Royal Caribbean

Topics: Royal Caribbean Cruises Ltd., Risk, Cost Pages: 1 (493 words) Published: December 13, 2014
Some of the environmental disasters such as the turbulence in Libya and the Middle East, and the earthquake in Japan, the oil prices were set to rise once again in 2011. This was the reason why the cost of the fuel made to the top priority in risk management affecting not only Royal Caribbean but also the entire cruise line industry, where the fuel costs signify concern given by representing a major part of a ship’s expenditure. The alteration of the oil prices has always been an unstable business, being $140 per barrel in July 2008 and dropping to $40 per barrel in November 2008 – its lowest since 1983.

Because of this variation, cruises has been facing to hedge their oil purchases in order to cover themselves during both high and low periods by placing two-way bets. Nonetheless, as the economies began to emerge as the same time as the oil prices rises; some operators started to apply the fuel surcharges on travelers. Getting into the details about the major problems, we found that one the main issue is the company’s possibility to pay for the bunkers in advance and the results of evading payments. Cruise liners also need to guarantee the high quality of the bunkers because the poor quality of the fuel can lead to significant engine damage or failure; consequently pre-testing the fuel has become more common in recent years.

Royal Caribbean Cruises was awarded as a successful hedging programmer. As they inform a gain of $4.2 millions between the first quarters of two years in a row. Reporting in April of 2011, a Net Income of $91.6 millions, compared to $87.4 millions in 2010, supported by lower costs and gains from fuel-oil hedges. One of the benefits of anticipating to the rising of fuel prices, it that has about $2.5 billions to $3 billions accessible in currency hedges for intended outflow for new ships and other factors. As the future is undecided, it seems that the majority of the responsibility could fall on the external support from energy agents...
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