Royal Caribbean Cruise Lines 2013 Annual Report Download - page 33
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PART I
agreements. If any of the foregoing occurs it may
have a negative impact on our cash flows, including
our ability to meet our obligations, our results of
operations and our financial condition.
An increase in capacity worldwide or excess capacity
in a particular market could adversely impact our
cruise sales and/or pricing.
Although our ships can be redeployed, cruise sales
and/or pricing may be impacted both by the intro-
duction of new ships into the marketplace and by
deployment decisions of ourselves and our compe-
titors. A total of 26 new ships with approximately
71,000 berths are on order for delivery through 2018
in the cruise industry. The further growth in capacity
from these new ships and future orders, without an
increase in the cruise industry’s share of the vacation
market, could depress cruise prices and impede our
ability to achieve yield improvement. In addition, to
the extent that we or our competitors deploy ships to
a particular itinerary and the resulting capacity in that
region exceeds the demand, we may lower pricing
and profitability may be lower than anticipated. Any
of the foregoing could have an adverse impact on our
results of operations, cash flows and financial condi-
tion including potentially impairing the value of our
ships, goodwill and other assets.
If we are unable to appropriately balance our cost
management strategies with our goal of satisfying
guest expectations, it may adversely impact our
business success.
Our goals call for us to provide high quality products
and deliver high quality services. There can be no
assurances that we can successfully balance these
goals with our cost management strategies.
We may lose business to competitors throughout the
vacation market.
We operate in the vacation market and cruising is one
of many alternatives for people choosing a vacation.
We therefore risk losing business not only to other
cruise lines, but also to other vacation operators, which
provide other leisure options including hotels, resorts
and package holidays and tours.
We face significant competition from other cruise
lines on the basis of cruise pricing, travel agent pref-
erence and also in terms of the nature of ships and
services we offer to guests. Our principal competitors
within the cruise vacation industry include Carnival
Corporation & plc, which owns, among others, Aida
Cruises, Carnival Cruise Lines, Costa Cruises, Cunard
Line, Holland America Line, Iberocruceros, P&O Cruises
and Princess Cruises; Disney Cruise Line; MSC Cruises;
Norwegian Cruise Line and Oceania Cruises.
In the event that we do not compete effectively with
other vacation alternatives and cruise companies, our
results of operations and financial position could be
adversely affected.
Fears of terrorist and pirate attacks, war, and other
hostilities and the spread of contagious diseases could
have a negative impact on our results of operations.
Events such as terrorist and pirate attacks, war, and
other hostilities and the resulting political instability,
travel restrictions, the spread of contagious diseases
and concerns over safety, health and security aspects
of traveling or the fear of any of the foregoing have
had, and could have in the future, a significant adverse
impact on demand and pricing in the travel and vaca-
tion industry. In view of our global operations, we have
become susceptible to a wider range of adverse events.
Fluctuations in foreign currency exchange rates could
affect our financial results.
We earn revenues, pay expenses, recognize assets
and incur liabilities in currencies other than the U.S.
dollar, including, among others, the British pound
sterling, the Canadian dollar, the Euro, the Australian
dollar and the Brazilian real. In 2013, we derived
approximately 48% of revenues from operations out-
side the United States. Because our consolidated
financial statements are presented in U.S. dollars, we
must convert revenues, income and expenses, as well
as assets and liabilities, into U.S. dollars at exchange
rates in effect during or at the end of each reporting
period. Therefore, absent offsetting changes in other
foreign currencies, increases or decreases in the value
of the U.S. dollar against other major currencies will
affect our revenues, net income and the value of bal-
ance sheet items denominated in foreign currencies.
We use derivative financial instruments to mitigate
our net balance sheet exposure to currency exchange
rate fluctuations. However, there can be no assurances
that fluctuations in foreign currency exchange rates,
particularly the strengthening of the U.S. dollar against
major currencies, would not materially affect our
financial results.
In addition, we have ship construction contracts which
are denominated in Euros. While we have entered
into Euro-denominated forward contracts and collar
options to manage a portion of the currency risk
associated with these ship construction contracts,
we are exposed to fluctuations in the Euro exchange
rate for the portion of the ship construction contracts
that has not been hedged. Additionally, if the shipyard
is unable to perform under the related ship construc-
tion contract, any foreign currency hedges that were
entered into to manage the currency risk would need
to be terminated. Termination of these contracts
could result in a significant loss.