Royal Caribbean Cruise Lines 2013 Annual Report Download - page 35
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PART I
Shipyards and their subcontractors may experience
financial difficulties which could cause or result in
delay, ship cancellations, our inability to procure
new capacity in a timely fashion or increases in ship-
building costs that could adversely affect our results
of operations.
We rely on shipyards to construct, repair and revital-
ize our ships. Financial difficulties, liquidations or
closures suffered by these shipyards and/or their sub-
contractors may impact the timely delivery or costs
of new ships or the ability of shipyards to repair and
revitalize our fleet in accordance with our needs or
expectations. The shipyard that is building the two
newbuilds for our TUI Cruises joint venture continues
to experience financial difficulties. This situation could
have a material impact on the ability of the shipyard
to deliver these ships in accordance with the terms of
the contract, the costs borne by TUI Cruises associ-
ated with these ships and/or the additional financial
support that we may need to provide to TUI Cruises
(e.g., parent guarantees, loans, additional equity con-
tributions) or that TUI Cruises may need to provide
to the shipyard to seek to ensure timely completion.
In addition, there are a limited number of shipyards
with the capability and capacity to build our new
ships and, accordingly, closures or consolidation in
the cruise shipyard industry could impact our ability
to construct new ships when and as planned and/or
could result in stronger bargaining power on the part
of the shipyards and thus higher prices for our future
ship orders. Delivery delays and canceled deliveries
can adversely affect our results of operations, as can
any constraints on our ability to build, repair and
maintain our ships on a timely basis.
Our operating costs, especially fuel expenditures,
could increase due to market forces and economic
or geo-political factors beyond our control.
Expenditures for fuel represent a significant cost of
operating our business. If fuel prices rise significantly
in a short period of time, we may be unable to increase
fares or other fees sufficiently to offset fully our
increased fuel costs. We routinely hedge a portion of
our future fuel requirements to protect against rising
fuel costs. However, there can be no assurance that
our hedge contracts will provide a sufficient level of
protection against increased fuel costs or that our
counterparties will be able to perform under our hedge
contracts, such as in the case of a counterparty’s
bankruptcy. Further volatility in fuel prices or disrup-
tions in fuel supplies could have a material adverse
effect on our results of operations, financial condition
and liquidity.
Our other operating costs, including food, payroll,
airfare, taxes, insurance and security costs are all
subject to increases due to market forces and eco-
nomic or political conditions or other factors beyond
our control. Increases in these operating costs could
adversely affect our profitability.
Unavailability of ports of call may adversely affect our
results of operations.
We believe that port destinations are a major reason
why guests choose to go on a particular cruise or on
a cruise vacation. The availability of ports is affected
by a number of factors, including existing capacity
constraints, constraints related to the size of certain
ships, security concerns, adverse weather conditions
and natural disasters, financial limitations on port
development, exclusivity arrangements that ports
may have with our competitors, local governmental
regulations and local community concerns about port
development and other adverse impacts on their
communities from additional tourists. In addition,
rising fuel costs may adversely impact the destina-
tions on certain of our itineraries. Any limitations on
the availability or feasibility of our ports of call or on
the availability of shore excursion and other service
providers at such ports could adversely affect our
results of operations.
Price increases for commercial airline service for our
guests or major changes or reduction in commercial
airline service and/or availability could adversely
impact the demand for cruises and undermine our
ability to provide reasonably priced vacation packages
to our guests.
Many of our guests depend on scheduled commercial
airline services to transport them to or from the ports
where our cruises embark or disembark. Increases in
the price of airfare would increase the overall price of
the cruise vacation to our guests which may adversely
impact demand for our cruises. In addition, changes
in the availability of commercial airline services could
adversely affect our guests’ ability to obtain airfare
as well as our ability to fly our guests to or from our
cruise ships which could adversely affect our results
of operations.
Our reliance on travel agencies to sell and market our
cruises exposes us to certain risks which, if realized,
could adversely impact our business.
Because we rely on travel agencies to generate the
majority of bookings for our ships, we must ensure
that our commission rates and incentive structures
remain competitive. If we fail to offer competitive
compensation packages, these agencies may be
incentivized to sell cruises offered by our competitors
to our detriment, which could adversely impact our
operating results. In addition, the travel agent indus-
try is sensitive to economic conditions that impact
discretionary income. Significant disruptions, espe-
cially disruptions impacting those agencies that sell a
high volume of our business, or contractions in the
industry could reduce the number of travel agencies
available for us to market and sell our cruises, which