Royal Caribbean Reports 2002 Earnings

Royal Caribbean Cruises (RCC) has reported net income of $351.3 million, or $1.82 per share, on revenues of $3.4 billion for the year ended Dec. 31, 2002, compared to net income of $254.5 million, or $1.32 per share, on revenues of $3.1 billion for the year ended Dec. 31, 2001.

Net income for the fourth quarter of 2002 was $38.3 million, or $0.20 per share, on revenues of $780.9 million, compared to a loss of $39 million, or $0.20 per share, on revenues of $656 million for the fourth quarter of 2001.

Included in the fourth quarter of 2002 are net proceeds of $33 million, or $0.17 per share, related to the termination of the proposed merger with P&O Princess Cruises.

Full year results include the $33 million net proceeds from the termination of the merger as well as a charge of $20 million, or $0.10 per share, connected to a litigation settlement.

Excluding these items, RCC said net income would have been $338.3 million, or $1.72 per share, for 2002. Earnings for 2001 were negatively impacted by the events of 9/11 and ships out of service. The comparable figures for 2001 were $318.9 million, or $1.65 per share, according to RCC.  

RCC reported 18.1 million passenger cruise days and a load factor of 104.5 percent for 2002, compared to 15.3 million passenger cruise days and a load factor of 101.8 percent for 2001.

For the fourth quarter of 2002, RCC reported 4.6 million passenger cruise days and a load factor of 101.3 percent, compared to 3.9 million passenger cruise days and a load factor of 96.0 percent for the fourth quarter of 2001.

The two RCC brands, Royal Caribbean International and Celebrity Cruises, had a 15 percent capacity increase in 2002. Capacity for this year will be up 12 percent.

Looking Forward

Commented Chairman and CEO Richard Fain, “Our overall results are better than we anticipated for the year and a whole lot better than we thought a year ago.” RCC also exceeded its own guidance as of this past October.

But since December (2002), Fain said there had been a clear softening in bookings, which he attributed to the publicity generated by the Norwalk virus outbreaks, the poor economy, and the concern about possible war with Iraq.

So far, however, it is mostly Q1 which is hurting, while Q2, Q3 and Q4 are doing marginally better than last year, according to Fain.

Fain also said that he expected a net yield increase from two to four percent for Q1, but said he only had limited visibility for the balance of the year.

Four weeks into the traditional Wave Period, which tends to produce more than a third of the industry’s bookings, RCI and Celebrity President Jack Williams said that while still important, the significance of the Wave Period has been reduced with close-in bookings. He said close-in bookings have reduced the importance of the Wave as an indicator for the year.

According to Williams, 40 percent of RCC’s bookings were within a 90-day window in 2002. This year (2003), he expects 45 percent to be within 90 days.

Market Deployments

Williams said he was pleased with bookings for Alaska, Bermuda and Europe, but added that for 2003 to “work out,” RCC needs to see a stable pricing environment and for the higher-priced seasonal markets to materialize.

For 2003, RCC will have 13 percent more capacity in the seven-day Caribbean market than in 2002, with 43 percent of its total capacity.

RCC will have 15 percent of its capacity in the short cruise market, which Williams said is booking very close in. Load factors are also behind where they were a year ago, he added.

Williams also said that the company was taking some pricing action in the seven-day Caribbean market for Q1.

But bookings are ahead year-over-year in longer Caribbean cruises which constitute about seven percent of the company’s capacity.

RCC is boosting its Alaska capacity by five percent this year and Alaska represents seven percent of its total capacity. While load factors are behind where they were a year ago, Williams said that they (the two brands) are holding back. Last year, they sold too fast at prices that were too low, he explained.

Europe represents eight percent of RCC’s total capacity and an 88 percent capacity boost compared to 2001. Williams said he was quite pleased with bookings and yield in Europe. If there is a war, he said: “We can do something if we have to, but I don’t think we are talking about more than one ship.”

Bermuda, the Panama Canal, and the Mexican Riviera markets each represent about four percent of RCC’s capacity. Mexican Riviera cruises are slightly ahead in bookings but down in pricing, according to Williams.

In terms of new itineraries, Williams said: “We are looking at New York as we speak. We have been looking at New York for some time. It may be viable as year-round market.”

More Challenges

Fain added that he was very pleased with the cost cutting efforts put into place last year. While the efforts would continue, Fain cautioned that cuts could only be taken so far without deteriorating the product.

Meanwhile, fuel and insurance costs are going up.

RCC has three more ships under construction, two slated for deliveries in 2003 and one in 2004. If the pending options were to be exercised or new orders placed, new ships could not be delivered before the end of 2005, which will give the company an 18-month window with no significant capital expenditures. “The cash generated will be used to pay down debt,” Fain said, describing the company as a “follower rather than a leader” in terms of further capacity growth.

Pod Problems

Two February cruises aboard Celebrity’s Infinity have been cancelled and its last cruise was terminated early as the ship has experienced bearing problems with its Mermaid pods. Williams said that the ship would go to San Francisco or Victoria to be dry-docked for repairs. RCC expects the impact to be $0.03 to $0.04 per share for Q1.

Fain said that earnings of $2.00 per share was a reasonable expectation for the year.

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