were waiting for the troubled passengers at the port to offer apologies. All passengers received a full refund, transportation to Baltimore, and a voucher good for a future cruise. Overall, I think this shows how well Royal Caribbean can handle a sticky situation. The earnings drop will hurt, but I think consumers will eventually return to the cruise liner.