Royal Caribbean 1998 Q3 Earnings

Royal Caribbean Cruises (RCL) has reported net income of $150 million, or $0.87 per share, on revenues of $744.9 million for the third quarter ended Sept. 30, 1998, compared to net income of $75.9 million, or $0.50 per share, on revenues of $612.5 million for the same quarter last year.

RCL attributed the net result to a combination of increased capacity, improved yields, and lower operating costs as a percentage of revenues.

According to RCL, both of its brands, Royal Caribbean International (RCI) and Celebrity Cruises, posted higher occupancies and higher yield in the third quarter of this year compared to last year.

The occupancy level reached 109.4 percent this year compared to 107.6 percent in 1997, while per diems increased 5.5 percent, resulting in a yield improvement of 7.2 percent, according to RCL.

“Our merger of Celebrity with RCI has now proved to be one of the best marriages in the cruise industry,” said Richard Fain, chairman and CEO.

Nine Months

For the nine-month period, RCL reported net income of $307.3 million, or $1.70 per share, on revenues of $2.1 billion, compared to net income of $152.8 million, or $1.06 per share, on revenues of $1.4 billion for the same period in 1997.

For the year to date, RCL also reported 8,796,604 passenger cruise days and a load factor of 106.4 percent, compared to 6,144,095 days and 105.6 percent last year.

Looking Forward

RCL said that RCI and Celebrity are essentially full for the rest of the year, that bookings are solid through the fast quarter of 1999, and that prices on forward bookings are “better than last year.”

However, 1998 has been an exceptional year, and RCL executives said they assumed a more moderate rate of growth in 1999. RCL will also see a decline in capacity in the second and third quarters due to the sale of the Song of America, which leaves in March.

But the drop in capacity will be compensated for through improved yield management and further gains in cost efficiencies, according to RCL. Executives also pointed out that the combined fleets will have a higher mix of premium cabins in 1999 than in 1998, which translates into higher passenger cruise rates.


Next year, in addition to the departure of the Song of America, RCI will redeploy the Nordic Empress from the three- and four-day market to sailing seven­ day cruises from New York to Bermuda during the summer season. That means RCI will carry fewer passengers during the summer months, but expects to record the same high occupancy rate.

Next year’s deployments of RCI on its Royal Journeys program and Celebrity in both Europe and South America were said to reflect the company’s strategic direction – allowing Celebrity to focus more on seasonal itineraries and RCI on the more popular itineraries, according to RCL.

The itinerary changes will include a higher air cost component that RCL thinks can be offset by higher pricing.

Thus, while seasonal deployments generate higher revenues, they also incur higher costs, but the bottom line is that RCL expects higher net earnings as a result as well.

“We have the potential to do better in 1999 than in 1998 and we expect to do so,” Fain said.

Fain also expects the arrival of the 142,000-ton Voyager of the Seas early in the fourth quarter of 1999 to generate considerable excitement that will benefit both brands.

Thus, RCL expects that the fourth quarter of 1999 could set an all-time record, but emphasized that revenues are not booked until voyages have been completed. Hence, excitement generated in next year’s fourth quarter will mostly start to impact revenues in the first quarter of 2000.

Commenting on the third-quarter results, Fain said that RCL has seen a better market reaction to the merger of RCI and Celebrity than had been expected so soon and that the company had achieved better cost savings faster than expected.

Meanwhile, the company continues to look at cost efficiencies both onboard the ships and ashore, and expects to gain “quite a bit of savings through new technology” being employed.

There have also been improvements in onboard revenues but these have not risen as fast as ticket revenues, according to RCL.

In addition, RCL sees no significant spending increases in marketing or sales next year but has made some policy changes allowing agents better access to its group policies.

RCL has also been working hard to build better relationships with its top producing travel agents and recently launched a magazine just for travel agents.

The combined fleets of RCI and Celebrity presently consist of 17 ships with six more ships on order.

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